POL S 6 Lecture Notes - Lecture 4: Gini Coefficient, Unemployment Benefits, Mercantilism
QUIZ #2 ON CH 4
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Define political economy: how states and markets interact
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Define market: supply and demand interactions to allocate resources (goods
and services)
Measured by:
GDP: dollar value of all goods and services produced/allocated in a
given year
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Too free of a market can lead to inequality
Inequality measured by Gini Index
Gini index: 0 = most equal, 100 = 100 most unequal
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Problems that markets produce
Inflation: demand outstrips (is greater than) supply; value of a dollar
decreases
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Deflation: supply is greater than demand; too low prices of goods; sellers
cannot make a profit
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Public good = owned or provided by the government (not just free)
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Central bank can influence the price of goods by:
Control the amount of money in the economy
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Control the cost of borrowing money
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Lower interest rates to stimulate the economy
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Raise interest rates to check inflation
Decrease interest rates to check deflation
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To keep more money in banks and in circulation
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Government regulates inequality thru:
Taxes
Tax the rich, redistribute money to the poor
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Social expenditures: taking care of the people who are least well-off in
society
Welfare
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Subsidies to the poor
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Unemployment insurance
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POLITICAL-ECONOMIC SYSTEMS
Communism: Economic equality is the most important thing
No free markets or private goods
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Extreme state ownership
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High state capacity and autonomy
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Extremely high taxes
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High provision of social expenditures
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Country examples: Cuba, Soviet Union
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Liberalism: value of individual/economic freedoms over equality
Free markets
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Little to no state intervention or regulations
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Minimal taxes
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Low social expenditures - no welfare state
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No social regulations such as labor laws
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Country examples: USA, UK, Canada, Australia, New Zealand
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Mercantilism: focus on industry and economic power of the state
Only care about having a rich country
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No focus on equality or freedom
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Will do whatever produces the wealthiest country, nearly regardless of
ideology
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High state intervention in the economy (i.e. state-lead growth)
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Country examples: Japan, South Korea
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Social democracy (socialism): emphasis on freedom AND equality
Mostly free markets
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High taxes to redistribute wealth and keep society equal
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Very high social expenditures
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Country Examples: Scandinavia, Germany, Sweden
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Which system is the best?
Somewhere between socialism and liberalism -- leaning more towards social
democracy
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Mercantilism maybe to create a stable government so that it is able to provide
high social expenditures later on
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Section 4 Notes: Political Economy
Tuesday, May 1, 2018
9:09 AM
Document Summary
Define political economy: how states and markets interact. Define market: supply and demand interactions to allocate resources (goods and services) Gdp: dollar value of all goods and services produced/allocated in a given year. Too free of a market can lead to inequality. Gini index: 0 = most equal, 100 = 100 most unequal. Inflation: demand outstrips (is greater than) supply; value of a dollar decreases. Deflation: supply is greater than demand; too low prices of goods; sellers cannot make a profit. Public good = owned or provided by the government (not just free) Central bank can influence the price of goods by: Control the amount of money in the economy. To keep more money in banks and in circulation. Tax the rich, redistribute money to the poor. Social expenditures: taking care of the people who are least well-off in society. Communism: economic equality is the most important thing. Country examples: usa, uk, canada, australia, new zealand.
