Market Types And Monetary Policy
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Definitions of a Market Economy
The market economy is based on the assumption that consumer choice will influence market forces with no direct influence from the government. Everything from the market economy is based around supply and demand. Consumers show their satisfaction by purchasing goods at the lowest cost which raises production. The USA would be classified as a market economy since their system is based on wealth and power exercised by the individual and corporations. The price mechanism decides prices in the market if there is a shortage of a good or service then the price rises and if there is a surplus then the price will drop. Also because of the interaction between supply and demand prices will fluctuate but will always seek to head towards the equilibrium price. The downside of a market enjoy is that it encourages socially unacceptable behavior in terms of porn and pedophiles. The market economy is a free for all system where workers try to maximize their wages relative to the work they are doing.
Mixed Market Economy
The mixed market economy there is a balance between government and market forces. In the likes of hospitals, roads and education the government produces the goods and services at a regulated price which is known as the public sector. On the other side the private sector the majority of goods are produced by free enterprise. . The central fact about market economies is that there is no center. One of the founding metaphors for the private marketplace is that of the “invisible hand.” The Term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. (1)According to Adam Smith,” in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better of than when simply producing for himself/herself.” In the mixed market economy the strengths are that they combine private enterprise and state planning to create a single competitive marketplace to all. For example state benefits could be seen as a command control safety net to provide welfare to all that need it. Also with the privatization of certain public services the government is able to move away from the inefficacy of government in monitoring and controlling public services whereas in the private sector efficacy is the keyword for making more money. The downside of this is that within the private sector profit is god which means that some companies may cut corners to cut costs for example as seen by the company Matel which had to issue a total recall due to excessive lead paint contained in some of their products. The UK would be an example of a mixed market economy.
Command Economy.
Command Economies are few and far between now but the perfect example would be the old eastern bloc country of USSR. In this sort of economy the state takes decisions are taken collectively. The state controls what is produced, how much is produced and what it costs. This is supposed to be a system that benefits the good of all its citizens rather than the individual. At the end of the 20th century, it is clear that, for people throughout the world, the central, command economy model has failed to sustain economic growth, to achieve a measure of prosperity, or even to provide economic security for its citizens. The Command economy is supposedly geared towards the people, how, what, and for whom to produce is decided by the state. It has nothing to do with supply and demand but rather state determined priorities. It is supposed to create equality for all its citizens and to create jobs for everyone. The drawback of this system is that there is no initiative to produce, no free market therefore no enterprise or entrepreneurship. Also there is a lack of investment because there is no competition. In this system more time is spent in planning rather than in the doing and because of human wants inevitably black markets will arise when people are dissatisfied.
There are various reasons why disparities exist between the various types of market systems in the free market system basically you cannot get something for nothing. Everything needs to be paid for due to the fact that this market structure is based on money. The downside of this system is that for the poor or sick receive no special benefits or money. There is no state welfare or healthcare system in place. So the poor get poorer and the rich get richer which will breed discontent and also racism since the majority in a market economy are white middle class people.
How might the EU membership enhance GDP for the new members?
The reasons for the enhancement of GDP are due to the numerous benefits involved in joining the European Union. Since the member countries operate a single monetary union this enables new members to trade within the whole of the European Union, a single market allows increased trade and labour mobility within the union leading to a more efficient allocation of resources. There are also grants available to help in creating economic growth.
The Treasury is the United Kingdoms economics and finance ministry. It is responsible for formulating and implementing the UK Governments financial and economic policy. The governments economic objective is to raise the rate of sustainable growth and achieve rising prosperity and a better quality of life, with economic and employment opportunities for all. Labour wishes to maintain a stable macroeconomic environment with low inflation and sound public finances. The Uks current GDP is currently Ј14,676, “GDP rose by 0.8 per cent in the third quarter of 2007, the same rate of growth as in the previous quarter. A slight acceleration in total services was offset by slower growth in production.” (2). The government pursues a monetary and fiscal policy to keep the economy growing. The monetary policy is operated by the bank of England and basically their role is to control the supply of money in the economy by controlling interest rates and exchange rates to promote economic growth. Its Fiscal policy is used for a number of reasons to finance the public sector i.e. health education, welfare benefits, transport and roads. Also to discourage drinking, gambling and smoking which is a drain on the nation health service. The governments main economic objectives are to keep inflation at 2% to ensure the workability of money and provide economic growth to help produce wealth and welfare for the population; unfortunately too much growth can lead to inflation. The biggest task for the labour