The history of economic thought deals with different thinkers and theories in the field of political economy and economics from the ancient world to the present day. Although British philosopher Adam Smith is cited by many as the father of modern economics, his ideas built upon a considerable body of work from predecessors in the eighteenth century. They in turn were grappling with ideas received from centuries before and attempting to apply them to a modern setting. In this sense, Smith was an interpreter to his day of ages-old information.
Economics was not considered a separate discipline until the nineteenth century. In his works on politics and ethics, the ancient Greek philosopher Aristotle grappled with the "art" of wealth acquisition and the question of whether property is best left in private or public hands. In medieval times, scholars like Thomas Aquinas argued that it was a moral obligation of businesses to sell goods at a just price. Economic thought evolved from feudalism in the Middle Ages to mercantilist theory in the renaissance, when the prevailing wisdom advocated that trade policy be structured in order to further the national interest. The modern political economy of Adam Smith appeared during the industrial revolution, when technological advancement, global exploration, and material opulence that had previously been unimaginable was becoming a reality. Changes in economic thought have always accompanied changes in the economy, just as changes in economic thought can propel change in economic policy.
Following Adam Smith's Wealth of Nations, classical economists such as David Ricardo and John Stuart Mill examined the ways the landed, capitalist and labouring classes produced and distributed national riches. In London, Karl Marx castigated the capitalist system he saw around him which he thought was exploitative and alienating, before neo-classical economics in a new era sought to erect a positive, mathematical and scientifically grounded field above normative politics. After the wars of the early twentieth century, John Maynard Keynes led a reaction against governmental abstention from economic affairs, advocating interventionist fiscal policy to stimulate economic demand, growth and prosperity. But with a world divided between the capitalist first world, the communist second world, and the poor of the third world, the post-war consensus broke down. Men like Milton Friedman and Friedrich von Hayek warned of The Road to Serfdom and socialism, focusing their theory on what could be achieved through better monetary policy and deregulation. As Keynesian policies seemed to falter in the 70's there emerged the so called New Classical school, with prominent theorists such as Robert Lucas and Edward Prescott. Their revival of laissez-faire ideas caught the imagination of some western leaders. However, the policies of governments through the 1980s have been challenged, and development economists like Amartya Sen and information economists like Joseph Stiglitz have brought new ideas to economic thought in the twenty first century.
The budget of a company is compiled annually. A finished budget usually requires considerable effort and can be seen as a financial plan for the new financial year. While traditionally the Finance department compiles the company's budget, modern software allows hundreds or even thousands of people in various departments (operations, human resources, IT etc) to contribute their expected revenues and expenses to the final budget.
If the actual numbers delivered through the financial year turn come close to the budget, this suggests that the managers understand their business and have been successfully driving it in the intended direction. On the other hand, if the actuals diverge wildly from the budget, this sends an 'out of control' signal, and the share price could suffer as a result.
Sales budget: The sales budget is an estimate of future sales, often broken down into both units and dollars. It is used to create company sales goals.
Production budget: Product oriented companies create a production budget which estimates the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labor and material.
Cash Flow/Cash budget: The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.
Marketing budget: The marketing budget is an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.
Project budget: The project budget is a prediction of the costs associated with a particular company project. These costs include labor, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each.
Revenue budget: The Revenue Budget consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the Union government levies.
Supervisor is a manager on first level from management, and accepts job activity result and straightforward routine reporting of executor or clerk in an organizational unit. Supervisor shall have special skill which is:
Inform what does be wanted management to staff executor and informing what does be wanted executor clerk to its manager and as mediator among clerk and management to be able to commutes information.
Ability in empower subordinate via more authority the huge application, so they perceive more can and motivated. E.g., delegating authority to abilities appropriate subordinate, giving trust to subordinate, giving chance to subordinate to take a decision deep given task working out.
