Comparing Economic Systems

1. CHAPTER 16 ComparingEconomic Systems SECTION 1: Development Models SECTION 2: Capitalism SECTION 3: Socialism SECTION 4: Communism

2. SECTION 1 Development Models Objectives: • How can ownership of capital be used to identify an economic system? • How do command systems and market systems differ?

3. SECTION 1 Development Models Ways ownership of capital can be used to identify an economic system: • when most capital is owned by the government—socialist system • when most capital is privately owned—capitalist system

4. SECTION 1 Development Models Differences between command systems and market systems: • Command systems—when use of capital and other factors of production are decided by individuals and businesses • Market systems—when use of capital and other factors of production are decided by the government

5. SECTION 2 Capitalism Objectives: • What factors contributed to the development of capitalism? • How does the U.S. free-enterprise system compare to capitalist systems in Japan, Germany, France, and South Korea?

6. SECTION 2 Capitalism Factors that contributed to the development of capitalism: • decline of manorialism—the system in which land-owning nobles granted peasants the chance to work the land for fixed payments • mercantilism—the system in which a nation’s wealth determines its power • influence of Adam Smith—argued that economies would prosper with profit motives, competition, and lack of government interference

7. SECTION 2 Capitalism Comparing the U.S. capitalist system to non-U.S. economic systems • Japan: • similarity—private control of capital • difference—more government influence in allocation

8. SECTION 2 Capitalism Comparing the U.S. capitalist system to non-U.S. economic systems • Germany: • similarities—little government interference, and dependence on same types of fiscal and monetary policies as U.S. • difference—different coordination of economic regulation

9. SECTION 2 Capitalism Comparing the U.S. capitalist system to non-U.S. economic systems • France: • similarity— increased privatization of industry • difference—creation of five-year plans

10. SECTION 2 Capitalism Comparing the U.S. capitalist system to non-U.S. economic systems • South Korea: • similarity—private control of capital • difference—high government involvement in allocation

11. SECTION 3 Socialism Objectives: • What conditions led to the development of socialism? • How has high taxation affected Sweden’s economy?

12. SECTION 3 Socialism Conditions that led to the birth of socialism • Harsh working conditions during the Industrial Revolution: • hazardous working environment • low wages • long working hours • child labor • Decline in workers’ quality of life: • overcrowded housing • industrial pollution • lack of sanitation and medical facilities

13. SECTION 3 Socialism Effects of high taxation on Sweden’s economy: • workers demanded higher wages to meet their tax burden • prices went up as wages increased • higher prices made Swedish goods less competitive in the marketplace • the government’s deficit and borrowing increased to meet economic and social goals as taxes were inadequate to fund them

14. SECTION 3 Socialism Effects of high taxation on Sweden’s economy: (continued) • the country fell into recession • government limited welfare benefits to reduce the deficit • government services were ultimately privatized

15. SECTION 4 Communism Objectives: • How did Karl Marx use history to develop the theories of communism? • What economic factors contributed to the fall of the Soviet Union? • How did centralization affect the economy of the People’s Republic of China?

16. SECTION 4 Communism Karl Marx based the theories of communism on his view of history: a series of class struggles between owners of production resources and laborers.

17. SECTION 4 Communism Economic factors that contributed to the fall of the Soviet Union: • production decisions made by central planners rather than by the forces of supply and demand • no incentives for producers to increase production • shortages of capital, which led to scarcity of goods and services • inability to compete in the marketplace because of outdated technology • Gorbachev’s economic reforms

18. SECTION 4 Communism Effects of centralization on the economy of the People’s Republic of China • Great Leap Forward: • decline in industrial output • low agricultural productivity from misuse of resources • Cultural Revolution: • closure of factories and schools • increase in manual labor force in rural areas

19. SECTION 4 Communism Effects of centralization on the economy of the People’s Republic of China (continued) • Four Modernizations: • better balanced the production of consumer goods and capital goods • more market-responsive policies

20. CHAPTER 16 Wrap-Up 1. What are the characteristics of a market system? Give an example of such a system. 2. How do U.S. and German fiscal policies differ? 3. How does the value Swedish citizens place on social services influence their economy? 4. How did Karl Marx’s ideas influence the economies in the Soviet Union and the People’s Republic of China?

21. CHAPTER 16 Wrap-Up 5. How did Mikhail Gorbachev contribute to economic reform in the Soviet Union? 6. What was the Great Leap Forward, and why did it fail?