An analysis of conditions that have to be met to make a transition from a planned to a market econom

With the Fed's discussion about possibly pausing rate hikes at "neutral" still ringing in the ears of many investors, Macrovoices' Erik Townsend seemingly couldn't have chosen a better time to interview McElligott as this week's featured speaker on the Macrovoices podcast. During the interview which was accompanied by a slide deck fleshing out McElligott's observations surrounding constricting global financial conditions in greater detailMcElligott explains why investors should be worried about a reversal in the yield curve, as it portends the long-awaited unraveling of one of the longest equity bull markets in history. To sum up, McElligott is trying to show that we are much further along in the Fed rate hike cycle than many investors believe. While the Fed's projections which perennially lag the market are still calling for another 75 basis points of hikes by the end ofshort-term interest rate futures are only pricing in 44 bps over the next year.

An analysis of conditions that have to be met to make a transition from a planned to a market econom

Such social institutions are known as economic systems, and vary in their approach to solve the economic problem. The two economic systems which are of complete contrasts are the Planned Economy, which is revolved around government decision and the Market Economy, which is based on the free-market.

In this economy, the government decides what to produce, how to produce, and for whom to produce.

Socialist market economy - Wikipedia

The fact that the government does set targets does mean that economic growth will be achieved when the targets increase and inputs reduce. In addition, with the minimal incentives, the target is often manipulated.

In a planned economy, the government sets fixed price system, which implies that the state determines the price of goods with minimal account of the demand of the good; however, this also suggests that the goods are rarely over or under priced.

In a fixed price system there is minimal incentive because the prices and wages are fixed, which demoralizes the employees, and thus decreases incentives. Nevertheless, the fixed price system also suggest that a greater majority of the society will be able to afford the good or service, and thus, it will be more beneficial for society, and not only those who can afford the good or service such as education and health care.

A planned economy can often cause problems with the fact that they can misallocate resources, which means that there will be over production of goods.

In addition, allocating enough resources for production on every single good and service is a demanding task and a slight miscalculation could ruin everything.

BREAKING DOWN 'Centrally Planned Economy'

There is however, in a planned economy, less wastage of resources, primarily labor. In a planned economy, the government controls the freedom of entry and exit, because the state decides who works where, and often times, the state attempts to substitute a number of firms with a single firm per market, which will suggest that there is monopoly, and thus, minimal or nil competition.

With less competition, there is no desire to improve ones level of production and resources, and thus, no development of resources and technology to help minimize the use of resources.

This also implies that people will have no rights to become entrepreneurs or capitalists and set-up their own firm because the state will issue all that. In addition, as they organize how the economy is run, the government will ensure full employment, therefore there is no unemployment, however, this can also lead to over employment, where there are too many people working on the same profession.

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This might be perceived as a positive point but actually it is not good because it decreases efficiency of labor. Planned economies usually focus their production on capital, public and merit goods.

Firstly, the government focuses on capital goods rather than consumer goods, which can be seen on the PPF Figure 1. As a result on the greater concentration on producing capital goods, the curve will after a long time, shift to the right, as can be seen in Figure 2, which indicates economic growth, and the country will be more self-sufficient.

With the public goods, which are goods that are non-diminishing, the state will produce a majority of public goods in both countries which are run under a planned economy and free-market, because these goods consist of street lamps etc.

Lastly, the government produces a great amount of merit goods, which are goods which are deemed socially desirable by the political process with positive externalities and social benefits outweighing social costs, through advertisement and then providing the goods at cheap or free prices using subsidies e.

BREAKING DOWN 'Mixed Economic System'

Merit goods are usually underprovided in a free-market economy. The main objective in a free-market economy, unlike the planned economy, is to make a profit.

However, there is rarely any country that is purely a free-market economy. During this interchange of supply and demand, the consumer and seller bid for prices, which allow a transaction to occur and thus an equilibrium price will be met, which can be seen in figure 3.

In figure 3, the increasing demand, which is seen by the shift in curve from the consumers signals the producers to supply more computer games as their main objective is the earn more profit.

As we can see, the advantage of such a system is that prices will be set according to the demand of good, will aid in utilizing the allocation of resources because the price will determine how society will utilize its resources, and distribute income.A command economy also ignores the customs that guide a traditional economy.

In recent years, many centrally-planned economies began adding aspects of the market economy. In recent years, many centrally-planned economies began adding aspects of the market economy.

First came the disintegration of the centrally planned economy that was a hallmark of the state-controlled economy and then its replacement by an economy operating on the basis of market forces. Some of the former communist states of Central Europe began their process of economic transition two years before Russia and have provided positive models.

The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of system is based on the predominance of public ownership and state-owned enterprises within a market economy. The term "socialist market economy" was first used during the 14th National Congress of the Communist Party of China in to describe Simplified Chinese: 社会主义市场经济.

A mixed economic system is a system that combines aspects of both capitalism and socialism.

An analysis of conditions that have to be met to make a transition from a planned to a market econom

A mixed economic system protects private property and allows a level of economic freedom in the use of. Unlike a market economy — in which private citizens and business owners make production decisions — a centrally planned economy controls what is produced and the distribution and use of resources.

In transition economies the country-level analysis may overestimate the role of R&D in TFP growth, as aggregate productivity improvement due to fundamental structural changes may be erroneously ascribed to TFP growth from R&D (Meriküll, Poltimäe, & Paas, ).

Centrally Planned Economy