Managing people and change
Constituting ability brings off subordinate and change to reach to the effect, according to vision, mission, and firm strategy. This activity ranges
1. Making program and clear job target for its subordinate.
2. According to mission and firm vision brings off and develop subordinate, that effective in achieving organization target
3. Bring off changing to increase optimal performance.
4. Bringing off coaching and counseling to increase moral, effectiveness and work productivity.
5. Monitoring subordinate works program performing precisely.
6. Giving work in point with target, responsibility and clear deadline.
Constituting ability to understand its role in businesses intent attainment corporate. E.g.:
1. Understanding mission, vision, strategy, and firm target and divisions allocable contribution its job.
2. Understanding another job division relevance in achieving corporate business aim.
3. Showing role to revenue enhancement and efficiency and cost effectiveness.
4. Following business field developing that covers market, competitor and also trend carries on business.
5. Taking into account business risk in each action.
Constituting ability utilizes its science to understand about situation and organization culture, so gets identifying and anticipates decision impact that is taken to side any other. This activity ranges:
1. Doing coordination with other division in task working out
2. Utilizing corporate culture in solves about problem
3. Utilizing wisdom and organization system to troubleshoot faced one.
Constituting ability develops sensitivity, attitude and yen and feel in gets interaction with side other. Its example is point out enthusiasm while gets communication with other people, and opened to have others said.
Constituting ability takes a decision by evaluate information and another judgment, analyzing its jeopardy, utilized chooses best alternative one is needed at a particular time. Its example is take a decision to base cost and benefit's analysis.
Develop and builds that team solid, giving attention on highlight that done by clerk and helping solves about problem aught, teach and coaches that clerk skill and ability increases.
Problem solving skills
Constituting ability to identify specific work problem at a swoop its cause, making formulation and does its resolving application. Its example is identifying emerging problem, reducing interference and search the solution.
Developing persuasive behavior than focusing on power that its proprietary. More pleasing do approaching by makes sure, regard than by threatens or force clerk do something.
Financial economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment". It is additionally characterised by its "concentration on monetary activities", in which "money of one type or another is likely to appear on both sides of a trade". The questions within financial economics are typically framed in terms of "time, uncertainty, options and information".
• Time: money now is traded for money in the future.
• Uncertainty (or risk): The amount of money to be transferred in the future is uncertain.
• options: one party to the transaction can make a decision at a later time that will affect subsequent transfers of money.
• Information: knowledge of the future can reduce, or possibly eliminate, the uncertainty associated with future monetary value (FMV).
Given its scope, as above, financial economics tends to deal with the workings of financial markets, such as the stock market, and the financing of companies, and includes the following subject areas: Budgeting, saving, investing, borrowing, lending, insuring, hedging, diversifying, and asset management. Because the future is never known with certainty, a central concern of financial economics is the impact of uncertainty on resource allocation.
Financial economics thus attempts to answer questions such as:
• How are the prices of financial assets determined (stocks, bonds, currencies, commodities, and derivatives)?
• What are the effects of a company choosing different methods of financing its operations, such as issuing shares or borrowing?
• What portfolio of assets should an investor hold in order to best meet his/her objectives?
Financial economics is primarily concerned with building models to derive testable implications from acceptable assumptions. A common assumption is that financial decision makers act rationally (see Homo economicus; efficient market hypothesis). However, recently, researchers in experimental economics and experimental finance have challenged this assumption empirically. They are also challenged - theoretically - by behavioral finance, a discipline primarily concerned with the limits to rationality of economic agents.
Other common assumptions include market prices following a random walk, or asset returns being normally distributed. Empirical evidence suggests that these assumptions may not hold, and in practice, traders and analysts, and particularly risk managers, frequently modify the "standard models".
While in economics models are mainly employed to judge social welfare, financial economists are more concerned with empirical predictions.
The Important concepts from financial economics are:
• Risk-free interest rate
• Time value of money
• Fisher separation theorem
• Modigliani-Miller theorem
• Rational pricing
• Efficient market theory
• Modern portfolio theory
• Yield curve
• Homo economicus
• Arrow-Debreu model
Resumed from Wikipedia.
