Economic Systems Economic Systems Economic System nations system

Economic Systems

Economic Systems Economic System- nation’s system for using its resources to satisfy citizens needs and wants

Traditional Economy • Economic decisions are based on tradition, customs, beliefs, and religion • The community answers the economic questions and owns the factors of production • Located in parts of Asia, Africa, the Middle East, and Latin America

Command Economy • Economic decisions are based on the government (consumers have a small role) • The government answers the economic questions and owns the factors of production • Located in most communist countries such as North Korea, the former Soviet Union

Market Economy • Economic decisions are based producers and consumers (supply and demand) • Producers answer the economic questions and own the factors of production • Located in very few (if any) places in the world

Mixed Economy • Economic decisions are based on producers, consumers, and government regulation (mixture of Market and Command Economies) • Producers, consumers & the government answer the economic questions and own the factors of production • Located in the US, most of Europe, and most of Asia (most common)

Mixed Economy • Mixed economies can vary and lean more toward command or market economies • Ex. The US is more market and China is more command https: //www. youtube. com/watch? v=5 xgw. YRX 19 V U

Measuring the Economy • Economies fluctuate through periods of prosperity and struggle • Economic growth benefits everyone – Businesses are producing more goods and services – More workers are hired – People have more money to buy goods and services • Gross Domestic Product (GDP)- the dollar value of all goods and services produced in a country in a year

• Business Cycle- alternating intervals of growth and decline in an economy

Business Cycle • Begins with expansion leading to an economic peak • Expansion- economy is growing (new businesses, more production, employment) • Peak- highest point of the business cycle, period of prosperity • Eventually the economy levels off and begins to contract into trough • Contraction- economy is slowing (businesses slow, less production, less employment) • Trough- lowest point of the business cycle, period of recession or depression • The economy then moves back up with expansion

• Recession- when the economy goes down for at least 6 straight months • Depression- long standing recession (several years, large number of people out of work, shortages, etc. ) • Unemployment Rate- percent of people in the labor force not working and looking for a job

Inflation • Inflation- increase in the general level of prices • Hurts the economy because it reduces purchasing power (a dollar doesn’t buy as much today as it did 10 years ago) • Inflation typically goes up overtime (it does not usually increase by a lot in a short period of time) • Consumer Price Index (CPI)- prices of 400 commonly used goods tracked by the US government to measure inflation