Transcript Economic System

OGT – Chapter 8
Economics
Benchmarks A&B
1. All of us have unlimited wants but
unfortunately we also have limited
resources. In economics the problem of
trying to meet our wants because of our
limited resources is called scarcity.
2. Because all societies have scarce resources they
experience scarcity. As a society then there are 3 basic
questions that must be answered.
1. What should be produced?
2. How should it be produced?
3. Who should get what is produced?
3. The method a society uses to answer the basic
questions above is known as its Economic System. The
four main types of economic systems are:
• The Traditional Economy which relies on
customs and traditions which have been passed
down from generation to generation.
• The Command Economy where the government
or ruler decides how the questions will be
answered.
• The Market Economy where individuals enjoy
the freedom of making their own decisions and
there is very little government interference.
• The Mixed Economy where a combination of all
of the above types are used.
4. Fill out the following chart comparing the different types of Economic
Systems.
Economic
System
What to
Produce?
How is It
Produced?
Who Gets It?
Effect on People’s
Lifestyle
Traditional
Economy
(Feudalism)
Set by tradition
and custom
Set by tradition
and custom
Set by tradition
and custom
Provides members
with stability and
security but at the
cost of individual
freedom and
economic growth.
Command
Economy
(Communism)
Determined by
the ruler or
government
Determined by
the ruler or
government
Determined by
the ruler or
government.
Able to modernize
society quickly
but at the cost of a
lack of consumer
goods and
personal freedom
Market
Economy
(Capitalism)
Interaction of
producers and
consumers
through the laws
of supply and
demand.
Producer
decides what to
produce; less
efficient
producers go out
of business
Consumers
purchase what
they want and can
afford
Able to respond to
consumers needs;
allows a free
exchange of
information.
Mixed Economy
(Socialism)
The government
and private
individuals share
the decision.
The government
and private
individuals share
the decision.
The government
and private
individuals share
the decision.
Citizens enjoy most
freedoms except
for some decisions.
5. Over the years the role of the U.S. Government
in economic policy has changed. For many
years we had a laissez-faire policy which meant
that the government was not very involved in the
economy. During the Progressive Era toward
the end of the Industrial Revolution the
government tried to ensure fair competition and
public safety. During the Depression the
government became much more active
eventually passing the Full Employment Act in
1946. Today our government attempts to:
Promote maximum employment and
production and limit inflation.
6. Briefly describe the following Instruments of Government
Economic Policy:
The power to provide Public Goods – Goods and services
provided by the government to the economy directly
like military defense.
Redistribution of Income – Graduated Income tax
where the wealthy pay a higher rate of taxes and the
money is then distributed to those less fortunate.
The power to regulate Economic Activities – Policies
like the Sherman Anti-Trust Act which attempt to
make sure things are fair and safe for everyone.
Fiscal Policy – How the government influences the
economy by its spending, taxing and borrowing.
6. Briefly describe the following Instruments of
Government Economic Policy: (Cont.)
Monetary Policy – The government’s
ability, using the Federal Reserve
System, to control the total money
supply in our economy.
Trade Policy – The government’s ability
to regulate American trade using a
variety of techniques like tariffs,
quotas, blockades and embargos.
7. Fill out the following chart which explains a
government’s fiscal policy for each situation.
Economic Government Government
should
hires more
Depression
spend more workers and
than it
buys more
receives in
goods
taxes
Inflationary Government Consumers
should will spend less
Period
spend less
than it
receives in
taxes
More People
are
employed ;
then buy
more goods
Consumer
demand
creates more
production
jobs .
Businesses
Reduced
spend and
consumer
borrow less demand leads
to lower
prices
8. Fill out the following chart which explains a government’s
monetary policy using the Federal Reserve System for
each situation.
Economic
Downturn
Economic
Upswing
Federal
Interest rates Businesses Consumers
Reserve puts go down
borrow more; borrow more
more money
stimulating
to spend
into
production more on cars,
circulation
homes, etc
Federal
Interest rates Businesses
Economic
Reserve
borrow less
growth is
rise
reduces the
slowed to
money
avoid
supply
inflation.
9. Our government regulates trade several
different ways including tariffs which are special
taxes on imported goods, quotas which are
restrictions on the number of goods a foreign
country can import into the U.S. and a blockade
or embargo which is a complete prohibition of
trade with another country. (ex. Cuba). The
biggest debate on trade centers on
Protectionism vs. Free Trade; the former
believes we need to protect American jobs by
using the above methods making it tougher for
foreign companies to compete while the latter
believes that we should get rid of all restrictions
which would encourage countries to specialize.