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Political economy

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



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



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


Public goods

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


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


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


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


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



- 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


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.


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