Economic Systems and Market Dynamics Overview

Mercantilism

Stated a nation was wealthy through the acquisition of precious metals (silver and gold)

Laissez-Faire Liberalism

Stated a nation is wealthy through the economic prosperity of its people

Adam Smith - The Wealth of Nations

Mercantilism is illogical. A money is not wealth

Radical Capitalism

Private citizens own everything and make all economic decisions - no gov't

Classical Liberal Capitalism

The gov't should be limited to 3 roles in the economy: Protect citizens from foreign invasion, Protect citizens from fraud, Provide public goods

State Capitalism

Private citizens own most things but the gov't freely intervenes to carry out its goals in the economy

Social Democracy

State takes possession of cornerstone industries. Non-essential businesses can be individually owned but are highly regulated (transportation, communication, financial markets, healthcare)

Centralized Socialism

National gov't is the central owner and decision maker in all economic affairs of the state

Communist Manifesto→ the state should own the tools of production

Communism

After putting an end to Capitalism and preparing its people, the gov't would happily disband and the people would collectively own and manage all resources and production properly.

Market

A place where buyers and sellers gather

Stock

Shares or portions of ownership in a corporation

IPO

A corporation's first sale of stock to the public

Famous stock markets

a. NYSE - most well known and reputable stock exchange in the world (physical floor) b. NASDAQ - the most reputable virtual stock exchange

Stock indices

Measures the performance of a group of stocks

Dow Jones Industrial Average

Measures the performance of the top 30 companies in the U.S. → Best indicator of the health of American industry

The Standard and Poor 500 (S&P 500)

Measures the performance of the top 500 companies in the U.S. → Measures both industrial production AND services

The Security and Exchange Commission (SEC)

Requires corporations to provide accurate and current information to the public → To make sure investing is not done in ignorance

Speculation

Buying and selling stocks for the purpose of taking advantage of short-term price changes

Bear Market

When the market is declining

Bull Market

When the market is rising

Responsibility of the Fed

Regulates the money supply in circulation

Federal District Banks

12 Banks → Supplies currency + coins to commercial banks

Board of Governors

7 members → Set the reserve requirement

Federal Open Market Committee (FOMC)

12 members → Responsible for buying/selling government securities → Major role in controlling the money supply

Six functions of the Federal Reserve System

Regulating member banks, Clear checks and process payments, Acting as a fiscal agent, Serving as the banker's bank, Create money, To provide uniform and elastic currency

Production Possibility Curve (PPC)

The different possible combinations of 2 goods that can be produced using available resources

Points ON the curve

The products are being produced at their maximum capacity (maximum efficiency)

Efficient resource use

To use all of our resources to their full potential

Points INSIDE the curve

Inefficient / unemployed resources

Points OUTSIDE the curve

Unattainable / impossible for the amount of resources currently unavailable

Economic Growth on PPC

Outward shift of the PPC

Economic Halt/Decline on PPC

Inward shift of the PPC

Reasons for Unattainable Point

Lack of resources (not enough labor, capital, land), Current technology limits, Time restraint

Reasons for Unemployed or Inefficient Point

Unemployment (not enough workers), Natural disasters, Economic recession or depression