Mason and Jamie's Economics Page
Chapter 2 Econ Summary Economic Systems and the Global Economy
Jamie Ramseyer and Mason Elias Mr. Treadway |Period 3
Overview The chapter "Economic Systems and the Global Economy" is about the two most dominant economic systems, free enterprise and socialism, and how they differ from each other.
Key Terms
Economic System- the way in which a society decides what goods to produce, how to produce them, and for whom goods will be produced.
Free Enterprise- an economic system in which individuals (not government) own most, if not all, the resources and control their use. Government plays only a small part in the economy.
Socialism- an economic system in which government controls and may own many of the resources.
Economic Plan- a government program specifying economic activities, such as what goods are to be produced and what prices will be charged.
Income Distribution- the way all the income earned in a country is divided among different groups of income earners.
Mixed Economy- an economy that is neither purely capitalist nor purely socialist; an economy that has some elements of both capitalism and socialism. Most countries in the world have mixed economies.
Traditional Economy- an economic system in which the answers to the three economic questions are based on customs, traditions, and cultural beliefs.
Vision- a sense of how the world works.
Labor Theory of Value- the belief that all value in produced goods is derived from labor.
Surplus Value- the difference between the total value of production and the subsistence wages paid to workers.
Globalization- a phenomenon by which economic agents in any given part of the world are affected by events elsewhere in the world; the growing integration of the national economies of the world to the degree that we may be witnessing the emergence and operation of a single worldwide economy.
Offshoring- the term used to describe work done for a company by persons other than the original company's employees in a country other than the one in which the company is located.
Comprehension/Critical Thinking and Writing
1. Socialism and capitalism answer the three economic questions in many different ways. They not only provide answers to these questions but also let one see examples in real life situations. Socialism answers the question of what goods will be produced because the government controls and owns many resources so it decides what goods will be produced. However, in a capitalistic economy individuals of private firms make the decision of what goods will be produced. In a socialist society, goods will be produced based on government decisions and whomever they believe goods should be produced for. But in capitalism, goods will be produced based on what the individuals [who decide what goods will be produced] decide. The third and final question is for whom will the goods be produced. Socialism answers this question by the government deciding who gets the goods. In capitalism, goods are produced for people who are willing and able to pay the prices for the goods.
America is not a pure capitalist nation, although they lean towards capitalism. They are a mixed economy, which is an economy that has some elements of capitalism and socialism. A mixed economy can be either good or bad. It gives people quite a bit of economic freedom but not total freedom which is a positive. However, there are some controlled prices in the United States that some may cause some to think that there is too much government interference. This could be bad because more than not, people do not like too much government decision making.
2. Keynesian Economics is a type of aggregate demand, which is a stradegy of total spending in the economy and how it effects the production of goods and inflation. John Maynard Keynes is one of the most well known economists in the world. He developed Keynesian Economics over his entire lifetime. Some ideas of Keynesian economics include the stabilization of the economy by the government when the economy is in need. One of the major points behind the Keynesian economics is the judgement of the government. If the government stepped in too early than it could be considered somewhat socialist but if they stepped in too late than it would be considered almost free enterprise so it is practically finding a balance between the extremes.
John Maynard Keynes believed that if Investment exceeds Savings then there will be inflation, but if Savings exceeds Investment then there will be recession. During inflation, Keynes believed that there should be less spending and more saving. However, in a recession, he believed that there should be more spending and less saving. Keynes beliefs differed from the people of his own time. He said that output is determined by the demand for certain goods or services. However, most others during that era believed that supply creates demand. J.M.K. thought that little amounts of spending creates unemployment. So, in a recession, he believed the spending should be increased because otherwise it creates less demand of any want that is being supplied which would hurt the economy because no one would be willing or able to buy those goods. Keynes leaned toward the idea of a free enterprise, but he said that the government should step in on certain occasions if need be, so he stated that if a recession were to happen then that government should borrow money and help the struggling economy. He then declared that once the economy was back on its feet, that is when the government should pay back the loans. Keynes coming up with these ideas shaped many economies because they had never heard of anything like this, only the beliefs of Adam Smith's laissez-faire. Again, Keynes did not support socialism, but he did want the government to step in and help out if an economy is in bad shape. He stated that if there were to be a successful government, then help would be needed from both the government and private individuals who either have their own business or work in a non-government ran job. These ideas are similar concepts to that of a mixed economy in today's society.
Keynesians often think that what may happen for a little while will not necessarily keep happening. He often used this quote to make that point,"In the long run we are all dead." He would say this to emphasize how quickly things can change and how quickly we must adjust to those changes. Keynesians also believe that prices and therefore wages are always changing, even if it is just slightly. Any change in the economic status or government spending will fluctuate prices somwhat. Unemployment, in a Keynesians eyes is on average way too high and unnecessarily so. All of these things that Keynesians believe come from the briliant mind of John Maynard Keynes.
The United States is a mixed economy, not allowing absolute freedom to the people but leaning towards that direction. America supports a free enterprise system unless, like Keynes, the economy is "in the dumps." For example, the United States' government does not decide what goods will be produced, how they will be produced, or for whom they will be produced. However, the government has the ability to control these aspects of the economy, [like stated above] if that economy is either experiencing inflation or recession. John Maynard Keynes not only paved the path for many countries' economy's, but also made a major contribution to the economic system.
http://www.econlib.org/library/Enc/KeynesianEconomics.html
Jamie Ramseyer and Mason Elias Mr. Treadway |Period 3
Overview The chapter "Economic Systems and the Global Economy" is about the two most dominant economic systems, free enterprise and socialism, and how they differ from each other.
