Chapter 4 Flashcards
What is an economic system?
The way a country organizes its resources and distributes goods and services to its citizens
The answer to the following questions define a country’s economic situation
- What should the country produce and in what quantities?
- How should scarce resources such as labour and capital be allocated?
- How should goods and services be distributed throughout the country?
- What should be the price of the goods and services?
Economic system: Market economy (definition)
- Determined by free competition, - in which businesses, consumers, and government act independently of one another
- market forces and self interest determine what goods are created and sold
In a market economy: (4)
- corporations and people are encouraged to own private property
- Profit belongs to business owners and they can choose how to spend it
- companies compete in terms quality, services, prices, reputation, and warranties
- consumers have greater selection and companies have an incentive to innovate
Economic system: centrally planned economy (definition)
- government controls all elements of the economy
Prices, wages, production
In a centrally planned economy: (4)
- ownership of property is restricted
- all profit belongs to the government
- all workers are employed by the government
- competition is limited - government determines price, quality, style, and amount of goods and services
Economic system: Mixed economy
- sits between a market economy and a centrally planned economy combining government intervention and private enterprise
In a mixed economy: (3)
- property is owned by individual, corporations, or government
- Profit is encouraged, but taxed to support government projects and programs
- strong competition amongst corporations (government may be a competitor)
3 types of economic systems
- Market
- Centrally planned
- Mixed
Political system
The type of government by which a country is run
Democracy ( definition + 5)
- a state governed by all eligible members of the population through elected representatives
1. free and fair elections
2. the rule of law
3. free speech and press
4. the right to assembly
5. freedom of religion
Negatives of democracy (2)
- politicians may be more concerned with re-election than the good of the country
- bias because large corporations give money to political parties
Autocracy
A state governed by a single individual or small group of people with unlimited power
- strong military presence
- strive to control all aspects of citizens’ lives
- citizens have no influence on government
Undeveloped countries (definition + 7)
( least developed / 3rd world )
- nations that are at the lowest level of the worlds economy
1. severe poverty
2. lack of social services
3. poor infrastructure
4. low literacy rate
5. limited access to technology
6. agriculture/resource based economies
7. long term political issues (war, dictatorship)
Developing countries (definition + 4)
( emerging / 2nd world)
- nations in transition from a poor economy to a prosperous one
1. improved literacy rates
2. increased access to health care, social services, and technology advancements
3. a move away from a resource based economy to a manufacturing economy base
4. populations moving from rural areas to cities
Developed countries (definition + 3)
(Industrialized / 1st world)
- high per capita income or strong grow domestic product
1. reliance on secondary and predominantly tertiary industries
2. high standard of living
3. major advancements in health care and technology
GDP
Gross domestic product
The total goods and services produced in one country in one year
GNP
Gross national product
- the total value of goods produced and services provided by a country during one year
- equal to the gross domestic product plus the net income from foreign investment
What is is the business cycle
Recurring periods of increased and decreased economic activity, or expansion and contractions.
What are the four stages of the business cycle?
- Recession
- Trough
- Expansion
- Peak
Recession
- 2 consecutive quarters of GDP
- economy slows down
- decline in consumer purchasing
- increase in unemployment
- businesses contract or close
Trough
- production and unemployment reach their lowest levels
- economy completes the recession and turns towards prosperity
Expansion
- economy begins to grow
- employment, wages, production, and profits expand
Peak
- top is the business cycle
- economy stops expanding and begins contracting
3 economic indicators of the business cycle
- Leading
- Lagging
- Coincident
Leading
Adjust before the economy experiences a change and predict where the economy is going
Ex. Housing starts are an example
Lagging
Do not adjust until after the economy has experienced a change
Ex. Unemployment rates
Coincident
Move in conjunction with the business cycle
Ex. International trade
Opportunity cost
The value of what is foregone, or the cost of giving something up Ex. The opportunity costs of being in class is the money a student could make working at a job
Absolute advantage
The ability of one country to use its resources to make a product or service more efficiently than other countries
Comparative advantage
The ability of a country to produce a good at a lower opportunity cost than another country
- foundation for specialization and trade
Some of the ways government affects international trade and business include:
(6)
- establishing import and exports laws
- setting tariffs
- maintaining membership in trade organization and negotiating trade agreements
- determining monetary policy, including currency, exchange rates
- determining fiscal policy, including taxation laws
- building infrastructure such as road and sewers
The government establishes:
4
- regulations that businesses must comply with
- Trade offices
- government embassies, high commissions, and consulates
- trade missions
Corporations influence government in 3 ways:
- Contribute large amounts of money to campaigns
- Participate in trade mission with politicians
- Pressure government to change adopt policies that will benefit businesses
Lobbying
The process through which companies, special interest groups, or individuals attempt to influence the government officials and persuade them to endorse public policy favourable to these groups
Ex. The NRA (National Rifle Association) lobbies the us government on gun control
What is a market economy also known as?
Capitalism or private enterprise
What is a centrally planned economy also known as?
Communism or command economy
What is a mixed economy also known as?
Modified free enterprise system
What is nominal GDP?
GDP in its unadjusted form
Real GDP
- GDP adjusted for inflation
- price changes removed
- more accurately rep. The increase or decrease in production of goods and services
( to evaluate growth of an economy look at the % increase of GDP)
GDP per capita
GDP divided by the population
- represents the avg. standard of living
- rep. Avg. income
What is needed to to start a business in Canada
Online application with the Canada Revenue Agency
What does a business receive after registering
- registration number
- a GST/ HST number
- a corporate income tax account
- an import/ export
- payroll deduction info.
Formula for GDP
GDP = C + I + G + (X - M)
C
Consumer spending
- all spending of a nations consumers on goods and services
I
Investment
- the purchase of capital goods that are used to produce goods and services
- in personal finance = the amount of money in years in stocks, bonds, mutual funds and other investments
G
Government expenditures
- goods and services provided by the government and paid for by taxing and borrowing
X
Exports
M
Imports