The world economy can be evaluated in various ways, depending on the model used, and this valuation can then be represented in various ways (for example, in 2006 US dollars). It is inseparable from the geography and ecology of Earth, and is therefore somewhat of a misnomer, since, while definitions and representations of the "world economy" vary widely, they must at a minimum exclude any consideration of resources or value based outside of the Earth. For example, while attempts could be made to calculate the value of currently unexploited mining opportunities in unclaimed territory in Antarctica, the same opportunities on Mars would not be considered a part of the world economy – even if currently exploited in some way – and could be considered of latent value only in the same way as uncreated intellectual property, such as a previously unconceived invention.
Beyond the minimum standard of concerning value in production, use, and exchange on the planet Earth, definitions, representations, models, and valuations of the world economy vary widely.
It is common to limit questions of the world economy exclusively to human economic activity, and the world economy is typically judged in monetary terms, even in cases in which there is no efficient market to help valuate certain goods or services, or in cases in which a lack of independent research or government cooperation makes establishing figures difficult. Typical examples are illegal drugs and other black market goods, which by any standard are a part of the world economy, but for which there is by definition no legal market of any kind.
However, even in cases in which there is a clear and efficient market to establish a monetary value, economists do not typically use the current or official exchange rate to translate the monetary units of this market into a single unit for the world economy, since exchange rates typically do not closely reflect world-wide value, for example in cases where the volume or price of transactions is closely regulated by the government. Rather, market valuations in a local currency are typically translated to a single monetary unit using the idea of purchasing power. This is the method used below, which is used for estimating worldwide economic activity in terms of real US dollars. However, the world economy can be evaluated and expressed in many more ways. It is unclear, for example, how many of the world's 6.6 billion people have most of their economic activity reflected in these valuations.
Economy overview 2005–2008
Current account balance 2006, Global output (gross world product) (GWP) rose by 4.4% in 2005, led by China (9.3%), India (7.6%), and Russia (5.9%). The other 14 successor nations of the USSR and the other old Warsaw Pact nations again experienced widely divergent growth rates; the three Baltic nations continued as strong performers, in the 7% range of growth.
Growth results posted by the major industrial countries varied from no gain for Italy to a strong gain by the United States (3.5%).
The developing nations also varied in their growth results, with many countries facing population increases that erode gains in output.
Externally, the nation-state, as a bedrock economic-political institution, is steadily losing control over international flows of people, goods, funds, and technology. Central governments are losing decision making powers and enhancing their international collective power thanks to strong economic bodies of which they democratically chose to become part, notably the EU. The introduction of the euro as the common currency of much of Western Europe in January 1999, while paving the way for an integrated economic powerhouse, poses economic risks because of varying levels of income and cultural and political differences among the participating nations.
Internally, the central government often finds its control over resources slipping as separatist regional movements - typically based on ethnicity - gain momentum, e.g., in many of the successor states of the former Soviet Union, in the former Yugoslavia, in India, in Iraq, in Indonesia, and in Canada.
In 2008 after vigorous growth which produced a dramatic increase in the price of commodities such as oil and basic foodstuffs, the international economy began to slow in many countries providing relief from high commodities prices and increasing inflation. It was the opinion of some observers that the world economy had become somewhat overheated and was retracting to a more sustainable pace.
Economy Statistical indicators
GDP (GWP) (gross world product): (purchasing power parity exchange rates) - $59.38 trillion (2005 est.), $51.48 trillion (2004), $49 trillion (2002)
GDP (GWP) (gross world product) (IMF 179 countries): (market exchange rates) - $43.92 trillion (2005 est.), $40.12 trillion (2004), $32.37 trillion (2002)
GDP - real growth rate: 4.3% (2005 est.), 3.8% (2003), 2.7% (2001)
GDP - per capita: purchasing power parity - $9,300 (2005 est.), $8,200 (92) (2003), $7,900 (2002)
GDP - composition by sector: agriculture: 4% industry: 32% services: 64% (2004 est.)
