Many economists and business owners do not understand what is secondary economic activity. For them, it is basically spending money that would be put to better use in the main stream of the economy. However, this activity goes on all day and night, every day of the year. In fact, secondary economic activity is what helps a small business stay afloat during slow times or when the main stream of the economy is slow as well. Let us look at what this type of activity consists of and how it can affect the economy.
First of all, what is secondary economic activity? This is spending that occurs off the primary flow of the economy. It is something that is subtracted from the primary flow so that current assets can be used for something else. This subtraction takes place when there are not enough assets to go around. Therefore, businesses take out loans and use up other assets like machinery or homes to make up for the difference. This is what causes economies to go into recession or even experience a depression.
The bank does everything possible to keep the business going. Loans are taken out, assets are purchased, workers are laid off and prices are raised to cover the deficit. Eventually, the business will go under if enough of the primary economy is not adding up. Then, the banks and creditors will lose everything. The whole thing is a vicious cycle that can take years to put a stop to.
Second, the activities that result in this are sometimes done in secret. There may not be an official count of what is being spent or made. Instead, the figure is determined by the gross revenue figure that has been determined for the business. If it turns out that the economy is doing well, expenses that would normally have been added are taken from the gross revenue figure to determine net profits. When there is a bad hit to the economy, however, the activities that normally increase gross revenue are discouraged and the economy sinks deeper into the hole.
Most people don't really understand what is secondary economic activity. Most people only focus on the primary activity because that is what they are familiar with. Secondary economic activity is what takes place when the primary activity is taking place. When it is discovered that the primary activity is going on without any net gain, the secondary activity begins to take place.
It is important to note that there is no such thing as a primary or secondary economic activity. Primary economic activity is what causes inflation and what drives the economy. Secondary economic activity is the by-product of primary economic activity and is caused by the actions that businesses take to increase their . . . . . . profits. Understanding the distinction can help you to decide what is secondary economic activity and how it affects the economy. In order for economic activity to grow, the primary activity has to be going on successfully.