- Stabilizing the economy. THE MIXED ECONOMY
- In a mixed economy the government may also be a producer of private goods such as steel or motor cars. Examples of this in the UK include nationalized industries such as steel and coal.
- CAN INFLATION BE BENEFICIAL
- Text I. Economic systems (700)
- Centrally Planned Economies (350)
- At the heart of a centrally planned economy is its blueprint, generally a five-year plan. Based on this overall plan, special targets are set each year for each sector of economy.
- Vocabulary list
- СОДЕРЖАНИЕ: Тексты I семестра
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What ought to be the role of government in the economy? The following economic responsibilities are best fulfilled by government:
THE MIXED ECONOMY In a mixed economy the government and private sector interact in solving economic problems. The government controls a significant share of output through taxation, transfer payments, and the provision of goods and services such as defense and the police force. It also regulates the extent to which individuals may pursue their own self-interest. In a mixed economy the government may also be a producer of private goods such as steel or motor cars. Examples of this in the UK include nationalized industries such as steel and coal. Most countries are mixed economies, though some are close to command economies and others are much nearer the free market economy. Thus, we consider the economics of a market economy with absolutely minimal governmental interference. In mixed economies, most decisions are made on a decentralized basis market by market, but in every market the government presence is always important to some degree. Most people either pay substantial taxes or enjoy special benefits from tax privileges. Government regulation is everywhere; we need licenses to start businesses and clearances to sell securities that raise funds for financing them. Businesses hire labour, subject to provisions such as minimum wage laws, federal restrictions on hiring foreigners and so forth. The cars we buy have many features required by government safety regulations. Just as market economies today are really mixed economies, the centrally planned economies do not function entirely on the principles of textbook central planning. In planning economies, central bureaucracies play an extremely important role in determining which goods are produced, in what quantities, and the prices for which they are sold. Nevertheless, market forces familiar to everyone in market economies also play an important role. For example, in many centrally planned economies, farmers work on collective or state farms but also on small private plots of land. Farmers can take the produce grown on private plots to markets and sell it at whatever prices the market will bear. Similar examples appear in market economies. CAN INFLATION BE BENEFICIAL? Inflation is generally defined as a persistent rise in the general price level with no corresponding rise in the output, which leads to a corresponding fall in the purchasing power of money. Inflation varies considerable in its extent and severity. Hence, the consequences for the business community differ according to circumstances. Mild inflation of a few per cent each year may pose few difficulties for business. However, hyperinflation, which entails enormously high rates of inflation, can create almost insurmountable problems for the government, business, consumers and workers. We would be simplifying the impact of inflation on business if we suggested that all effects were unfavourable. There is a school of thought, which argues that a low and stable rate of increase in the price level can be beneficial. It believes that a steady rise in money profits produces favourable expectations and induces investment as firms seek to expand. This action expands the economy as a whole. Paradoxically, inflation can also reduce the costs of businesses in the sort run. Many enterprises incur costs, which are fixed at a particular figure for a few years. At a time when the selling price of the firm’s product, and hence its sales income, is rising this cost will be falling in real terms and thus stimulating the business. There is a further argument that firms may be persuaded to borrow heavily in a period of inflation since the burden of repaying loans is reduced by inflation. If inflation is running annually at 10 per cent, for example, then the real value of the repayments of the loan will fall by approximately that amount each year. This may serve to encourage investment which, since it is an injection into the circular flow, will promote the level of activity. However, in these circumstances interest rates are likely to be high. Government will accept that low rates of inflation are likely to exist in many economies. Inflation rates of 5 per cent or below are not considered to be too great a problem, especially if the competitor nations are suffering similar rates. In spite of the above, the conclusion must be drawn that inflation is, in general, harmful to business and its environment. Indeed, many economists would contend that inflation is the fundamental evil as its presence leads to lack of competitiveness and there fore relatively high unemployment and low rates of growth. This viewpoint has gained in credence in government circles over the last few years. It is for this reason that its control has been a major objective of government economic policy throughout the 1980s and early 1990s. Text I. Economic systems (700) Economic systems are usually defined as either capitalist, socialist or mixed. However it is possible to classify economic systems according to the method of resource allocation and control (market economy or command economy) and to the type of property ownership (private ownership or public ownership). The ownership of factors of production can be viewed as a continuum from complete private ownership at one end to complete public ownership at the other. In reality, no country belongs wholly at one end or the other. For example, the United States of America is considered to be the prime example of private enterprise, yet the government owns some factors of production and actively produces in such sectors of the economy as education, the military, the postal service and certain utilities. Market Economy (1400) In market economy, two societal units are very important: the individual and the firm. Individuals own resources and consume products, while firms use resources and produce products. The market mechanism involves an interaction of price, quantity, supply, and demand of resources and products. The key factors that make the market economy work are consumer sovereignty and the freedom of the enterprise to operate the market. As long as both units are free to make decisions, the interplay of supply and demand should ensure proper allocation.. The market economy has been highly successful in most industrial countries, especially in the United States. A perfect market economy does not exist in the United States owing to three major factors: large corporations, labour unions, and the government. The large corporation can reduce market procedures somewhat by exerting control over the purchase of resources or the resale of products. Because of the large size of the firm and relative smallness of each individual shareholder, there is a wide gap between ownership and control of decision making. Decisions may or may not be strictly motivated by the market. Labour unions evolved to response to the power exerted by the owners and managers of business over the labour market. Tremendous benefits in terms of salaries, fringe benefits, work conditions have been won by the unions, but market forces have been disrupted seriously. Many unions control entry into the work force and restrict the freedom of workers to change occupations in response to supply and demand. Centrally Planned Economies (350) In centrally planned economies the government tries to harmonize the activities of the different economic sectors. In the extreme form of central command, goals are set for every enterprise in the country and must be followed. The government determines how much is produced, by whom and for whom. At the heart of a centrally planned economy is its blueprint, generally a five-year plan. Based on this overall plan, special targets are set each year for each sector of economy. Mixed Economies (500) By definition, no economy is purely market determined or centrally planned. The United States and the former Soviet Union represent different ends of the spectrum of mixed economies. In practice, however, mixed economies generally have a higher degree of government intervention than is found in the United States and a greater degree of reliance on market forces than is found in the former Soviet Union. Government intervention can be regarded in two ways: actual government ownership of means of production and government influence in economic decision making. Vocabulary list:. to define — определять, давать определение; definition — определение; mixed — смешанный; allocation — размещение, распределение; allocation of resources — распределение ресурсов; property — собственность; ownership — владение, собственность, право собственности; private — частный; public — государственный; postal service — почтовая служба; utilities — коммунальные службы; to consume — потреблять; supply — предложение; demand — спрос; adequate — соответствующий; to purchase — приобретать; gap — пропасть, разрыв; to evolve — возникать; fringe benefits — дополнительные льготы; СОДЕРЖАНИЕ:
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