OGT Economics

Economic SystemsType of Economy

Economic SystemsType of Economy

Traditional

Command

Market

Mixed

Economic SystemsType of Economy

What to Produce

How is it Produced

Who Get’s stuff

Effect on people

Example

Traditional

Command

Market

Mixed

Economic SystemsType of Economy

What to Produce

How is it Produced

Who Get’s stuff

Effect on people

Example

Traditional Set by tradition/custom

Set by tradition/custom

Set by tradition/custom

Stability and security but no individual freedom or economic growth

Feudal Europe

Command Determined by gov’t or ruler

Determined by gov’t or ruler

Determined by gov’t or ruler

Modernize society quickly, but lacks consumer goods and individual freedom

Communist Soviet Union

Market Laws of supply and demand – interaction of producers and consumers

Producers decide what to produce and the less efficient are wiped out

Consumers purchase what they want and can afford

Respond to consumers needs and a free exchange of information

U.S. at times

Mixed Mixture Mixture Mixture Best of both worlds?

U.S. at times

Examples

• In a State of the Nation Address, the president of Country A announces new directions for Country A. He states that beginning in one month, he will instruct all of the nation’s factories to increase production levels by 7%. He will raise the base wage for all workers by 12%. Finally, he states that only families of military personnel will be able to buy new automobiles for 1 year

Command

Examples

• In a State of the Nation Address, the King of country B makes some statements about the economy in B. First, he says that he has put together a new council to keep an eye on large corporations who might take advantage of consumers. The Council will have the power to prosecute offenders. Secondly, he asks farmers to increase their production of corn if their resources allow it. Thirdly, he encourages consumers to spend their money for the good of the country

Mixed

United States Government’s Role in Economy

• What is Trade?• Buying, selling, and exchanging of goods

between and within countries• Exports, Imports, Trade imbalance• Which imbalance hurts economy more?• More imports than exports.

United States Government’s Role in Economy

• What is a tariff?• How can tariffs protect economy?

• Quota vs. Blockade/Embargo• Protectionism – • using tariffs, quotas, blockades to protect domestic

markets• Free Trade – • remove all obstacles to trading. Each nation will learn

to specialize in what it’s good at

What Happens to……

• Sales of Toyota (Japan) cars in U.S. when a tariff is placed on foreign cars imported to U.S.

• Sales of Ford (Michigan) cars when the same tariff is placed.

• Cuban Cigar industry in Cuba when the U.S. lifts its embargo on all good from Cuba (free trade)

• Domestic Cigar industry in U.S. when the embargo is lifted (free trade)

United States Government’s Role in Economy

• Ultimate Goal – provide economic growth and Stability

• Maximum employment, maximum production• Limit Inflation – Rising Prices• Ways to Do This• Provide Goods to Public – Military Defense• Redistribute Income – Income tax is graduated,

wealthier pay taxes and higher rates, which funds programs for less fortunate.

U.S. Fiscal Policy

• Federal government can influence the economy by its spending, taxes, and borrowing

• They want to stabilize the economy, bring it up when its down, and bring it down when its up (inflation).

Government will

Tax moreSpend less

Consumers will have

Less moneyand Spend less

Times are good: worry about inflationReduced Demand will do what to prices?

lowerAvoids Inflation

U.S. Fiscal Policy

• In a Recession….• Obama Increasing Spending

Government will

Spend moreTax less

Consumers will have

More moneyand Spend more

Times are bad: worry about depressionIncreased Demand will do what?

Create JobsOr Lose jobs

U.S. Monetary Policy

• Federal government can influence the economy by controlling the money supply

• Federal Reserve System• Regulates through Interest Rates and Bank Reserve

Requirements• They want to stabilize the economy, bring it up when its

down, and bring it down when its up (inflation).

The Fed will

Raise RatesRaise Requirements

Businesses will

Borrow MoreOr

Times are good: worry about inflation – REDUCE MONEY SUPPLY

Consumers are able to:

Buy MoreorBuy LessBorrow Less

U.S. Monetary Policy• In a depression or recession

The Fed will

Lower RatesLower Requirements

Businesses will

Borrow More

Times are tough: worry about growing economy – INCREASE MONEY SUPPLY

Consumers are able to:

Buy MoreOrBuy Less

OrBorrow Less

What would the Government Do?

• Monetary Policy• Who Controls Monetary Policy?• What would they do at Point C?• Point A?

RECESSION

RECESSION

DEPRESSION

INFLATIONINFLATION

THE ECONOMY

A

B

C

What would the Government Do?

• Fiscal Policy• What actions would we be talking about controlling?• What would they do at Point A?• Point C?

RECESSION

RECESSION

DEPRESSION

INFLATIONINFLATION

THE ECONOMY

A

B

C