Inflation rate (consumer prices): developed countries 1% to 4% typically; developing countries 5% to 60% typically; national inflation rates vary widely in individual cases, from declining prices in Japan to hyperinflation in several Third World countries (2003)
Derivatives outstanding notional amount: $273 trillion (end of June 2004), $84 trillion (end-June 1998)
Resumed from Wikipedia
Multilateral donor institute World Bank praises Indonesian economics robustness face crisis. In 10 the last years, a variety progress was reached, beginning of economic resource step-up, poverty cut back, until gets little to abroad loan. Indonesia enters crisis with positioning stronger of economic fundamental facet. Commanding ability in brings off financially, also better. With this condition, even economics situation universalizes to deteriorate, economics in here can go on growing among 4, 5 - 5, 5 percents.
But what happen proximately deep this crisis period is so difficult. Its outgrows total strange investor in capital market domestic to make Indonesia so vulnerable to capital flight one that can happen at call external distortion effect. Of proprietary data World Bank, gross domestic product (PDB) Indonesia since year 2002 praises growths average as big as 5 6 percents per year. Up to one its decade Indonesian have done cure and on the defensive extraordinarily.
Even actually still a lot of work who shall be solved, one of it relates corruption remove. Even rating as state most corruption has gotten better, but regular Indonesia is at ranking bottom. Besides, on 2007 well-nigh half of resident is still lie deep beggary or lie slightly upon national poverty line. Job opportunity grows to slow and public service quality stills haven't represented state gets intermediate income. Indonesian east region constant drops behind, while Indonesia as a whole still get low point in a few health and infrastructure indicator. Lack for finance resource is not again main interference. But, effective institute and have strength capacity that become to key wend faster economy development. Now Indonesia lies on after transitional term experience changing system. Current aught institutes was working effectively.
Largely person which regarding to fall to an area a new one e.g. manages child, writing book, beginning new business, looking for other investment to be lit upon qualm and fear, well that unsuccessful fear, fear was laughed at by friend, and also fear to fail. Eventually qualm and fear that is that just makes we are difficult up to success. Have cold feet and alarm will only made us road at place and not visiting make headway. Person – successful person are that successful keep away qualm that counterbalanced by vehement struggle taste, oomph and persistency to reach for to the effect. Hereunder strategies to render your dream in financials area and as person which success:
1. Don't market problem alarm, invest money that you have.
2. Change what you get to change, accept what do you can't change.
3. Idiomatic decompressing “ I am not a salesman ” from you
4. Don't over little problem, in order not to becomes big problem.
5. Realize about that don't you know and that do not you gain control.
6. Dream about things that you want.
7. Don't panic to launch forth one you will run.
8. Ousting has cold feet to be refused by consumer and market candidate.
9. That view “opportunity just coming once” it no.
10. Optimism in make decision and policy.
11. Decision that you’re for maybe much more significant instead of IQ.
12. Don't forget to enjoying your life
Key of all above strategy are Don’t worry! Progressively you are worry therefore braving you in carry on business will get little and maybe make you to cancel plan for initiating business which you will run.
Barrack Obama was official being inaugurated as President Of 44th America. USA'S citizen own hopes Obama aptly does changing appropriate what already it campaigns before. Middle east no matter, are not also USA'S soldier problem at Iraq and also Guantanamo's Jail problem that becomes to priorities Obama's main now, but USA'S economy problem, one that in it concern economy stimulus and field uncovering talks shop new.
Promising Umpteen following remedial Economic Obama:
1. Applying windfall profit's taxes to oil company.
2. Giving credit business units returnable taxes as big as US$ 3.000.
3. Giving US$250 thousand for equipment and property utility to erase small enterprise expenditure.
4. Fund for the price US$25 milliard for infrastructure.
5. US$25'S fund milliard for part state.
6. US$50'S fund milliard to help automotive industry.
7. Abolishing income tax on small enterprise.
8. Mark sense moratorium to lady of the house that wants to pay mortgage.
9. Watering down pensioner in take pension money.
10. Watering down mortgage restructuring.
11. Pruned taxes on individual's employ and USA family.
12. Withholding for initiating new economy.
13. working through NAFTA.
