what is a command economy?
hey, i was wondering what the aspects of a command economy were and how its tied to a communist government? thanks!
- 9 years agoFavorite Answer
A command economy is where all aspects of the economy are controlled. The government says: "you will eat two loaves of bread per meal, 3 meals a day, so we must produce 6 loaves of bread per person every day". The government then tells the bakers how to bake their bread, the oven makers how to make their oven, and etc. Basically everything is regulated. Communist countries use this because it ensures equality. Everyone gets their daily bread rations and no one starves.
UNFORTUNATELY, the amount of bureaucracy that is required for this is insane. Despite this whole design including room for error, mistakes always happen. So you might have the oven factory break down, which kills the whole system and leads to shortages. So while everything might be going well in Province A where there's in fact a surplus, Province B might have run into some bottleneck resulting in a shortage of bread.
So because of the whole bureaucracy element and lack of incentive to work harder, these systems often fail. For example if some guy discovers a new way of baking bread, he has to file paperwork, present it to the city council in charge of bread making, who then file paperwork, present it to the next level, and etc. In the end it takes 10 years for the system to recognize and implement improvements to industry, which leads to backwards societies.
- 9 years ago
all economies are base on this except a 'resource Based economy'
This explains how $ is fake.
Fractional-reserve banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction (called the reserve ratio) of the quantity of deposits as reserves. Some of the funds lent out are subsequently deposited with another bank, increasing deposits at that second bank and allowing further lending. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money. Due to the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators, and by the excess reserves kept by commercial banks
Central banks generally mandate reserve requirements that require banks to keep a minimum fraction of their demand deposits as cash reserves. This both limits the amount of money creation that occurs in the commercial banking system, and ensures that banks have enough ready cash to meet normal demand for withdrawals. Problems can arise, however, when depositors seek withdrawal of a large proportion of deposits at the same time; this can cause a bank run or, when problems are extreme and widespread, a systemic crisis. To mitigate this risk, the governments of most countries (usually acting through the central bank) regulate and oversee commercial banks, provide deposit insurance and act as lender of last resort to commercial banks.
Fractional-reserve banking is the most common form of banking and is practiced in almost all countries. Although Islamic banking prohibits the making of profit from interest on debt, a form of fractional-reserve banking is still evident in most Islamic countries.