PLANNED ECONOMY:-

Planned economy (or command economy) is an economic system in which the state directs

the economy. It is an economic system in which the central government controls industry such that it
makes major decisions regarding the production and distribution of goods and services. Its most
extensive form is referred to as a command economy, centrally planned economy, or command
and control economy.

In such economies, central economic planning by the state or government controls all major sectors

of the economy and formulates all decisions about the use of resources and the distribution of output.
[5]
 Planners decide what should be produced and direct lower-level enterprises to produce those
goods in accordance with national and social objectives.[6]

Planned economies are in contrast to unplanned economies, i.e. the market economy, where
production, distribution, pricing, and investment decisions are made by the private owners of the
factories of production based upon their individual interests rather than upon a macroeconomic plan.
Less extensive forms of planned economies include those that use indicative planning, in which the
state employs "influence, subsidies, grants, and taxes, but does not compel."[7] This latter is
sometimes referred to as a "planned market economy".[8]

A planned economy may consist of state-owned enterprises, private enterprises directed by the state,
or a combination of both. Though "planned economy" and "command economy" are often used as
synonyms, some make the distinction that under a command economy, the means of production are
publicly owned. That is, a planned economy is "an economic system in which the government controls
and regulates production, distribution, prices, etc."[9] but a command economy, while also having this
type of regulation, necessarily has substantial public ownership of industry.[10] Therefore, command
economies are planned economies, but not necessarily the reverse.

Important planned economies that existed in the past include the economy of the Soviet Union, which,
according to CIA Factbook estimates, was for a time the world's second largest economy,
[11]
 China before 1978 and India before 1991.

Beginning in the 1980s and 1990s, many governments presiding over planned economies began
deregulating (or as in the Soviet Union, the system collapsed) and moving toward market-based
economies by allowing the private sector to make the pricing, production, and distribution decisions.
Although most economies today are market economies or mixed economies (which are partially
planned), planned economies exist in very few countries such as Cuba, Libya, Iran, North
Korea, Saudi Arabia, and Burma.[12]
MARKET ECONOMY:-

A market economy is an economy based on the power of division of labor in which the prices
of goods and services are determined in a free price system set by supply and demand.[1]

This is often contrasted with a planned economy, in which a central government can distribute
services using a fixed price system. Market economies are also contrasted with mixed
economy where the price system is not entirely free but under some government control or heavily
regulated, which is sometimes combined with state-led economic planning that is not extensive
enough to constitute a planned economy.

In the real world, market economies do not exist in pure form, as societies and governments regulate
them to varying degrees rather than allow self-regulation by market forces.[2][3] The term free-
market economy is sometimes used synonymously with market economy,[4] but, as Ludwig
Erhardonce pointed out, this does not preclude an economy from having socialist attributes opposed
to a laissez-faire system.[5] Economist Ludwig von Mises also pointed out that a market economy is
still a market economy even if the government intervenes in pricing.[6]

Different perspectives exist as to how strong a role the government should have in both guiding the
market economy and addressing the inequalities the market produces. For example, there is no
universal agreement on issues such as central banking, and welfare. However, most economists
oppose protectionist tariffs.[7]

The term market economy is not identical to capitalism where a corporation hires workers as a labour
commodity to produce material wealth and boost shareholder profits.[8] Market mechanisms have
been utilized in a handful of socialist states, such as China, Yugoslavia and even Cuba to a very
limited extent.

It is also possible to envision an economic system based on independent

producers, cooperative, democratic worker ownership and market allocation of final goods and
services; the labour-managed market economy is one of several proposed forms of market socialism.
[9]

Planned Economy: A planned economy or directed economy is an economic system in which the
government or workers' councils manages the economy. Its most extensive form is referred to as a
command economy, centrally planned economy, or command and control economy. In such
economies, the state or government controls all major sectors of the economy and formulates all
decisions about their use and about the distribution of income, much like a communist state. The
planners decide what should be produced and direct enterprises to produce those goods. Planned
economies are in contrast to unplanned economies, such as a market economy, where production,
distribution, pricing, and investment decisions are made by the private owners of the factors of
production based upon their own and their customers' interests rather than upon furthering some
overarching macroeconomic plan. Less extensive forms of planned economies include those that use
indicative planning, in which the state employs "influence, subsidies, grants, and taxes, but does not
compel." This latter is sometimes referred to as a "planned market economy."
Free Market Economy: A market economy is a realized social system based on the division of labour
in which the prices of goods and services are determined in a free price system set by supply and
demand. This is often contrasted with a planned economy, in which a central government determines
the price of goods and services using a fixed price system. Market economies are contrasted with
mixed economy where the price system is not entirely free but under some government control that is
not extensive enough to constitute a planned economy. In the real world, market economies do not
exist in pure form, as societies and governments regulate them to varying degrees rather than allow
self-regulation by market forces. The term free-market economy is sometimes used synonymously
with market economy, but, as Ludwig Erhard once pointed out, this does not preclude an economy
from having social attributes opposed to a laissez-faire system.

