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2.4 MODERN ECONOMIES

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ECONOMICSMR. HOOD03 MARCH 2014

2.4 MODERN ECONOMIES

ECONOMICSMR. HOOD`S NOTES03 MARCH 2014

NO GOVERNMENT RELIES ONLY ON CENTRALLY PLANNED

ECONOMY

NO GOVERNMENT RELIES ONLY

ON FREE MARKET ECONOMY

MOST ECONOMIES ARE A

MIXTURE OF ECONOMIC SYSTEMS

MIXED ECONOMIES BLEND THE MARKET WITH GOVERNMENT

INTERVENTION

OBJECTIVE 1EXPLAIN THE RISE OF

MIXED ECONOMIC SYSTEMS.

CENTRALLY PLANNED

ECONOMIES HAVE DRAW BACKS

EVEN MARKET

ECONOMIES HAVE DRAW BACKS

ADAM SMITH PREACHED LAISSEZ

FAIRE

GOVERNMENT GENERALLY SHOULD NOT INTERVENE IN

THE MARKET

EVEN SMITH ACKNOWLEDGED NEED FOR CERTAIN LIMITED DEGREE OF GOVERNMENT

INTERVENTION

IN RECENT YEARS GOVERNMENT INTERVENTION HAS

BECOME GREATER

SOME NEEDS + WANTS DIFFICULT

TO ANSWER IN MARKETPLACE

EXAMPLE: NATIONAL DEFENSE

OR EDUCATION

PRIVATE PROPERTY +

PATENT CONTRACTS

GOAL IS FINDING A BALANCE BETWEEN CONTROL + FREEDOM

OBJECTIVE 2INTERPRET A

CIRCULAR FLOW MODEL OF A MIXED

ECONOMY.

GRAPH ILLUSTRATES GOVERNMENT`S ROLE IN A

MIXED ECONOMY

LIKE BUSINESSES, GOVERNMENT PURCHASES

LAND, LABOR, CAPITAL

EXAMPLE: US GOVERNMENT HAS 2.8

MILLION EMPLOYEES

GOVERNMENTS PURCHASE GOODS

AND SERVICES

GOVERNMENTS PROVIDES GOODS AND

SERVICES

GOVERNMENTS COLLECT TAXES FROM HOUSEHOLDS +

BUSINESSES

AND TRANSFER MONEY

EXAMPLE: SOCIAL SECURITY

OBJECTIVE 3COMPARE THE MIXED ECONOMIES

OF VARIOUS NATIONS ALONG A CONTINUUM BETWEEN

CENTRALLY PLANNED AND FREE MARKET SYSTEMS.

A CONTINUUM IS A RANGE WITH NO CLEAR

DIVISIONS

ONE END IS CENTRALLY PLANNED ECONOMY, OPPOSITE IS FREE

MARKET ECONOMY

NORTH KOREA OCCUPIES ONE END OF

THE SCALE

AT THE OTHER END,

IS HONG KONG

MANY COUNTRIES IN TRANSITION, MOVING AWAY FROM

CENTRALLY PLANNED ECONOMY

TO MAKE TRANSITION, STATE FIRMS MUST BE

PRIVATIZED

DIFFERENT MIXED ECONOMIES PLOTTED ON

CONTINUUM SCALE

USA HAS A FREE MARKET WITH A LITTLE GOVERNMENT

INTERVENTION

OBJECTIVE 4UNDERSTAND THE

ROLE OF FREE ENTERPRISE IN THE ECONOMY OF THE UNITED STATES.

USA HAS FREE ENTERPRISE

ECONOMY

GOVERNMENT INTERVENES TO

KEEP ORDER

US HAS HIGH LEVEL OF ECONOMIC

FREEDOM

LOW LEVEL OF

GOVERNMENT REGULATION