Obama sees once to growth economic growth that ranging down is first priority deep 100 its governance days. Now Obama stands up with policy-making be be busy to create Lents fund to package stimuli for the price $825 milliards and successful lobbies that fund was added by $350 milliard again. So we just wait if obama will successful going its economy program with success.
A stock exchange, securities exchange or (in Europe) bourse is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
In 11th century France the courtiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers. Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where merchants met.
However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighbouring counties and "Bourses" soon opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states ruled by a council of influential citizens, not by a duke.
The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits—or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.
The Organization of Petroleum Exporting Countries (OPEC) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. The organization has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries. Indonesia's membership from OPEC was voluntarily suspended recently as it became a net importer of oil. OPEC's influence on the market has been widely criticized. Several members of OPEC alarmed the world and triggered high inflation across both the developing and developed world when they used oil embargoes in the 1973 oil crisis. OPEC's ability to control the price of oil has diminished somewhat since then, due to the subsequent discovery and development of large oil reserves in the Gulf of Mexico and the North Sea, the opening up of Russia, and market modernization.
Venezuela was the first country to move towards the establishment of OPEC by approaching Iran, Gabon, Libya, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communication among petroleum-producing nations. In 10-14 September 1960, at the initiative of the Venezuelan Energy and Mines minister Juan Pablo Pérez Alfonzo and the Saudi Arabian Energy and Mines minister Abdullah al-Tariki, the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of the crude oil produced by their respective countries. OPEC was founded in Baghdad, triggered by a 1960 law instituted by American President Dwight Eisenhower that forced quotas on Venezuelan and Persian Gulf oil imports in favor of the Canadian and Mexican oil industries.
As a result, OPEC was founded to unify and coordinate members' petroleum policies. Original OPEC members include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Between 1960 and 1975, the organization expanded to include Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), and Nigeria (1971). Ecuador and Gabon were members of OPEC, but Ecuador withdrew on December 31, 1992 because they were unwilling or unable to pay a $2 million membership fee and felt that they needed to produce more oil than they were allowed to under the OPEC quota. Similar concerns prompted Gabon to follow suit in January 1995. Angola joined on the first day of 2007.Russia and Norway joined as non-permanent members in the organisation in early 2000. In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota. A statement released by OPEC on 10 September 2008 confirmed Indonesia's withdrawal, noting that it "regretfully accepted the wish of Indonesia to suspend its full Membership in the Organization and recorded its hope that the Country would be in a position to rejoin the Organization in the not too distant future.
The foreign exchange (currency or FX) market is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
Today, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euro money’s annual FX Poll, volumes grew a further 41% between 2007 and 2008. The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.
The foreign exchange market is unique because of
1. its trading volumes,
2. the extreme liquidity of the market,
3. its geographical dispersion,
4. its long trading hours: 24 hours a day except on weekends
5. the variety of factors that affect exchange rates.
6. the low margins of profit compared with other markets of fixed income
7. the use of leverage
Top 10 currency traders
% of overall volume, May 2008
Rank Name Volume
1 Deutsche Bank 21.70%
2 UBS AG 15.80%
3 Barclays Capital 9.12%
4 Citi 7.49%
5 Royal Bank of Scotland 7.30%
6 JPMorgan 4.19%
7 HSBC 4.10%
8 Lehman Brothers 3.58%
9 Goldman Sachs 3.47%
10 Morgan Stanley 2.86%
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as retail trading platforms platforms offered by companies such as ParagonEX, First Prudential Markets and Saxo Bank have made it easier for retail traders to trade in the foreign exchange market. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euro money FX survey. These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".
Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned and controlled rather than publicly or state-owned and controlled. In capitalism, the land, labor, capital and all other resources, are owned, operated and traded by private individuals or corporations for the purpose of profit, and where investments, distribution, income, production, pricing and supply of goods, commodities and services are primarily determined by private decision in a market economy largely free of government intervention. A distinguishing feature of capitalism is that each person owns his or her own labor and therefore is allowed to sell the use of it to employers. In capitalism, private rights and property relations are protected by the rule of law of a limited regulatory framework. In the modern capitalist state, legislative action is confined to defining and enforcing the basic rules of the market, though the state may provide some public goods and infrastructure.
