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Flashcards in Chapter 4 Deck (11):
1

Political economy

Study of how politics and economic are related and how their relationship shapes the balance between freedom and equality

2

Markets

The interactions between the forces of supply and demand, and they allocate resources through the process of those interactions

3

Property

The ownership of goods and services exchanged through markets (land, business, personal items). A set of property rights can accompany ownership. Property rights must be regulated by the state

4

Public goods

Goods provided or secured by the state that are available for society, meaning that no private person or organisation can own them

5

Central Bank

Institution that controls how much money is flowing through the economy as well as how much it costs to borrow money in that economy
- Controls amount of money in the economy
- Controls costs of borrowing money
- Lowers interest rates to stimulate the economy
- Raises interest rates to check inflation

6

How can states influence trade?

- Tariffs: tax on imported goods
- Quotas: limit quantity of a good coming into the country
- Non-tariff regulatory barriers: any non-tariff barrier

7

Why should states regulate trade?

- Comparative advantage: ability to produce a good more productively than another country
- To generate state revenue
- To foster local industry
- To protect local jobs
- To keep wealth in the country

8

Why shouldn't states regulate trade?

- To promote competition
- To keep the costs of goods low
- To stimulate the domestic innovation in areas of comparative advantage

9

Liberalism

- Laissez-faire: holds that the economy should be allowed to do what it wishes
- Capitalism: system of private property and free markets
- Minimal government control
- Individual freedom over collective equality

10

How do social democracies seek to achieve greater equality?

- through taxes, redistributing wealth from rich to poor
- Through trade; promoted but balanced with preserving domestic industry & jobs
- Through government regulation and even ownership of important sectors of the economy.

11

How can we measure wealth?

- Gross domestic product: total production within a country
- Purchasing power parity: estimates the buying power income in each country by comparing similar costs (foods, housing), by prices in the US as a benchmark
- Gini index: mathematical formula that measures the amount of economic inequality in a society
- Human development index: assesses health, education and wealth of population