An Economy Is Made Of Units

An economy is composed of units and they are classified into three groups

. The first one is known as households. A household is composed of a family or extended family that can be considered together as a unit residing in one residence. The second unit of an economy our business firms.

These are companies that can be either small or large but for the most part are considered as a distinct unit in terms of how they spend their money. The third and final unit of an economy is known as governments. Governments can be local or decade they can be the state government or federal governments.

Each economic unit must operate within a budget constraint imposed by its total income for the period. Households like the one you may have grown up in typically receive income in the form of wages and they must make frequent expenditures for food clothing medical expenses entertainment education of children taxes and housing expenses either as rents or home mortgage payments. Businesses sell a variety of goods and services to households and other distances for revenues and spend their money to pay wages by inventory and in expenses necessary for production. Occasionally businesses make capital expenditures in the form of new buildings and equipment. Governmental units obtaining, collecting taxes and fees and make expenditures from a myriad of services such as health and welfare education police and fire protection and in the case of the federal government military production.

With these different type of economic units you understand why the need for a comprehensive economic policy is needed as one solution may be good for one unit but not good for another. When an economic policy only favors one type of unit as such an imbalance can be prone to issues such as high unemployment or lack of credit and decline of a particular class of citizens such as the middle class and can also occur when forex trading tips in favor of one's nation's currency over another. This can also be observed when economic policies favor larger governments at the expense of smaller businesses or when economic policy favors large corporations thereby decreasing the competition and free market. In either case this does not create the best best forex trading environment.

by: Rhab Hendrik

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