Magruder's American Government: 12. Government and the Economy, Sections 1–2

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  1. capitalism
    an economic system based on private ownership of assets
    Capitalism is an economic system in which individuals are free to own the means of production and maximize profits.
  2. capital
    assets available for use in the production of further assets
    A second factor of production is capital—all the human-made resources that are used to produce goods and services.
  3. entrepreneur
    someone who organizes a business venture
    An entrepreneur—literally, an “enterpriser”—is an individual with the drive and ambition to combine land, labor, and capital resources to produce goods or offer services, and is willing to risk losses and failure.
  4. free enterprise
    an economy relying on market forces to allocate resources
    Capitalism is often referred to as a free enterprise system, which is an economic system characterized by private ownership of capital and by investments that are determined by private decision, not by public authorities.
  5. supply
    offering goods and services for sale
    Under these competitive conditions, the law of supply and demand determines the market price for goods or services. Supply is the quantity of goods or services available for sale at a range of prices.
  6. demand
    the ability and desire to purchase goods and services
    Demand is buyers’ desire and ability to purchase a good or service.
  7. monopoly
    a market in which there are many buyers but only one seller
    A firm that is the only source of a product or service is called a monopoly.
  8. laissez faire
    a doctrine that government should not interfere in commerce
    Laissez-faire theory holds that government should play only a very limited, hands off role in society, confined to: (1) foreign relations and national defense, (2) the maintenance of police and courts to protect private property and the health, safety, and morals of the people, and (3) those few other functions that cannot be performed by private enterprise at a profit.
  9. socialism
    an economic system based on state ownership of capital
    However, other economic systems— socialism and communism—do seek to distribute wealth more evenly across the society.
  10. communism
    a theory favoring collectivism in a classless society
    The father of modern socialism and communism, Karl Marx (1818–1883) was the most significant critic of capitalism as it developed during the early Industrial Revolution. He envisioned a society where social classes would vanish and the people would own all property in common.
  11. collectivization
    the organization of a nation or economy on the basis of collectivism
    Stalin demanded collectivization of agriculture and a heightened production of chemicals, petroleum, and steel.
  12. privatization
    changing something from state to individual ownership
    Privatization is the process of returning nationalized enterprises to private ownership.
  13. panic
    sudden mass fear and anxiety over anticipated events
    However, beginning in the early twentieth century, there were repeated economic panics and recessions.
  14. gross domestic product
    the value of all things made and sold by a country in a year
    The nation’s gross domestic product (GDP)—the total value of all final goods and services produced in the country each year—now exceeds $15 trillion.
  15. inflation
    a general and progressive increase in prices
    A general increase in prices throughout the economy is called inflation.
  16. deflation
    reduction of economic activity that results in lower prices
    A general decrease in prices is known as deflation.
  17. recession
    a situation in which the state of the economy declines
    When there is an absence of growth and the economy shrinks, a recession occurs.
  18. fiscal
    involving financial matters
    Fiscal policy is a major tool with which both the executive and legislative branches of the Federal Government seek to achieve broad economic goals. Fiscal policy consists of the government’s powers to tax and spend to influence the economy.
  19. monetary
    relating to or involving money
    Monetary policy involves the money supply (the amount of currency in circulation) and the availability of credit in the economy.
  20. discount
    an amount or percentage deducted
    The discount rate is the rate of interest a bank must pay when it borrows money from a Federal Reserve Bank.
  21. interest
    a fixed charge for borrowing money
    Interest is the cost borrowers incur and must repay in order to borrow money.
Created on May 28, 2021 (updated June 10, 2021)

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