An economy is an interconnected system of labor, exchange and consumption. It forms naturally from aggregated human action – a spontaneous order, much like language. Economies grow when they can turn more of their resources into valuable goods and services. This is possible only when more people work together to produce more than they consume. It’s why economists care so much about productivity.
An economic system is the way that a population manages its resources to achieve its goals, like providing food, shelter and education for its members. It consists of all the activities that a group performs in return for the value that their work produces, and it includes everything from family farms to large multinational corporations. Historically, the economy was a system of local trading, but it has expanded with modern technology and the development of the international marketplace.
During the Industrial Revolution, it was possible to create economies on a much wider scale by establishing factories and shipping across borders. This expansion resulted in more variety of goods, better prices for raw materials and a higher standard of living for most populations.
Modern economies are largely managed by private enterprises, but governments also play an important role. They can manipulate interest rates, increase spending on certain projects and reduce taxes to encourage economic growth. A growing economy will eventually become more productive, enabling it to turn more and more of its resources into goods and services, which it can then sell for more money.
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