Key Terms
Economic System- the way in which a society decides what goods to produce, how to produce them, and for whom goods will be produced.
Free Enterprise- an economic system in which individuals (not government) own most, if not all, the resources and control their use. Government plays only a small part in the economy.
Socialism- an economic system in which government controls and may own many of the resources.
Economic Plan- a government program specifying economic activities, such as what goods are to be produced and what prices will be charged.
Income Distribution- the way all the income earned in a country is divided among different groups of income earners.
Mixed Economy- an economy that is neither purely capitalist nor purely socialist; an economy that has some elements of both capitalism and socialism. Most countries in the world have mixed economies.
Traditional Economy- an economic system in which the answers to the three economic questions are based on customs, traditions, and cultural beliefs.
Vision- a sense of how the world works.
Labor Theory of Value- the belief that all value in produced goods is derived from labor.
Surplus Value- the difference between the total value of production and the subsistence wages paid to workers.
Globalization- a phenomenon by which economic agents in any given part of the world are affected by events elsewhere in the world; the growing integration of the national economies of the world to the degree that we may be witnessing the emergence and operation of a single worldwide economy.
Offshoring- the term used to describe work done for a company by persons other than the original company's employees in a country other than the one in which the company is located.
Comprehension/Critical Thinking and Writing
1. Socialism and capitalism answer the three economic questions in many different ways. They not only provide answers to these questions but also let one see examples in real life situations. Socialism answers the question of what goods will be produced because the government controls and owns many resources so it decides what goods will be produced. However, in a capitalistic economy individuals of private firms make the decision of what goods will be produced. In a socialist society, goods will be produced based on government decisions and whomever they believe goods should be produced for. But in capitalism, goods will be produced based on what the individuals [who decide what goods will be produced] decide. The third and final question is for whom will the goods be produced. Socialism answers this question by the government deciding who gets the goods. In capitalism, goods are produced for people who are willing and able to pay the prices for the goods.
America is not a pure capitalist nation, although they lean towards capitalism. They are a mixed economy, which is an economy that has some elements of capitalism and socialism. A mixed economy can be either good or bad. It gives people quite a bit of economic freedom but not total freedom which is a positive. However, there are some controlled prices in the United States that some may cause some to think that there is too much government interference. This could be bad because more than not, people do not like too much government decision making.
2. Keynesian Economics is a type of aggregate demand, which is a stradegy of total spending in the economy and how it effects the production of goods and inflation. John Maynard Keynes is one of the most well known economists in the world. He developed Keynesian Economics over his entire lifetime. Some ideas of Keynesian economics include the stabilization of the economy by the government when the economy is in need. One of the major points behind the Keynesian economics is the judgement of the government. If the government stepped in too early than it could be considered somewhat socialist but if they stepped in too late than it would be considered almost free enterprise so it is practically finding a balance between the extremes.
John Maynard Keynes believed that if Investment exceeds Savings then there will be inflation, but if Savings exceeds Investment then there will be recession. During inflation, Keynes believed that there should be less spending and more saving. However, in a recession, he believed that there should be more spending and less saving. Keynes beliefs differed from the people of his own time. He said that output is determined by the demand for certain goods or services. However, most others during that era believed that supply creates demand. J.M.K. thought that little amounts of spending creates unemployment. So, in a recession, he believed the spending should be increased because otherwise it creates less demand of any want that is being supplied which would hurt the economy because no one would be willing or able to buy those goods. Keynes leaned toward the idea of a free enterprise, but he said that the government should step in on certain occasions if need be, so he stated that if a recession were to happen then that government should borrow money and help the struggling economy. He then declared that once the economy was back on its feet, that is when the government should pay back the loans. Keynes coming up with these ideas shaped many economies because they had never heard of anything like this, only the beliefs of Adam Smith's laissez-faire. Again, Keynes did not support socialism, but he did want the government to step in and help out if an economy is in bad shape. He stated that if there were to be a successful government, then help would be needed from both the government and private individuals who either have their own business or work in a non-government ran job. These ideas are similar concepts to that of a mixed economy in today's society.
Keynesians often think that what may happen for a little while will not necessarily keep happening. He often used this quote to make that point,"In the long run we are all dead." He would say this to emphasize how quickly things can change and how quickly we must adjust to those changes. Keynesians also believe that prices and therefore wages are always changing, even if it is just slightly. Any change in the economic status or government spending will fluctuate prices somwhat. Unemployment, in a Keynesians eyes is on average way too high and unnecessarily so. All of these things that Keynesians believe come from the briliant mind of John Maynard Keynes.
The United States is a mixed economy, not allowing absolute freedom to the people but leaning towards that direction. America supports a free enterprise system unless, like Keynes, the economy is "in the dumps." For example, the United States' government does not decide what goods will be produced, how they will be produced, or for whom they will be produced. However, the government has the ability to control these aspects of the economy, [like stated above] if that economy is either experiencing inflation or recession. John Maynard Keynes not only paved the path for many countries' economy's, but also made a major contribution to the economic system.
http://www.econlib.org/library/Enc/KeynesianEconomics.html
