Economy

Guide Note

A society's economy is the system that governs how goods and services are produced and exchanged among members. Although the metrics used to describe an economy are calculated by using money, the economy of a country, region or locality reflects the moral, cultural and political choices of that society.¹

Fast Facts

1. Term economy comes from a Greek word meaning to manage a household²
2. Largest economy, 2007: European Union³
3. Smallest economy: New Zealand territory of Tokelau³
4. United States rank, 2007: #2³

A society that permits the principles of supply and demand to determine the production and pricing of goods and services, is said to have a market economy.⁴

If the production, distribution and consumption of resources are centrally managed by a government or government agency, a society is said to have a planned economy.

Most countries today have a mixed economy, where some aspects are managed by free market principles, and others have restrictions placed on them by the government. For example, a country may choose to centrally manage health care, while allowing consumer goods to be governed by market forces.

1. GDP: Gross Domestic Product
2. GNP: Gross National Product
3. CPI: Consumer Price Index