Some consider laissez-faire to be "pure capitalism". Laissez-faire (French, "let it be"), signifies a policy of only minimal intervention by the state in the economy, with the state confined mostly to protecting property rights as in the Icelandic Commonwealth, rather than exercising control over the means of production. Another approach that draws largely on Austrian economics, anarcho-capitalism, would eliminate the state and replace it entirely by market processes and private enterprise. However, because all large economies today have a mixture of private and public ownership and control, some feel that the term "mixed economies" more precisely describes most contemporary economies. In the "capitalist mixed economy", the state intervenes in market activity and provides many services.
During the last century capitalism has often been contrasted with centrally planned economies. The central axiom of Capitalism is that the best allocation of resources is achieved through consumers having free choice, and producers responding accordingly to meet collective consumer demand. This contrasts with planned economies in which the state directs what shall be produced. A consequence is the belief that privatization of previously state-provided services will tend to achieve a more efficient delivery thereof. Further implications are usually in favor of free trade, and abolishment of subsidies. Although individuals and groups must act rationally in any society for their own good, the consequences of both rational and irrational actions are said to be more readily apparent in a capitalist society.
Capitalistic economic practices have incrementally become institutionalized in England between the 16th and 19th centuries, although some features of capitalist organization existed in the ancient world, and early aspects of merchant capitalism flourished during the Late Middle Ages. Capitalism has been dominant in the Western world since the end of feudalism. From Britain, it gradually spread throughout Europe, across political and cultural frontiers. In the 19th and 20th centuries, capitalism provided the main, but not exclusive, means of industrialization throughout much of the world.
The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and input for a given country's economy. GDP is defined as the total cost of all finished goods and services produced within the country in a stipulated period of time (usually a 365-day year). It is sometimes regarded as the sum of profits added at every level of production (the intermediate stages) of all final goods and services produced within a country in a stipulated timeframe, and it is rarely given a monetary value.
The most common approach to measuring and quantifying GDP is the expenditure method:
GDP = consumption + gross investment + government spending + (exports − imports), or,
GDP = C + I + G + (X-M).
"Gross" means that depreciation of capital stock is not taken into consideration. If net investment (which is gross investment taking depreciation into consideration) is substituted for gross investment in the equation above, then the formula for net domestic product is obtained. Consumption and investment in this equation are expenditure on final goods and services. The exports-minus-imports part of the equation (often called net exports) adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic area (the exports).
Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or government) spending. Two advantages of dividing total consumption this way in theoretical macroeconomics are:
1. Private consumption is a central concern of welfare economics. The private investment and trade portions of the economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption.
2. If separated from endogenous private consumption, government consumption can be treated as exogenous, so that different government spending levels can be considered within a meaningful macroeconomic framework.
The components of GDP
Each of the variables C (Consumption), I (Investment), G (Government spending) and X-M (Net Exports) (where GDP = C + I + G + (X-M) as above)
(Note: * GDP is sometimes also referred to as Y in reference to a GDP graph)
1. C (Consumption) is private consumption in the economy. This includes most personal expenditures of households such as food, rent, medical expenses and so on but does not include new housing.
2. I (Investment) is defined as investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. The distinction is (in theory) clear: if money is converted into goods or services, it is investment; but, if you buy a bond or a share of stock, this transfer payment is excluded from the GDP sum. That is because the stocks and bonds affect the financial capital which in turn affects the production and sales which in turn affects the investments. So stocks and bonds indirectly affect the GDP. Although such purchases would be called investments in normal speech, from the total-economy point of view, this is simply swapping of deeds, and not part of real production or the GDP formula.
3. G (Government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.
4. X (Exports) is gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
5. M (Imports) is gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic.