Centrally planned economy

Examples of Centrally planned economy in the following topics:

• Differences Between Centrally Planned and Market Economies

  • The key difference between centrally planned and market economies is the degree of individual autonomy.
  • While there are many different variations of national economies, the two dominant economic coordination mechanisms are centrally planned and market based.
  • Since most peoples' needs are provided for in a centrally planned economy, compensation is primarily morally based.
  • Planned economies have several advantages.
  • Lenin, is an example of a country that tried to establish a pure centrally planned economy.

• Mixed Economies

  • A mixed economy is a system that embraces elements of centrally planned and free market systems.
  • A mixed economy is a system that embraces elements of centrally planned and free market systems.
  • Most modern economies are mixed, including the United States and Cuba.
  • However, to mitigate the negative influence that a pure market economy has on fairness and distribution, the government strongly influences the economy through direct intervention in a mixed economy.
  • Generally, individuals in mixed economies are able to:

• Economic Decisions

  • In a planned or command economic system, some type of planning authority would necessarily have to have information about an objective, all inputs, all technology and all alternatives that are feasible.
  • There is no reason to believe that a traditional economy, a planned economy and a market economy would make the same allocation of resources and goods.
  • These economies may have different objectives.
  • One side of the debate led by the Austrians (Ludwig von Mises (1881-1973) and Friedrich Hayek (1899-1992)) argued that it would be impossible for a centrally planned economy, run by rules, to have the necessary information to replicate the results of a market economy.
  • An alternative perspective is; If the objectives of the market economy and planned economy were not the same it is not clear why the socialist system would want to replicate the outcomes of a market system.

• A Mixed Economy: The Role of the Market

  • The United States is said to have a mixed economy because privately owned businesses and government both play important roles.
  • Such a system is called a market economy.
  • A socialist economy, in contrast, is characterized by more government ownership and central planning.
  • In this mixed economy, individuals can help guide the economy not only through the choices they make as consumers but through the votes they cast for officials who shape economic policy.
  • The U.S. economy has changed in other ways as well.

• The Effect of Restrictive Monetary Policy

  • By decreasing the amount of money in the economy, the central bank discourages private consumption.
  • The private agents will then adjust their long-term strategies accordingly, such as by putting plans to expand their operations on hold.
  • The central bank can issue debt in exchange for cash.
  • This results in less cash being in the economy.
  • By increasing the reserve requirement, less money is made available to the economy at large.

• The Effect of Expansionary Monetary Policy

  • This is done by increasing the money supply available in the economy.
  • By increasing the amount of money in the economy, the central bank encourages private consumption.
  • The private agents will then adjust their long-term plans accordingly, such as by taking out loans to invest in their business.
  • A central bank can enact an expansionary monetary policy several ways.
  • By decreasing the reserve requirement, more money is made available to the economy at large.

• Introducing Aggregate Supply

  • Aggregate supply is the total supply of goods and services that firms in a national economy plan to sell during a specific time period.
  • In economics, aggregate supply is the total supply of goods and services that firms in a national economy plan to sell during a specific time period.
  • Aggregate supply is the relationship between the price level and the production of the economy .
  • In the equation, Y is the production of the economy, Y* is the natural level of production of the economy, the coefficient α is always greater than 0, P is the price level, and Pe is the expected price level from consumers.
  • In the equation, Y is the production of the economy and Y* is the natural level of production of the economy.

• The Postwar Economy: 1945-1960

  • Economic aid flowed to war-ravaged European countries under the Marshall Plan, which also helped maintain markets for numerous U.S. goods.
  • And the government itself recognized its central role in economic affairs.
  • The United States also recognized during the postwar period the need to restructure international monetary arrangements, spearheading the creation of the International Monetary Fund and the World Bank -- institutions designed to ensure an open, capitalist international economy.
  • Growing demand for single-family homes and the widespread ownership of cars led many Americans to migrate from central cities to suburbs.

• The Economy in the 1980s

  • But while the medicine of a sharp slowdown was hard to swallow, it did break the destructive cycle in which the economy had been caught.
  • By 1983, inflation had eased, the economy had rebounded, and the United States began a sustained period of economic growth.
  • The central theme of Reagan's national agenda, however, was his belief that the federal government had become too big and intrusive.
  • Under chairman Paul Volcker and his successor, Alan Greenspan, the Federal Reserve retained the central role of economic traffic cop, eclipsing Congress and the president in guiding the nation's economy.
  • Rapidly growing economies in Asia appeared to be challenging America as economic powerhouses; Japan, in particular, with its emphasis on long-term planning and close coordination among corporations, banks, and government, seemed to offer an alternative model for economic growth.

• Open Market Operations

  • Open market operations (OMOs) are the purchase and sale of securities in the open market by a central bank.
  • On a general level, OMO are the purchase and sale of securities in the open market by a central bank, as a means of controlling the money supply and the related prevailing interest rate.
  • The FOMC makes a plan for open market operations over the short term, and publicly announce it after their regularly scheduled meetings.
  • Therefore, the implementation of contractionary policy will result in the selling of bonds (cash in exchange for debt holding) and an expansionary policy (buy bonds in exchange for cash) will result in an increase in the money supply at a lower interest rate as a means to enhance growth opportunities and revitalize the economy.
  • In addition to this direct interest rate channel, the fed funds rate influences many other interest rates in the economy and by so doing contributed to either incentivizing borrowing for growth or disincentivizing the same.