This article defines and explains important economic terms i.e. economy, Gross Domestic Product (GDP), Gross National Product (GNP), Inflation.
What is the economy?
The term ‘economy’ refers to a set of activities related to the production and consumption of goods and services and their exchange.
The production, distribution, and consumption of goods and services relate not only to industries as many people usually think. This whole process takes place simultaneously in almost all departments of life including agriculture, education, health, tourism, etc. For example, hospitals train nurses through a rigorous process to equip them with hands-on skills necessary in health care service delivery.
As evident from the example given above, this process does not happen on the moon and without the participation of human beings. A combination of market transactions and hierarchical decision making are involved in it rather. Individuals and entities i.e. governments, companies, and families involve themselves in these activities.
The economy varies from region to region to region depending upon both social and natural factors. Social factors responsible for the type of economy include culture, history, laws, etc. On the other hand, natural factors include location, topography, natural resources, natural routes, etc.
Thus no two economies are similar as the factors influencing them are different. This difference in factors also influences the choices and actions of the people involved in the process.
What is inflation?
By the term inflation, we mean a decrease in purchasing power of consumers because of the increase in the prices of goods and services. We can also say that inflation refers to a steady decline in purchasing power of a given currency over time.
In other words, the term economy also refers to an increase in purchasing power of money and a decline in the prices of goods and services.
What is GDP?
The Gross Domestic Product (GDP) refers to a monetary measure of the market value of all the final goods and services produced in a period of time. More Simply, the total values of goods and services/wealth produced within the boundaries of a country.
GDP is one of the measures of economic growth of a nation. It helps determine the overall progress and capacity of a country to produce wealth in one year.
What is GNP?
The term GNP refers to the total net value of goods and services produced by the residents of a country in a period of one year. Like that of GDP, GNP is another measure of a nation’s overall progress and capacity of human resources in producing wealth in one year.