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THE FEDERAL RESERVE OF ATLANTA Economic How do countries organize economic activity? FUNDAMENTAL ECONOMIC CONCEPTS

Pure Command Pure Economies

A in which economic decisions A system in which economic decisions about and are about production and are made made by a central authority such as by producers and , involving the government little government intervention

Who decides? Who decides?

What? How? For whom? What? How? For whom? Central authority or government Consumers Producers Price

Advantages(+) Disadvantages(-) Advantages(+) Disadvantages(-)

Mobility (+) (+) Gather resources quickly and on a large scale Keep of production and of and services low

Basic Goods Provided (+) Variety (+) Produce goods that benefit society and ensure Encourage firms that differentiate their everyone has access to basic necessities products to meet wants

Poor Information (-) Wealth Disparity (-) Are unresponsive to consumer preferences Can lead to poverty for individuals who lack valued knowledge and skills

Innovation Discouraged (-) Few Public Goods (-) Decide what to produce, removing incentives Do not produce as many goods that people can enjoy without paying for them

Broad Economic Goals

Averages for Top Five Command Economies Averages for Top Five Market Economies

How are they doing? How are they doing? Measuring performance on their top three goals Measuring performance on their top three goals

64 Economic Equality 2.8% Most recent Gini number Most recent real GDP growth rate

.631 Economic 1.9% 2013 human development index 2012 labor growth rate

Economic Stability Economic Freedom 20.9% –.26% 2013 rate Change in Economic Freedom Index score, 2014—15

Sources: heritage.org/index/; https://www.cia.gov/library/publications/the-world-factbook/; stats..org/Index.aspx?DataSetCode=PDYGTH; data.worldbank.org/indicator/SI.POV.GINI; hdr.undp.org/en/content/table-1-human-development-index-and-its-components

Economic Continuum

Pure Command Pure 0 100

North Korea Iran Saudi Arabia Australia 1.3 41.8 62.1 81.4

Cuba India United Kingdom Hong Kong 29.6 54.6 75.8 89.6

The Heritage Foundation’s Index of Economic Freedom measures the performance of 186 countries in 10 areas of economic freedom on a scale of 1 to 100. • Property rights • freedom • freedom • Government spending • Freedom from corruption • Financial freedom • Business freedom • Fiscal freedom • Monetary freedom • Labor freedom

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