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By Donald Marron

30-Second Economics

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Extra resources for 30-Second Economics

Sample text

In communist countries, production and distribution were dominated by the state, which owned and controlled machines, factories, and stores. A central government body would meet every few years —usually five—and come up with a plan of what to produce, how, when, and for what purpose. It then distributed the tasks to factory managers and set them targets. Because production was planned in this system by a central authority and then orders were handed out, it became known as central planning. This system was supposed to be socialist because the economy was planned and a free market or private enterprise didn’t exist.

Since the early 1980s, however, the United States has run a balance of payments deficit of up to 6 percent of gross domestic product (GDP) without grinding to a halt. credit crunch A restriction on the availability of credit, or loans. This is often the result of a loss of confidence in a sector of the finance market, leading to investors withdrawing their funds to invest in a safer option. expansionary policies If an economy is in recession, a government may adopt expansionary policies to attempt to reinvigorate it.

Government intervention took the form of public spending, tax cuts for workers, and transfer payments. 3-SECOND CRASH The government should spend and cut taxes to soften economic downturns. 3-MINUTE BOOM Keynesianism seemed to be the cure to capitalism’s problems. For 30 years, growth rates were high and most people had a job—in the West at least. But in the 1970s there was stagflation and government spending couldn’t make things better. The monetarists attacked Keynesians, suggesting that governments had overexpanded the money supply, so creating inflation.

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