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banks allows for the safekeeping of real value for both individual consumers and conglomerate
businesses and industry. The stock market is a way to track the performance of companies as well as
consumer confidence in them. The stock market also provides investment opportunities for consumers. A
labor union is a collective at the employee level that keeps in mind the best interests of its workers. Labor
unions see to it that businesses and governments do not allow their own interests to conflict with the
interests of the people who make those institutions what they are. Government agencies are many and
various, providing essential services to one feature or another of a national economy.

Economics On A Large Scale

Government policy also puts a great deal of pressure on economic movements within any given country.
Inflation, the swelling of the price index, can negatively affect an economy when it rises beyond nominal
levels. Governments can institute policies that tax held currency such as savings, making it just as
expensive to hang on to your money as to spend it. This policy can energize a stagnant economy and
slow down inflation when it threatens to become rampant. An unfavorable consequence of anti-inflation
policies is that they can either create or exacerbate unemployment. In order to reconcile the contradictory
aims of anti-unemployment and anti-inflation policy, the government often focuses its energies on
economic growth, which is conventionally measured as an increase in the real gross domestic product.

These quantities are examples of macroeconomic quantities. Due to the grand nature of what they
describe, macroeconomic quantities are difficult to measure. Unemployment is measured by counting all
the nonworking people actively seeking employment and dividing that number by the number of total
citizens eligible for the work force. The price index is calculated by dividing the sum of the price in one
period and the quantity in a second by the sum of price and quantity in the second period. The gross
domestic product is calculated by subtracting the sum of national consumption, government expenditures,
aggregate investments, and exports from all products imported into the national economy.

Market Economies

Most national economies in the world today are market economies, where goods and services are
traded freely among citizens according to their exchange values. Eighteenth-century economist and
philosopher Adam Smith, credited with instituting economics as an academic and political discipline,
considered the free market to be a self-regulating system due to the natural influence of the laws of supply
and demand. Smith believed that if each citizen in a free market acted in his own best interest, the free
market would flourish.

Smith also argued that the only regulatory measures necessary in a free market were the naturally
occurring factors of competition and the desire to advance the human species. Buyers would be prudent
in acquiring proper things, and sellers would be prudent in regulating prices in order to, if for no other
reason, continue their own advancement. Buyers would compete with one another in their acquisition, and
sellers would compete with one another in the quality and availability of their products and facility to
provide them, all in order to see themselves and their successors at the head of the next generation.

The driving force in capitalist systems is currency, and in a global economy, multiple currencies are
traded. If a citizen of one country with one currency chooses to trade with a citizen of another country with
another currency, the currency of one must be translated, like a language, into the currency of the other
before any transaction can be made. This principle necessitates exchange rates, standardized
conversions of one currency to another. Exchange rates are prices of individual currencies in the world
market and are determined much in the same way as production prices within an individual economy;
great demand increases price, surplus or lack of demand reduces it.