Chap. 2 Economic Systems

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Information about Chap. 2 Economic Systems

Published on October 18, 2007

Author: eschott

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Chap. 2 Economic Systems

Economic systems can be classified in a number of ways • In the way they answer • What to produce? the three economic • How to produce? questions • For whom to produce?

Or the complexity of the systems • Undeveloped, developing or developed, 1. What is the US?

The undeveloped world is one of traditional economies. • Economic decisions and roles are based on custom. • The three basic economic questions are easily answered. • The standard of living (SOL) is low. Low per capita income (PCI).

The undeveloped world is found in parts of Asia, Africa and Latin America • Life expectancy is low. • Political instability discourages outside investment.

The developing world is the largest world as far as population. • China and India would • Rising standards of be examples of living are occurring in developing nations. these nations. • Most of the world’s 6.6 • These nations are billion people live in attracting the developing world. manufacturing jobs from nations like the US.

Question#2 • Would manufacturing jobs be “goods” or “service” jobs?

The richest nations in the world are those which are developed. • These nations industrialized many years ago. • They are considered post industrial with many jobs involved in information, banking, telecommunications and research.

Another way to group nations is by the system they use to answer the three questions. • Communism aka Marxism is a totalitarian system in which the government is involved in all facets of people’s lives including the economy.

No laissez-faire • The government determines what is made, how it is made and for whom. It is not a consumer oriented system. • Very few nations use this system.

Communism had many enemies including nations which were fascist. • Fascism is similar to communism in that the government is totalitarian but the difference is that government does not get involved in the economy.So Hitler did not tell Mercedes vat to build, ja.

This system was popular in the mid-20th century in nations like • Germany • Italy • Spain • It still exists in some forms but not by this name.

Question #3 • Therefore, in • Is it the government? communism, who or • Is it the market what decides what is (consumers with made, for who it is money)? made and how it is • Is it a combination of made? above?

The US saw communism as something to be fought. • The US is a capitalist nation that believes that government should stay out of the economy. Capitalism believes that markets or “the invisible hand” should guide all economic behavior.

During the Cold War the US and the USSR waged a war of ideology • 4. The ____believed in political freedom and capitalism while the • 5. _________believed in much less political freedom and a communist economy.

Socialism is a blend of the capitalism and communism • Many nations, particularly those nations of Europe have a blend of two systems with varying degrees of government involvement.

Just in case you’re not totally confused- • There are other terms for the three major systems. • 6. What would be a command economy? • Capitalist • Communist • Socialist

#7 • What would be a market or free enterprise economy? • Capitalist • Communist • Socialist

#8 • What would be a mixed economy? • Capitalist • Communist • Socialist

#9 So you know that the US has a market or free enterprise economic system but what political system do we use? • Direct democracy • Federal Republic • Confederal Republic • Unitary Parliament

10. Of the three systems which would fit the below description? • The economy makes what the consumer wants, there is a wide disparity in income between the rich and the poor, property is privately owned, it is very competitive with many winners and losers, profit is the goal of business, government is supposed to keep a low profile.

Bonus-Who is this man? He wrote “The Wealth of Nations”? Adam Smith

Quiz 2

Question #1 • In communism, who or A-Is it the government? what decides what is B-Is it the market made, for who it is (consumers with made and how it is money)? made? C-Is it a combination of above?

2. Of the three systems which would fit the below description? • The economy makes what the consumer wants, there is a wide disparity in income between the rich and the poor, property is privately owned, it is very competitive with many winners and losers, profit is the goal of business, government is supposed to keep a low profile. ( A-market, B-command or C-mixed)

#3 What economic system fits the below characteristics? • Some companies are allowed to operate without government intrusion while others have government interference or guidance. Taxes are high but the population receives universal health care, free education and mandated vacations. Civil liberties and social freedoms exist (A- capitalism, B- communism, C-socialism).

#4 What economic system fits the below characteristics? • All companies are owned by the government and the profits of industry are returned to the state. The population receives universal health care, free education and mandated vacations. Civil liberties are curtailed or don’t exist. The government is totalitarian, totally involved in the lives of the people. (A- capitalism, B- communism, C-socialism).

#5 So hopefully you know that the US has a market or capitalist or free enterprise economic system but what political system do we use? • Confederal Republic • Unitary Parliament • Democratic Socialism • Federal Republic • A Direct Democracy

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