EMS: The Economic Cycle and Economic Systems

Flashcards covering the fundamentals of the economic cycle, the global economy, and the three main economic systems: mixed, market, and planned.

What is the definition of the economic cycle?

The circular flow of money among people.

What constitutes the basic economic problem according to the notes?

Everyone has unlimited needs and wants but the resources and solutions to fulfil these demands are limited as money is limited.

In the economic cycle, what is the role of Households?

They possess all factors of production and sell these to businesses which use them to manufacture goods and services.

In the economic cycle, what is the role of Businesses?

They buy factors of production and manufacture goods and services that they will sell at a profit to households or other businesses.

How does the government participate in the economic cycle?

It receives taxes from households and businesses and uses the revenue to promote economic activities in the country.

Under what condition is the foreign sector involved in the economic cycle?

The foreign sector is only involved in an open market system where goods and services are imported from and exported to other countries.

What does the term 'Global economy' refer to?

The international trading of goods and services.

According to the notes, what are the advantages of a global economy?

Businesses no longer compete only with their own countries, there is freedom to work elsewhere in the world, and capital can move freely between countries.

What are the disadvantages of the global economy?

Job losses, loss of local culture, and unequal benefits towards wealthier countries.

How are First world and Third world countries classified?

First world countries are Developed countries and Third world countries are Developing countries.

What is a mixed market system?

A combination of a planned economic system and a free market system where production is controlled by supply and demand but the government controls certain economic activities.

Which specific country is mentioned as having a mixed market system?

South Africa.

In a mixed market system, how is it determined 'what' is being produced?

What the government sees as important and what consumers are prepared to pay.

What are the advantages of a mixed market system?

Social services are provided by the government and the government creates certain work opportunities.

What is a primary disadvantage of the mixed market system related to the public sector?

Poor services can be delivered because of the bureaucratic public sector.

What is a market economy (also known as a free market system or capitalism)?

A system where economic activities depend on demand and supply and the government does not interfere.

In a market economy, how is production determined?

Businesses competing with each other produce as many products as they need to make a profit.

Who are products produced for in a free market system?

For people who are able to afford the products.

What are the disadvantages of a market economy?

Unfair distribution of wealth, the formation of monopolies, and unsuccessful businesses due to intense competition.

What does the term 'Economic style' refer to?

The manner in which decisions are made with regard to how factors of production are organised in order to produce and distribute goods and services.

What characterizes a planned economic system?

Economic activities are organised by the government, focusing mainly on what the government needs (primarily industrial needs).

How is the 'How' of production decided in a planned economy?

The government decides on the quantity of each product as well as who will produce it, often resulting in no freedom to choose a career.

What are the advantages of a planned economic system?

The government aims to provide jobs for everyone to decrease unemployment and ensures all citizens have access to basic essential services like health.

What are the disadvantages of a planned economic system?

Prices are controlled and set by the government, and there are limited choices of products.