CAPITALISM A FREE MARKET ECONOMY WHAT IS CAPITALISM

CAPITALISM & A FREE MARKET ECONOMY

WHAT IS CAPITALISM ? • CAPITALISM IS AN ECONOMIC SYSTEM IN WHICH PRIVATE INDIVIDUALS OR CORPORATIONS OWN THE MEANS OF PRODUCTION AND DISTRIBUTION, THUS CONTROLLING THE EXCHANGE OF WEALTH IN A

THE FREE MARKET • THE FREE MARKET IS WHERE THE EXCHANGE OF GOODS AND SERVICES HAPPENS. THE VALUE (OR PRICE) IS DETERMINED BY THE PRINCIPLE OF SUPPLY & DEMAND • IN GENERAL, A FREE MARKET ECONOMY (A CAPITALIST ECONOMY WITH NO GOVERNMENTAL INTERFERENCE) DOES NOT GROW AT A CONSTANT RATE. IT GROWS THROUGH A SERIES OF BOOMS AND BUSTS

TYPICAL ECONOMIC CYCLE

THE BUSINESS CYCLE

RECESSION • A REPRESENTS A DECLINE, SOMETIMES CALLED A RECESSION OR BUST. DURING A DECLINE, CONSUMER SPENDING DECREASES AS CONSUMERS AND INVESTORS BECOME CAUTIOUS ABOUT THE FUTURE. • THIS CAUSES FACTORIES TO SLOW PRODUCTION AND LAY OFF WORKERS. THE INCREASED UNEMPLOYMENT TENDS TO

RECESSION • B REPRESENTS THE LOWEST POINT OF THE RECESSION. THIS IS A PERIOD OF HIGH UNEMPLOYMENT AND LOW PRICES HAVE DROPPED BECAUSE THERE IS LESS MONEY BEING CIRCULATED IN THE

BOOM • C REPRESENTS A BOOM, AND IS A PERIOD OF PROSPERITY. MOST PEOPLE HAVE JOBS. AS A RESULT THEY TEND TO BE BUYING GOODS & SERVICES. THIS KEEPS THE ECONOMY STRONG. THIS PERIOD WILL SEE THE HIGHEST LEVELS OF INFLATION AS PRODUCERS TRY TO SLOWLY INCREASE THEIR PRICES IN ORDER

DEPRESSION • D REPRESENTS A DEPRESSION IS A VERY BIG DECLINE WHEREAS A RECESSION IS ONLY A SMALL DECLINE. DURING A DEPRESSION, UNEMPLOYMENT IS VERY HIGH AND THERE IS VERY LITTLE MONEY CIRCULATING IN THE ECONOMY. A DEPRESSION IS A SERIOUS PROBLEM FOR A COUNTRY. THE MOST

GREAT DEPRESSION OF THE 1930 S

RECOVERY • E REPRESENTS A RECOVERY. DURING A RECOVERY, THE ECONOMY IS IMPROVING. AS PEOPLE BEGIN SPENDING MORE, PRODUCERS ARE ENCOURAGED TO INCREASE PRODUCTION. THIS MEANS MORE JOBS AND, IN TURN, EVEN MORE SPENDING. A RECOVERY WAS THE INTENDED EFFECT OF FRANKLIN DELANO ROOSEVELT’S ‘NEW DEAL’ IN THE

GROWTH RATE OF THE CANADIAN ECONOMY (1980 -2009) 1980 -2009

ECONOMIC GROWTH DURING THE 1930’S

ECONOMIC CYCLES

ECONOMIC CYCLES • IN GROUPS, DISCUSS THE FOLLOWING QUESTIONS: EXPLAIN THE ‘POSITIVE’ ECONOMIC CYCLE WHEN ECONOMIES GROW • EXPLAIN THE ‘NEGATIVE’ ECONOMIC CYCLE WHEN ECONOMIES DECLINE • IF AN ECONOMY IS NOT GROWING, HOW WOULD YOU GET IT BACK INTO A POSITIVE GROWTH CYCLE ? • WHAT IS THE PROBLEM WHEN PEOPLE/GOVERNMENTS BORROW $$$ TO STIMULATE THE ECONOMY ?