Mixed Economy: A mixed economy is an economic system that incorporates aspects of more than
one economic system. This usually means an economy that contains both privately-owned and state-
owned enterprises or that combines elements of capitalism and socialism, or a mix of market
economy and planned economy characteristics.

There is not one single definition for a mixed economy, but relevant aspects include: a degree of
private economic freedom (including privately owned industry) intermingled with centralized economic
planning (which may include intervention for environmentalism and social welfare, or state ownership
of some of the means of production).

Inflationary and deflationary gaps

 When national income is equal to the full-employment level unemployment is at a minimum and there
are no inflationary or deflationary pressures. During a boom the national income level rises above the
full-employment equilibrium level. Workers are put under pressure to work more hours by doing
overtime. They respond in the short-run because they are attracted by the prospect of higher pay. There
is upwards pressure on wages, which leads to increased costs. Firms run down their stocks to meet the
excess demand; the demand conditions invite firms to increase their prices. The result of a boom is to
create inflation. The pressure is called an inflationary gap. The inflationary gap is the amount by which
the actual expenditure in the economy is in excess of the level of expenditure required for full
employment. The economy has its own built-in stabilisers. The inflation during a boom causes export
prices to rise; this in turn causes a decrease in demand for exports, which deflates the economy. The
government also responds by increasing interest rates to dampen demand. In reverse, when the
national income level is below the long-term trend line, there is a shortage of demand in the economy.
This creates both a recessionary and a deflationary gap. The recessionary gap is defined as the
difference between the full employment level of national income and the actual level of national income.
The deflationary gap is defined as the difference between the total expenditure in the economy at full-
employment and the actual total expenditure - it is the amount by which the demand in the economy is
deficient for full-employment.

SUPPLY SIDE ECONOMICS:-

Supply-side economics is a school of macroeconomic thought that argues that economic growth

can be most effectively created by lowering barriers for people to produce (supply) goods and
services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility
by reducing regulation. Consumers will then benefit from a greater supply of goods and services at
lower prices.
Typical policy recommendations of supply-side economics are lower marginal tax rates and less
regulation.[4] Maximum benefits from taxation policy are achieved by optimizing the marginal tax rates
to spur growth, although it is a common misunderstanding that supply side economics is concerned
only with taxation policy when it is about removing barriers to production more generally.[5]

Many early proponents argued that the size of the economic growth would be significant enough that
the increased government revenue from a faster growing economy would be sufficient to compensate
completely for the short-term costs of a tax cut, and that tax cuts could, in fact, cause overall revenue
to increase.[6]

Demand side economic:-

Keynesian economics (pronounced /ˈkeɪnziən/ KAYN-zee-ən, also

called Keynesianism and Keynesian theory) is a macroeconomic theory based on the ideas of 20th
century British economist John Maynard Keynes. Keynesian economics argues that private
sector decisions sometimes lead toinefficient macroeconomic outcomes and therefore advocates
active policy responses by the public sector, including monetary policy actions by thecentral
bank and fiscal policy actions by the government to stabilize output over the business cycle.[1] The
theories forming the basis of Keynesian economics were first presented in The General Theory of
Employment, Interest and Money, published in 1936; the interpretations of Keynes are contentious,
and several schools of thought claim his legacy.

Keynesian economics advocates a mixed economy—predominantly private sector, but with a large
role of government and public sector—and served as the economic model during the latter part of
the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it
lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in
2007 has caused a resurgence in Keynesian thought. The former British Prime Minister Gordon
Brown, former President of the United States George W. Bush[2] ( also alleged heavily being anti-
Keynesian by some (The Shock Doctrine)), President of the United States Barack Obama, and other
world leaders have used Keynesian economics throughgovernment stimulus programs to attempt to
assist the economic state of their countries.[3]

According to Keynesian theory, some microeconomic-level actions—if taken collectively by a large

proportion of individuals and firms—can lead to inefficient aggregate macroeconomicoutcomes, where
the economy operates below its potential output and growth rate. Such a situation had previously
been referred to by classical economists as a general glut. There was disagreement among classical
economists (some of whom believed in Say's Law—that "supply creates its own demand"), on
whether a general glut was possible. Keynes contended that a general glut would occur
when aggregate demand for goods was insufficient, leading to an economic downturn with
unnecessarily high unemployment and losses of potential output. In such a situation, government
policies could be used to increase aggregate demand, thus increasing economic activity and reducing
unemployment and deflation. Most Keynesians advocate an activist stabilization policy to reduce the
amplitude of the business cycle, which they rank among the most serious of economic problems.
Now, this does not necessarily mean fine-tuning, but it does mean what might be called 'coarse-
tuning.' For example, when the unemployment rate is very high, a government can use a dose of
expansionary monetary policy.

Keynes argued that the solution to the Great Depression was to stimulate the economy ("inducement
to invest") through some combination of two approaches: a reduction in interest rates and government
investment in infrastructure. Investment by government injects income, which results in more
spending in the general economy, which in turn stimulates more production and investment involving
still more income and spending and so forth. The initial stimulation starts a cascade of events, whose
total increase in economic activity is a multiple of the original investment.