# National economy

The totality of all economic subjects ( households , companies and the state ) assigned to an economic area (usually a state or association of states ) is referred to as the national economy . The economic area itself is often referred to as the national economy. Economics is the main subject of study in economics .

## Sizes in an economy

Central points when considering an economy are the questions about its performance ( gross domestic product , national income ) and distribution ( income distribution ), its price development , its structure , the degree of its employment ( unemployment ) and its openness ( foreign trade ). In addition, changes in these variables can be related to the economy and its cycles and viewed. Compared to other economies, the degree of development can also be compared on the basis of socio-economic factors. The numerical representation of the transaction sizes takes place in the national accounts .

All natural persons in an economy pursue their individual interests, but within a more or less formalized institutional framework (network). This creates synergies that determine the overall economic performance. Greater efficiency of one economy over another manifests itself i. d. Usually in lower unemployment figures. The efficiency, in turn, results from the sum of the individual performance potential. The political and legal framework conditions are also influencing factors.

## The economy in a model

In order to understand the mutual dependencies, models are used in economics that strongly abstract from reality, but represent the basic laws. Here one differentiates the closed economy from an open economy .

The subject of the models is in particular the economic cycle within an economy.

### The two-sector model

The two-sector model offers a simple representation of the activities of a closed economy. It only considers private households and companies and shows how national income is determined based on overall economic demand. Households offer their labor to companies and ask for goods and services from companies (consumption C). Companies, in turn, ask for labor and offer goods and services to households, but also to other companies (Investments I). The aggregate demand is defined as ${\ displaystyle Y ^ {n} \! \}$

${\ displaystyle Y ^ {n} \! \ = C + I}$

If one includes the state, as the consumer of goods and services (in model G for state demand), the two-sector model can be expanded. The aggregate demand is then defined as

${\ displaystyle Y ^ {n} \! \ = C + I + G}$

If one extends this model and includes other economies (with exports ex and imports im), then one considers an open economy. The aggregate demand is then defined as

${\ displaystyle Y ^ {n} \! \ = C + I + G + (Ex-Im)}$

## literature

• Michael Heine, Hansjörg Herr: Economics: Paradigm-oriented introduction to micro- and macroeconomics . 3. Edition. Oldenbourg, Munich / Vienna 2003, ISBN 3-486-27293-4 .
• Arthur Woll: Economics . 16th edition. Vahlen, Munich 2011, ISBN 978-3-8006-3835-2 .