ECONOMIC SYSTEMS

Command Economy

All economic decisions are made by the government

-Countries with dictatorial forms of government have command economies

-Most common type of command economy is communism

Example of nations that had or have command economies today: Soviet Union, Cuba, North Korea, Venezuela, Vietnam

ECONOMIC SYSTEMSMarket Economy

All businesses are privately owned by citizens, prices and wages are determine by the forces of SUPPLY AND DEMAND

-Supply and Demand: how badly people want a product and how much supply of that product is available determines its cost!

-Countries with democratic forms of government have market economies

-Most common type of market economy is capitalism

Example of a nation that had or have command economies today: UNITED STATES OF AMERICA PRE-1932

ECONOMIC SYSTEMSMixed Economy

Businesses are EITHER privately owned by citizens or by the government. Supply and Demand still determines production and pricing BUT government sets rules

that businesses have to follow.

-Laws passed by the government in a mixed economy are typically to product consumers and workers from abuse by big business owners. (example: minimum

wage)

-Countries with democratic forms of government have market economies

Example of a nation that had or have command economies today: UNITED STATES OF AMERICA POST-1932

ECONOMIC SYSTEMS

Traditional Economy

An economy based on custom and tradition. The decisions are based on tradition of the community or family. Goods are made in the home and traded

rather than sold for profit.

Example of a nation that had or have command economies today: Tribal regions of Africa and South America

ECONOMIC SYSTEMSLets look at a couple samples of how questions look on the

OGT that will test your knowledge of economic systems

In a certain country, decisionsregarding production andconsumption of goods are basedupon customs, beliefs, rituals, andhabits. Over time, the economicsystem changes to one in whichproduction decisions are based oncompetition and consumer choice.How has the economic system ofthis country changed?

A. from a mixed economy to a command economy

B. from a command economy to a mixed economy

C. from a traditional economy to a market economy

D. from a market economy to a traditional economy

ECONOMIC SYSTEMSLets look at a couple samples of how questions look on the

OGT that will test your knowledge of economic systems

In a certain country, all decisionsconcerning the production of goodsand services are made by thegovernment. However, following apolitical revolution, a new economicsystem is set up in which somedecisions regarding production ofgoods and services are made by the government and others are made by individuals and private companies.

How has the economy of thiscountry changed?

A. from a mixed economy to a market economy

B. from a command economy to a mixed economy

C. from a market economy to a traditional economy

D. from a traditional economy to a command economy

ECONOMIC SYSTEMSLets look at a couple samples of how questions look on the

OGT that will test your knowledge of economic systems

Economic systems answer thequestion of how goods and services are produced. What is one way a country could change from acommand economy to a marketeconomy?

A. if the government takes control of family-owned

farms

B. if privately owned banks become subject to stricter regulation

C. if agricultural and factory workers are required to join labor unions

D. if industries that had been owned by the government become privately owned

TRADEIMPORTANT TERMS TO KNOW

1. Imports: products entering into a country from a different location

2. Exports: products leaving a country for a different destination

3. Tariff: tax on imported goods

4. Embargo/Blockade: a country refuses to trade with another nation for political or economic reasons

5. Trading Blocs: Countries from the same region of the world who will work together to conduct trade with other nations.

They do this because they are likely to get more for their products as a group than competing against one another.

Example: Countries in the Middle East pooling their oil and selling it as one organization: OPEC

TARIFF INFORMATION

***A country will raise tariffs on foreign imports to help companies in their nation sell more goods to consumers

If a foreign company has to pay a higher tax to sell their good in the United States they will have to charge consumers more for that product.

***A country will lower tariffs on foreign imports if there is a product in high demand in their nation that cannot be produced by their own companies

TradeLets look at a couple samples of how questions look on the

OGT that will test your knowledge of Trade

Which action could the U.S. government employ to protect U.S. automobile manufacturers from foreign competition?

A. increase taxes on the production of U.S.

automobiles

B. create free trade agreements

with automobile-producing countries

C. increase tariffs and import restrictions on foreign automobiles

D. implement stricter control of competition among U.S. automobile manufacturers

TAXES

*16th Amendment: granted Congress the right to raise money (revenue) by collecting taxes from people’s income (money earned from work)

Tax money is used to pay for schools, public service projects, military, aide to foreign nations, etc.

How much the government taxes workers and business owners can have a HUGE impact on the economy

TAX Effects

***If the government raises taxes on money made by BUSINESSES it takes away from business owners profits

If business owners are losing money to high taxes they are going to look for things to cut to make up for the money loss….Number ONE CUT—JOBS!

***If workers are seeing more of their hard earned paycheck taken away by taxes they are going to buy fewer products. This means businesses make less money and risk going out of business or having to lay off workers!

TaxesLets look at a couple samples of how questions look on the

OGT that will test your knowledge of Taxes. The following is an example of a 2 point writing question on the OGT.

What would be the expected effecton consumer spending and on theunemployment rate if the UnitedStates government were to increasepersonal income tax rates?Write your answer in the AnswerDocument. (2 points)

POTENTIAL WRITTEN RESPONSE

If the U.S. government were to increase income taxes consumer

spending would go down because people would be getting to keep less of the money they earn with each

paycheck. Because people are buying fewer products

businesses will be making less money and will have to lay

workers off leading to a HIGHER unemployment rate.

Cleaning up the Banking SystemFEDERAL RESERVE SYSTEM

Improved the nation’s monetary and banking system by allowing banks to control the money supply. The Federal Reserve Board was created to monitor spending/lending

and determine the amount of money made available to banks for loans.

Level OneFederal Reserve Board (FED)…members are appointed by the

President. They control the money supply to the banks by raising/lowering

interest ratesI

II

III

Level Two 12 Federal Reserve Banks across the U.S. that

provide and collect money from local banks within their region.

(Cleveland)Level ThreeThe millions of member banks found in every community across

the U.S.

HOW DOES THE FED WORK?ESSAYThe country is in a state of economic depression. Money is scarce,

unemployment is high, bankruptcy/foreclosures are rising, and businesses are failing. What can the FED do to fix this economic problem and what impact will

the FED’s decision have on consumers, businesses, and the government.

*IT ALL COMES DOWN TO INTERST RATES!-A rate which is charged or paid for the use of money

The Fed should……..

Lower Interest rates to increase the amount of money banks have available for loan and

make it easier for people and businesses to get access to

that money.Impact of Lowering Interest Rates?……

Consumers: The money in circulation will rise encouraging consumers to spend more money

Business: As people spend more, business will hire more workers, increase production, and expand.

Government: More people spending money, more people making income, business making hire profits EQUALS greater TAX REVENUES!