CHAPTER FOUR TEST REVIEW

Centrally planned economy

An economic system in which the government controls

all elements of the economy, including prices, wages,

and production.

In a centrally planned economy:

Ownership of property is restricted

All profit belongs to the government; all workers are employed by the government

Competition is limited; government determines price, quality, style, and amount of goods and services

Mixed economy

An economic system that sits between a market economy and a centrally planned economy, combining government intervention and private enterprise.

In a mixed economy:

Property is owned by individuals, corporations, or government

Profit is encouraged, but taxed to support government projects and programs

Strong competition amongst corporations; government may also be a competitor

Political system

The type of government by which a country is run.

Democracy

A state governed by all eligible members of the population through elected representatives.
Characterized by free and fair elections, the rule of law, free speech and press, the right to assembly, and freedom of religion

Politicians may be more concerned with re-election than the good of the country

Autocracy

A state governed by a single individual or a small group of people with unlimited power.

Usually has strong military presence

Strives to control all aspects of citizens’ lives

Citizens have no influence on government

Underdeveloped countries

Also referred to as the least-developed or third-world countries, nations that are at the lowest level of the world’s economies

Business cycle

Recurring periods of increased and decreased economic activity, or expansions and contractions.

The business cycle is characterized by four stages:

recession, trough, expansion, and peak.

Market economy

An economic system determined by free competition, in which businesses, consumers, and government act independently of one another, and market forces and self-interest determine what goods are created and sold.

Absolute advantage

The ability of one country to use its resources to make a product or service more efficiently than other countries.

Opportunity cost

The value of what is foregone, or the cost of giving something up to get something else.

Comparative advantage

The ability of a country to produce a good at a lower opportunity cost than another country.

Lobbying

The process through which companies, special interest groups, or individuals attempt to influence government officials and persuade them to endorse public policy favourable to these groups.

Gross domestic product, Coincident, and lagging

GDP: The total goods and services produced in one country in one year.

Coincident: International trade is an example.

Lagging: Unemployment rate is an example