Question

Illustrate the functioning of an economy based on its activities.

Answer 1

An economy is referred to any system or area where economic activities are carried out. Each economy has its own character. Accordingly, the functions or activities also vary. The functioning of an economy by its activities is explained in the flow chart.

1. In an economy, the fundamental economic activities are production and consumption.
2. These two activities are supported by several other activities.
3. The ultimate aim of these activities is to achieve growth. The ‘exchange activity’ supports the production and consumption activities. These activities are influenced by several economic and non – economic activities.
4. The major economic activities include transportation, banking, advertising, planning, government policy, and others.
5. The major non – economic activities are environment, health, education, entertainment, governance, regulations, etc.
6. In addition to these supporting activities, external activities from other economies such as import, export, international relations, emigration, immigration, foreign investment, foreign exchange earnings, etc. also influence the entire functioning of the economy.