the flow of economics

Posted : April 16, 2018
Last Updated : April 16, 2018

the flow of economics

A variety of factors can impact economic conditions. Learn how to explain the chain of production process, define gross domestic product, and describe the difference between developed countries and developing countries.

Economic Activity

Economic activity happens, on some level, in every country. Economic activities are ways in which people make their livings. Depending on the economic development of a country, some activities will be more common than others. Here are a few terms related to economic activity:
  • Poverty is often described as a lack of financial resources. You will find people living in poverty all around the world, including the United States.
  • GDP stands for Gross Domestic Product. It is a measurement, in dollars, of a country’s total goods and services.
  • Chain of Production is all the different steps needed to produce items so that you can go to the store and buy them.

The Chain of Production

The movement of all the different goods and services is called the chain of production. Just about everything you use every day – from the clothes you wear to the cell phone you use to the books you read to the food you eat – flows through a chain of production within an economy.

A nation’s economy is typically divided into sectors. A sector is simply an area of the economy that shares similar characteristics. There are four economic sectors that categorize economic activity:
  1. Primary – Getting and refining raw materials from the earth (such as farming, fishing, forestry, and mining).
  2. Secondary – Processing raw materials into finished goods (such as making clothes, engineering cars and ships, and building homes and businesses).
  3. Tertiary – Services to businesses and consumers (such as retail sales, restaurants, movies, banking, health care, and transportation).
  4. Quaternary – Industries that process and distribute information (such as government, libraries, education, and information technology). These industries require the highest level of education.

Here’s a quick example of how the chain of production works:

Potatoes are grown on a farmer’s field and harvested, salt is mined, and plants are harvested for their needs to become canola oil (primary). Then the potatoes, salt, and seeds are processed and all the materials are sent to a company that turns them into potato chips and puts them in bags and then boxes them for delivery (secondary). The finished product is shipped to your favorite store where you can buy them (tertiary).

Where is the fourth sector – the quaternary sector? It includes all kinds of intellectual activities and pursuits, including research and development. In the potato chip example, research and development departments create new flavors of potato chips within the production phase.

What Is GDP?

GDP represents the total of value of goods and services produced by a country each year. Countries with the highest GDP figures include the United States and China – the two largest – followed by Japan, Germany, France, and the United Kingdom. GDP is a good indicator of whether the economy in a country is growing or shrinking. Other economic indicators that can be used include the Consumer Price Index (CPI) (how much different things cost and the change in those prices), unemployment figures, and the price of crude oil.

Economic Development

There are a lot of different factors that influence the economic condition of a country. You will often hear countries described as developed or developing. "Developed" refers to the quality of a country’s infrastructure like roads, water, electricity, and how well their marketplace operates. Examples include the United States, Canada, England, and France.
In contrast, a developing country – such as India, South Africa, Mexico, and the Philippines – does not have the same level of economic growth, business and industry, or security as the leading GDP countries. These countries generally have an agriculture-based economy, a higher population growth rate, and a higher level of unemployment.

Poverty Around the World

Poverty doesn’t just happen in countries with few resources. The Census Bureau reports there are over 46 million Americans living in poverty. But unlike some parts of the world, there are a lot more opportunities for people in the US who are living in poverty. When someone in the US says, “I’m poor,” generally they mean they have no money or resources, which is what it means to be broke. Poor is a mindset; it’s saying, “I’ll never have anything.” It isn’t tied to your true financial state. Dave Ramsey often says, “I’ve been broke, but I’ve never been poor.”

There are plenty of opportunities in the United States to work and to make money. You are learning about a lot of different financial principles and ideas that you can put into practice to help you change your behavior, to start thinking differently about money, and to stop spending money you don’t have.

Final Thought

Economic activities include all the different ways in which people make a living.

Source: Ramsey Solutions

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