Chapter 5 Flashcards
Economic System
the way the country distributes its services and goods to citizens. FINITE RESOURCES
Political System
the type of government a country is run by
Types of Economies
Market, Centrally planned, Mixed
Centrally Planned
Communism
Profit: government
Private Company: government owns
Competition: limited, government determines prices
Market
Capitalism
profit: owners
private property: by individuals
competition: critical, a greater selection of goods
Mixed
Modified free enterprise
profit: private but taxed
private property: individual and government
competition: strong but the government may be compeitor
Developed country
Strong GDP
High standard of living
Moved from primary to diverse manufacturing
G7 countries
Developing
Predominantly agriculturally based
Lack social services
lower literacy
Limited access to technology
Economies in Transition
Moving from central to mixed economies
Decreasing government roles
Widening income gaps
Index of Economic freedom
Measures the economic freedoms of individuals in a country
Economic Indicators
Leading: Predictions about where the economy is going
Lagging: After the economy has seen a change
Coincident: Current state of economy
Monetary
Decisions by the central bank
Impacts money supply, inflation, interest
Goal - economic stability
Fiscal
How government spends tax money
Establish budgets - balanced, deficit, surplus
Role of Government
Government regulations Trade offices Consular services Trade missions Corporate influence - lobbying
Communist countries
Vietnam, north korea, china, russia
Cycle
Expansion peak reccesion trough
circular flow model.
In its most basic form, this model considers economies simplistically as consisting solely of individuals (or households) and businesses
market economy
known as capitalism or private enterprise.
market economy
known as capitalism or private enterprise. Consumers make the decisons.
People who grew wealth
-J.D. Rockefeller (oil) Andrew Carnegie (Steel) Cornelius Vanderbilt (shipping/railroad)
The Demand Curve
a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time.
Depression
Mass unemployment
Economic growth slowed to a halt
Keynes book “General Theory” was published in 1936
Government began to take more control of the economy
Government spending helped to create jobs and eventually brought the country out of the great depression
WWII
US entering the WWII helps to end the great depressions
Wars are horrible in general, but great for the economy
Gets governments to spend money on the War effort
50’s
After the war, Keynes economic theories continue with governments spending money and controlling and managing the economy
Period of economic prosperity
People are confident with their jobs and begin buying (cars, TVs, houses)
The economy experiences a huge growth
Large middle class
70s
Stagflation
High unemployement combined with high inflation
Keynes theory continues to persist
Nixon introduces wage and price controls
Does not help and inflation continues to rise and people continue to lose their jobs
80s
Reagon and Thatcher (GB) cuts back on government controls
Begins to bring in Von Hayek’s theories based on market economy
US and Canada sees period of economic prosperity
2010s and beyond
In US, we are seeing more and more government controls
Obama-care
Greece/Spain – Too much government spending (government’s going bankrupt)
Can’t pay public sector employees, job cuts and cutbacks
Invisible hand
Supple and demand, no one telling retkaor what to do.
Hyperinflation
out-of-control inflation, in which the price of goods and services rises at an annual rate of 1,000% or more
Minimum wage
- surplus
- long run companies begin to make more money, hire more people.
Minimum wage
- surplus
- long-run companies begin to make more money, hire more people.
price ceiling
A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service.
price floor
is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service.
Market economy pro and cons
\+Efficient use of resources New products Economic growth Good quality products Low prices -Gap between rich and poor expands Lack of consumer education Unhealthy products
Mixed Economy pro cons
+Individual incentive
Basic social services
Consumer protection
-Higher taxation
Individuals have little input into how taxes are spent
Government intervention may stifle growth
Less motivation to work hard
Centrally planned
\+All citizens are assured a minimum standard of living Health, education, and other social programs are provided free to all citizens No unemployment Long-term stability -Little motivation to work hard Large military presence Lack of innovation Corruption
