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Economic Systems

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Jason Smith

on 28 August 2018

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Transcript of Economic Systems

Command Economy:
A Definition
Government makes decisions about production, pricing and distribution
Requires massive government decision-making
Appeal of command economies
Avoid another Great Depression
World War II experience
Problems with
command economies
Low economic growth (none in Soviet Union in 1970s and 1980s)
Low quality goods
Shortages (and, more rarely) gluts
No incentive for hard work or innovation
Problems command economies don’t have: unemployment, inflation

No free flow of economic information
Unrepresentative revelations
Even some experts fooled
Definition of Terms
Includes goods and services produces
Measured by gross domestic product (GDP)
Prosperity requires growth; shrinkage termed recession

What to make (production)
Where to direct goods and services (distribution)
How much to charge for goods and services (price)

Combination of producers and consumers (supply and demand)
Market decisions come from no single individual or office
Economic Trendlines in the U.S:
1920s to 1950s
Prosperity (1920s)
Technological advances
Increasing productivity

Depression (1930s)
High unemployment, low economic growth
Stock crash only part of story

Recovery (1940s and 1950s)
Causes unclear (New Deal?, War?, neither?)
Education grows (GI Bill)
Economic Trendlines in the US:
1960s to Present
Prosperity (1960s)
High growth, low unemployment
Increased consumption

Difficulty (1970s and early 1980s)
Unemployment high, growth low
High inflation (prices rise, money loses value)
Cause 1: deficit spending for Vietnam war and social programs
Cause 2: high oil prices 1.3.3.

Recovery and Prosperity (late 1980s - 2008)
Inflation stopped by restricting money supply (painful)
Recovery fueled by computer technology
Financial crash of 2008
Adam Smith
An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
The Invisible Hand
Division of Labor
Pin Factory
Karl Marx
History as a Class Struggle: Capitalists and Proletariats
"Capital" ("Das Capital)
Capitalist systems create inequality

John Maynard Keynes
Keynesian economics (Depression economics)
"The General Theory of Employment, Interest and Money"
Deficit spending
Full transcript