The economy is the total of all activities related to the production, sale, distribution, exchange, and consumption of limited resources by a group of people living and operating within it.

Frequently Asked Questions
  • What is a command economy?

    In a command economy, a centralized government controls the means of production and it decides the output levels for that production. This type of economy is often associated with communist nations. The advantages of this approach include better equality and lower unemployment, but there is often a lack of efficiency or innovation in those economies.

  • What is a market economy?

    A market economy, or free economy, is directed through the laws of supply and demand to set the prices and quantities for most goods and services. Most developed nations are technically mixed economies because they blend free markets with some government interference such as industrial subsidies, licensing, and price fixing.

  • What does inflation do to an economy?

    Inflation means the rate at which the same goods and services come to cost more. If a person's income doesn't keep up with inflation, it can decrease your purchasing power. It can also lower the value of Treasury bonds. But if some level of inflation is expected, it can drive consumer spending, which drives economic growth.

  • How stocks help the economy

    When the price of a large number of stocks is on the rise, it can lead to higher consumer and business confidence, higher spending on big-ticket items such as cars and houses, and an increase in investors entering the stock market. These factors can all lead to greater economic development of a country.

  • What type of economy does the U.S. have?

    The United States has a mixed economy. It combines elements of a command economy with a market economy. A mixed economy allows for government oversight and regulation to achieve public good while also allowing things like consumer goods and services to be regulated by the laws of supply and demand.

Key Terms

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Understanding Money: Its Properties, Types, and Uses
Unemployment Rate
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Labor Union: An organization formed by workers in a particular trade, industry, or company to improve pay, benefits, and working conditions.
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Wage Gaps by Gender
Centrally Planned Economy: An economic system in which decisions are made by a central authority rather than by market participants.
Centrally Planned Economy
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Black Economy: AKA Black Market, Overview and Examples
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The History of Unions in the United States
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Wealth: The value of all the assets of worth owned by a person, community, company, or country.
Understanding Wealth: How Is It Defined and Measured?
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