Chapter 4 Economic Systems

Chapter 4: Economic Systems and Market Methods

Managers try to find new markets and new perspectives by looking into the following factors

How countries differ in various development areas (economic, political)

How abrupt economic and political changes might change the circumstances of the market

How globalization is affecting the country

If the economy is rising

What choices are citizens, institutions and policy makers doing

International Economic Analysis

214 economic environments

An economy cannot be fully evaluated because of the following factors

System Complexity

Market Interdependence

Market Dynamism

Data Overload

Economic Freedom

Its the absolute right of property ownership, and of realized freedoms of movement for labor, capital and goods, and a absence of constraint or coercion of economic liberty by the government beyond whats needed to maintain and protect that freedom

Economic Freedom Index: Measures how much economic freedom a country is giving.

Measures 50 indicators that comprise 10 components that are in 4 categorys

Rule of Law

Limited Government

Regulatory Effciency

Open Markets

Helps explain a country's rising development, performance and potential

Types of Economic Systems

Market Economy

Mixed Economy

Command Economy

Propelled by capitalism, a market economy is a system where individuals, not the government make most economic decisions.

Propelled by Socialism, a mixed economy is where economic decisions are made mainly by the market and ownership is private, but there's an amount of government interference

Propelled by communism, a command economy is a system where the state makes all the economic decisions and owns all property and resources

Characterized by:

Privatization

Deregulation

Property Rights

Anti-trust Legislation

Assessing Economic Development, Performance, and Potential

Emerging economies: Countries that are developing at a fast pace.

Developed Countries: Countries with a high per capita income, with an average of $37,545

Gross National Income (GPI) and Gross National Product (GNP) measure economic performance

GPI measures all the final goods and services produced in a country in a given time, plus the income earned by its citizens abroad minus the income that foreigners earned from domestic production

GNI measures the value of all production in the country plus all the income that the country receives

Gross Domestic Product (GDP): Its the total market value of all output produced within a country, no matter if it was made by domestic or foreign makers.

Shows the true performance of an country and the flow of economic activity in it

Increasing growth rate of GNI means business oportunities, cause if the GNI grows faster than its population it means its standard of living is rising

Alternative Interpretations

Green Economy: Idea that each country is part of and dependent on natural resources

Net National Product (NNP)

Genuine Progress Indicator (GPI)

Happynomics: Looking for emotional prosperity rather than financial

Your Better Life Index (YBLI)

Gross National Happiness (GNH)

Happy Planet Index (HPI)

Economic Analysis Indicators

Inflation: When the price increases faster than the level of purchasing power

Unemployment: Percent of people out of work looking for work compared to people who do work

When aggregate demand increases faster than aggregate supply

Measured by Consumer Price Index (CPI) in U.S and the Harmonized Index of Consumer (HICP)

Opposite of Inflation= Deflation

Combated by the government with reflation

Increasing the money supply, and reducing taxes

Debt: The financial obligations that a government has, meaning the money they have to pay to its citizens, institutions and banks

Extended debt: When a government borrows money from sources outside the country like a international bank or another government

Internal Debt: When the government spends more than it collects. Creating deficits.

Poverty: Condition where a person or community lack the resources to have a good standard of living

Income Distribution: Shows the relative wealth that the citizens of a country have and the difference of wealth they have between one another

Balance of payments: Reports the trades and transactions that a country does in a given set of time

Capital Account: Tracks loans for cross-border payments for designated assets

Current Account: Tracks cross-border payments for goods and services

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