Theory - C5: Economy

Command Economy

• the national government makes all the economic decisions 

• also called a centrally planned economy 

• Main features 

              • government ownership of land and capital 

              • government control of labour 

              • government control of all economic activities 

• Ideally, everyone shares equally in the limited resources 

Market Economy

• An economic system in which the production & distribution of commodities takes place through the mechanism of free markets

• also called consumer economy, capitalist economy, private enterprise economy, free enterprise economy

• Features of a market economy

1. • Right to private property: individuals have the right to buy and own land & capital goods

2. • Freedom of choice

3. • Profit motive

4. • Market forces control a market economy. Eg. supply and demand, and competition

5. • Minimal role of government 

UK Industrial Revolution

• 1760 - 1830: largely confined to Britain

• The emergence of water, steam, and coal → U.K. dominate the global textile market.

• Innovations in manufacturing, productivity, transportation, communication → Britain became the world's first modern superpower.

American Industrial Revolution

1865-1900

• also called “The Gilded Age”, saw the greatest period of economic growth in American history

• manual/farm labor → industrialization

What sector is most important to the UK economy?

Services, particularly banking, insurance, and business services

What sector is most important to the US economy?

Service industries with the government services, business and health, banking, finance consultancy, insurances, computer and data processing, hotels, restaurants, leisure activities, trade, personal services, and communications

41. major UK trade partners.

1. United States (export),

2. China,

3. Germany (import),

4. Netherlands and

5. France

42. major US trade partners.

1. China,

2. Canada,

3. Mexico,

4. Germany and

5. Japan

39. What role does government play in a mixed economy?

• control prices

• protect customers and certain companies from destructive competition

• Control the impacts on the environment.

47. What were two problems faced by workers during the UK Industrial Revolution?

Long hours and low wages

3. Which international financial institutions created alongside the UN had an “insatiable hunger for statistics”?

The World Bank and the International Monetary Fund

4. Why were the first leading indicators considered truly “macro statistics”?

They were meant to give shape and form to the big picture

5. By the early twentieth century, the USA became the world’s richest country primarily due to growth in which sectors?

Industrial and manufacturing output

6. Which organization is responsible for adjusting interest rates and controlling the US money supply?

The Federal Reserve System

7. How did the US Constitution of 1787 define the economic relationship between the states?

As a unified or common market

8. What economic consequence followed the UK’s 2016 referendum to leave the EU?

A sustained depreciation of the British pound

9. What major financial policy did the Cameron–Clegg coalition introduce in 2010 to address public deficits?

An austerity program

12. What is the main purpose of social regulation imposed by the US government on private industry?

To promote non-economic objectives such as environmental protection and workplace safety

15. What is the primary role of the independent Bank of England since 1997?

Setting interest rates to control inflation

16. Which statistics are commonly described as leading indicators of economic health?

Industrial production and consumer confidence

17. What term describes the 1980s UK policy of transferring state-owned industries to private ownership?

Privatization

18. When did economic indicators like GDP, unemployment, and inflation begin to be tracked regularly?

After World War II

20. What term refers to exports such as financial and insurance services not included in the goods trade balance?

Invisible exports

economic metrics

economic indicators - data used to gauge the health or growth trends of a nation's economy, or of a specific industry sector.

GDP

Gross Domestic Product - a monetary measure of market value of all the final goods and services produced in a given year within a country's borders.

--> measure of a country's economic performance

--> international comparisons: country's ranking

--> indicator of national development and progress

mixed economy

is characterized by a dominant centralized power

• In a mixed economy, both the government and individuals are involved in making economic decisions

• Four types of mixed economies

1. • mixed command economy

2. • transition economy

3. • mixed socialist economy

4. • mixed market economy

Thatcherism

a shorthand for economic principles underlying the policies of the Thatcher government in the UK from 1979 and 1990. These include

--> promotion of competition to strengthen economic incentives

--> reduction of the role of the government by deregulation and privatization (nationalized the industry)

--> reliance on monetary policy to eliminate inflation

--> widening of individual choice, (e.g: through the sales of council houses to tenants)

--> a reduction in the powers of trade unions

budget deficit

Def: the government spending exceeds the income it receives through taxation and other sources (thâm hụt ngân sách.)

Devaluation/Depreciation of the currency

- Def: a fall in the value of currency in a floating exchange rate

Privatisation

Def: the process by which a piece of property or business goes from being owned by the government to being privately owned.

Free enterprise economy

- also known as a free market economy or capitalism

- is an economic system in which private individuals or businesses have the freedom to own, operate, and control the means of production and engage in economic activities with limited government intervention.

UK economic trend after 1980 and nowadays

After 1980: the government sold off a large number of companies.

Nowadays, virtually the only services left in government hands are strictly social ones such as education, health, and social welfare.

UK economic trend in 1945-1980

the general trend was for the states to have more and more control. Various industries (e.g: production and distribution of energy) has become nationalized .

The role of government in mixed economy (the US)

(minimum government intervention)

- economic regulation: seeks to correct market failures through fiscal and monetary policies. (chính sách tài chính và tiền tệ)

- social regulation: promotes objectives that are not economic; discourage or prohibit harmful corporate behavior or to encourage behavior deemed socially desirable (Eg: safer or a cleaner environment)

Laissez faire

a philosophy or policy advocating minimal government intervention in economic affairs.

Self-interest

- meaning individuals, businesses, or entities acting in their own best interest to maximize their well-being or economic gain.

- the motivator of economic activity

Competition

- refers to the dynamic interaction among businesses and market participants to attract customers, improve products and services, and ultimately achieve success in the marketplace.

- the regulator of economic activity

Self interest and Competition

Together they form what Adam Smiths called the "invisible hand" that guides the economy

Trade deficit

the value of goods and services the country imports exceeds the value of goods and services it exports. In other words, the UK is buying more from other countries than it is selling to them.

What sectors and industries are most important to the economy of the US?

service industry

- accounts for more than 3/4 GDP

- a comparable portion of the total employment

- most developed in the Northeast of the US

●      What are the key challenges facing the UK economy nowadays?

1. inequality of wealth

2. continued budget deficit,

3. fluctuations in the value of the pound.

4. education of the workforce

5. regulation of the financial sector

6. gender inequality in the workforce

● What are the key challenges facing the US economy nowadays?

1. aging demographics

2. the skill gap

3. lagging educational achievement levels..

4. gov debt

• monetary policies

(managed by the Federal Reserve): managing the money supply and controlling credit (sự cho nợ)

• fiscal policies

adjusting spending and tax rates

deindustrialization

a decline in the importance of industrial activity