chapter 5 Flashcards
Market economy
individuals and firms exchange goods and services without government interference
capitalism
market economy plus private property rights
command economy
price, property and production controlled by the state.
key point
rise of modern state coincided with market economy; when economy became free market, individuals had freedoms.
essential Roles
providing security, establishing and enforcing property and contract rights, creating and controlling currency.
Beneficial Roles
infrastructure, education, healthcare and correcting market failures.
Political generated roles
those functions where the state interacts with the market due to the will of the people/ political demands.
externalities (Market failure)
pollution and long term health
Imperfect information
variable interest rate mortgages and mortgage backed-securities.
monopolies
competition removed. so efficiency is gone
keynesianism
state could be and should be more involved in economic crises and fiscal policy to minimize boom and bust cycles (Borrowing and spending more than revenue)
stagflation
high inflation and high unemployment can’t really be corrected by more gov’t spending and borrowing.
monetiarism
only monetary policy can affect economic well being in capitalism. Gov’t should be less involved in the economy.
comparative advantage
maximum benefit if all produce what they do best and trade with others doing the same.
Structural adjustment programs
require neoliberal reforms such as privatizing industry, reduced deficits, less gov’t spending and free trade.
