The Four Types of Economic Systems:As you probably know, thereare countless economies across the world.
All of them are unique in their ownway, but they still share a significant number of characteristics. Thus,we can categorize them into four types of economic systems;traditional economies, command economies, market economies and mixed economies.All of them rely on a different set of assumptions and conditions and ofcourse, they all have their own strengths and weaknesses.
We will look at eachof them in more detail below.1-Traditional Economic SystemA traditional economicsystem focuses exclusively on goods and services that are directly relatedto its beliefs, customs, and traditions. It relies heavily on individuals anddoesn’t usually show a significant degree of specialization and division oflabor. In other words, traditional economic systems are the most basic andancient type of economies.Advantage:• Economicroles are set.
• Stable,predictable, and continuous.Disadvantage:• Discouragesnew ideas.• Lackof progress.• Lower standard of living.
Mixed EconomicSystemA mixed economic system refers to any kind of mixtureof a market and a command economic system. It is sometimes also referred to asa dual economy. Although there is no clear-cut definition of a mixed economicsystem, in most cases the term is used to describe market economies with astrong regulatory oversight and government control in specific areas (e.g.
public goods and services).Command EconomicSystemA command economic system is characterized by adominant centralized power (usually the government) that controls a large partof all economic activity. This type of economy is most commonly found incommunist countries. It is sometimes also referred to as a planned economicsystem, because most production decisions are made by the government (i.e.planned) and there is no free market at play. Advantage:• Basic Needs taken care of.
• Education, public health, other services cost verylittle if anything.• Very little unemployment.Disadvantage:• Doesn’t meet wants.
• No incentives.• Requires a large bureaucracy.• New and different ideas arediscouraged.• No room for individuality.MarketEconomic SystemA market economic system relies on free markets anddoes not allow any kind of government involvement in the economy. In thissystem, the government does not control any resources or other relevanteconomic segments. Instead, the entire system is regulated by the peopleand the law of supply and demand.
Advantage:• Individual Freedom for all.• Lack of government interference.• Incredible variety to choose from.• High degree of consumer satisfaction.Disadvantage:• Rewards only productive people.
• Workers and businesses faceuncertainty (Competition).• Not enough public goods (Education,health, defense).• Unemployment.The KeyFeatures of the UK economy:1-GDPgrowthOver thepast year manufacturing growth has picked up, services output has remainedsteady but the construction sector has slowed.Q4 2017GDP growth (QoQ)0.5%Increasein size of the economy compared to pre-downturn peak9.
7%Annual %change2.3%2-Where is the UK going:Economicgrowth held up better than expected in the second half of 2016 but has slowedin 2017. Forecasters predict that rising inflation, driven by the depreciationof sterling, will squeeze household incomes and depress consumer spending,which has been the main driver of economic growth in recent years.About thenowcastnow-casting.com uses statistical modelling to determine what individualeconomic data points tell us about the rate of growth . The nowcast chart(right) shows the model’s evolving prediction of GDP growth in the currentquarter.CurrentQ4 nowcast0.
52%OBR 2017GDP forecast2%OBR 2018GDP forecast1.6% 3-Market:Movements inthe bond and currency markets are a barometer of investor expectations about acountry’s economic prospects.Sellingbonds through the Debt Management Office is the main way the UK governmentborrows money to fund the gap between what it spends and the money it receives.A rise inthe premium, or yield, demanded by markets for loaning money means funding thedeficit becomes more expensive.4-Labour market:The UK’shistoric low unemployment rate has been one of the major economic successstories of the past year. Initially led by part-timers and the self-employed,the growth in employment has broadened to include full time employees. But realwages, which had started to recover following the financial crisis, beganfalling again this year as the depreciation of sterling after the Brexit votehas fed through to consumer prices but nominal wage growth has not picked up.
Unemploymentrate4.3%Regularweekly earnings growth in three months to November2.4%Employmentrate75.
3%5-Inflation:Exceptionally low inflation, driven largely by falling oil prices,supermarket price wars and the strength of sterling keeping down the costs ofimports, was a boon for household finances in 2014 and 2015. But the sharp fallin the value of sterling since the vote to leave the EU means that imports havebecome more expensive and inflation has risen well above the Bank of England’s2 per cent target.December consumer price inflation:3%