What is the economy?
Turn on the TV or listen to the radio and you will hear reports on the economy. Listen to the political candidates and they will be arguing over the economy. Did you ever take a class on Economics? Do you remember the material? What is the economy anyway?
The economy is the system of manufacturing, distributing, and consuming goods and services. It is how we bring together natural resources, labor, and technology to accomplish this. The politics of a country determine what kind of economy they operate.
In the 1800’s Karl Marx described our economy as a “Capitalist Economy”. This means that a small group of people who control large amounts of money or capital make most of the important economic decisions. He contrasted us with a “Socialist Economy” where the power is held by the government for the good of the people. Neither a pure Capitalist or Socialist economy has been completely successful. We have a “Mixed Economy” in the US. Market forces such as Supply and Demand dictate much of what happens but our government sets many of the rules and regulations.
We are all selling our services and products to each other in a delicately balanced system. If the economy is doing well at least 94% of the people who want to work have a job and 12% or less of us are living below the poverty level.
Who buys the goods and services?
Two thirds of our country’s economic output is purchased by individuals for their personal use. The other one third is purchased by our government and businesses.
What is the government’s role in the economy?
The government controls the pace of the economy. The levers that they can use are:
· Raising or lowering the prime interest rate.
· Increasing or decreasing government spending.
· Raising or lowering taxes.
· Raising or lowering the supply of money and credit in the economy.
The government’s methods of using these levers are their “fiscal policy”. This can change with each new presidential election or change in which political party controls congress. The government didn’t really start using fiscal policies as we know them today until the Great Depression in the 1930’s. Some believe that increased government spending and tax cuts got us out of the depression. Others believe that not letting market forces work prolonged the depression. The same thing was tried in the 1960’s and started a cycle of rising prices and wages known as inflation. The first attempts to control inflation didn’t start until the 1970’s. Only time will tell what the long term effects of the current government stimulus programs will be.
The government also regulates pollution, safety, national defense, controls monopolies, provides for the poor, and intervenes during large disasters.
What part do I play in the economy?
You are a member of the group that controls two thirds of our economy. What the consumer is purchasing determines what manufacturers will make. How much you demand determines how high the price will be. One person cannot change the economy. What you can do is learn the basic rules of the economy and personal finance. Then you can participate in and enjoy the system instead of being crushed under it.
Turn on the TV or listen to the radio and you will hear reports on the economy. Listen to the political candidates and they will be arguing over the economy. Did you ever take a class on Economics? Do you remember the material? What is the economy anyway?
The economy is the system of manufacturing, distributing, and consuming goods and services. It is how we bring together natural resources, labor, and technology to accomplish this. The politics of a country determine what kind of economy they operate.
In the 1800’s Karl Marx described our economy as a “Capitalist Economy”. This means that a small group of people who control large amounts of money or capital make most of the important economic decisions. He contrasted us with a “Socialist Economy” where the power is held by the government for the good of the people. Neither a pure Capitalist or Socialist economy has been completely successful. We have a “Mixed Economy” in the US. Market forces such as Supply and Demand dictate much of what happens but our government sets many of the rules and regulations.
We are all selling our services and products to each other in a delicately balanced system. If the economy is doing well at least 94% of the people who want to work have a job and 12% or less of us are living below the poverty level.
Who buys the goods and services?
Two thirds of our country’s economic output is purchased by individuals for their personal use. The other one third is purchased by our government and businesses.
What is the government’s role in the economy?
The government controls the pace of the economy. The levers that they can use are:
· Raising or lowering the prime interest rate.
· Increasing or decreasing government spending.
· Raising or lowering taxes.
· Raising or lowering the supply of money and credit in the economy.
The government’s methods of using these levers are their “fiscal policy”. This can change with each new presidential election or change in which political party controls congress. The government didn’t really start using fiscal policies as we know them today until the Great Depression in the 1930’s. Some believe that increased government spending and tax cuts got us out of the depression. Others believe that not letting market forces work prolonged the depression. The same thing was tried in the 1960’s and started a cycle of rising prices and wages known as inflation. The first attempts to control inflation didn’t start until the 1970’s. Only time will tell what the long term effects of the current government stimulus programs will be.
The government also regulates pollution, safety, national defense, controls monopolies, provides for the poor, and intervenes during large disasters.
What part do I play in the economy?
You are a member of the group that controls two thirds of our economy. What the consumer is purchasing determines what manufacturers will make. How much you demand determines how high the price will be. One person cannot change the economy. What you can do is learn the basic rules of the economy and personal finance. Then you can participate in and enjoy the system instead of being crushed under it.
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