An Assignment

On
Economic System
Foundation of Business
EIB 501

Submitted to:
Dr.Chowdhury Saima Ferdous
Professor
Department of International Business
Faculty of Business Studies
University of Dhaka

Submitted by:
Hamida Zaman
Department of International Business
Faculty of Business Studies
University of Dhaka

Date of Submission:22ndOctober 2019

Economic System
An economic system is a means by which governments organize and distribute available
resources, services, and goods across a geographic region or country. Economic systems
regulate factors of production, including capital, labor, physical resources, and
entrepreneurs. An economic system encompasses many institutions, agencies, entities,
patterns, as well as decision-making procedures.

Types of Economic Systems

There are many economies around the world. Each comes with a distinguishing
characteristic, although they all share some basic features. Each of the economies
functions based on a unique set of conditions and assumptions. Thus, economic systems
can be categorized into four main types: traditional economies, command economies,
mixed economies, and market economies.

1. Socialism
An economic system is based on the premise that some, if not most, basic business
should be owned by the government so that profits can be more evenly distributed among
the people. It relies a lot on people, entrepreneurs often own and run smaller business and
individuals are often taxed relatively steeply to pay for social programs. There is very
little division of labor or specialization.
The major benefit of socialism is supposed to be social equality. Ideally it comes about
because the government takes income from wealthier people, in the form of tax and
redistributes it to poorer people through various govt. programs. Sweden is a true
example of this economic system.

2. Communism
In the command economic system, there is a dominant and centralized authority, which is
usually the government, which controls a significant portion of the economic structure. It
is also known as Communism. This economic system is common in communist societies
since production decisions are a preserve of the government.
If an economy enjoys access to many resources, the chances are that it will lean towards a
command economic structure. In such a case, the government comes in and exercises
control over the resources. Ideally, centralized control covers valuable resources such as
gold or oil. The people regulate other less important sectors of the economy such as
agriculture.

In theory, the command system works really well as long as the central authority
exercises control with the general population’s best interest in mind. However, command
economies face many challenges, and they are slightly rigid compared to other systems.
That is, they react slowly to change because power is centralized. Russia, North Korea,
Cuba are the examples of communism economy.

3. Capitalism
This economic system is based on the concept of free markets. In other words, there is
very little government interference. The government exercises no control or says over
resources, and it does not interfere with important segments of the economy. Instead,
regulation comes from the people and the relationship between supply and demand.

This economic system is mostly emphasizes on freedom and the profit motive for
economic growth. From a theoretical point of view, a market economy facilitates
substantial growth. Arguably, growth is highest under a market economic system, and the
economy exists separately, away from any form of government interference.

However, its greatest downside is that it allows private entities to amass a lot of economic
power, particularly those that own resources of great value. Thus, the distribution of
resources is not equitable because a select few enjoy most of them, while a huge part of
the remaining population fight for the little that is left.
4. Mixed economic system
Mixed systems combine the characteristics of the market and command economic
systems. For this reason, mixed systems are also known as dual economic systems. While
there is no straightforward way to define a mixed system, sometimes the term describes a
market system under strict regulatory control in certain segments of the economy.

Many countries in the west follow a mixed system. Most industries are private, while the
rest, comprising of public services, is under the control of the government. Thus, the
government and the private sector serve a significant role in maintaining a mixed
economy.

Mixed systems are the norm globally. Supposedly, a mixed system combines the best
features of market and command systems. However, practically speaking, it’s been
challenging. Some governments exert much more control than is necessary.

The United States is a mixed economy based on a foundation of capitalism. Germany is

another example of this system.

Economic System in Bangladesh:

The economy of Bangladesh is a developing market economy. It's the 39th largest in the

world in nominal terms, and 29th largest by purchasing power parity; it is classified
among the Next Eleven emerging market middle income economies and a frontier
market.  In the first quarter of 2019, Bangladesh's was the world's seventh fastest growing
economy with a rate of 7.3% real GDP annual growth. The financial sector of
Bangladesh is the second largest in the subcontinent. Bangladesh is one of the
world's fastest growing economies.
Economic Growth:

Economists employ a wide range of economic indicators to know how well an economy
is performing. Economic indicators measure macro-economic variables that directly or
indirectly enable economists to judge whether economic performance has improved or
deteriorated. Tracking these indicators is especially valuable to policy makers, both in
terms of assessing whether to intervene and whether the intervention has worked or not.

Useful indicators include:

1. Levels of real national income, spending, and output. National income, output,

and spending are three key variables that indicate whether an economy is
growing, or in recession. Like many other indicators, income, output, and
spending can also be measured in per capita (per head) terms.
2. Growth in real national income.

3. Investment levels and the relationship between capital investment and national

output.

4. Levels of savings and savings ratios.

5. Price levels and inflation.

6. Competitiveness of exports.

7. Levels and types of unemployment.

8. Employment levels and patterns of employment.

9. The productivity of labor, which influences other economic variables, including

an economy's competitiveness in international markets.

10. Trade deficits and surpluses with specific countries or the rest of the world.

11. Debt levels with other countries.

 12. The proportion of debt to national income.

13. The terms of trade of a country.

14. The purchasing power of a country's currency.

15. Wider measures of human development, including literacy rates and health care
provision. Such measures are included in the Human Development Index (HDI).

16. Measures of human poverty, including the Human Poverty Index (HPI).

How the world decides the economic status of a country

Measuring the size of a country's economy involves several different key factors, but the
easiest way to determine its strength is to observe its Gross Domestic Product (GDP) So
the economists measure the performance of an economy by looking at gross domestic
product (GDP), a widely used measure of total output. GDP is defined as the market
value of all goods and services produced by the economy in a given year. In the United
States, it is calculated by the Department of Commerce. GDP includes only those goods
and services produced domestically; goods produced outside the country are excluded.
GDP also includes only those goods and services that are produced for the final user;
intermediate products are excluded. For example, the silicon chip that goes into a
computer (an intermediate product) would not count, even though the finished computer
would.

By itself, GDP doesn’t necessarily tell us much about the state of the economy, but
change in GDP does. If GDP (after adjusting for inflation) goes up, the economy is
growing; if it goes down, the economy is contracting.

Economic growth is the increase in the amount of the goods and services produced by an
economy over time. It is conventionally measured as the percent rate of increase in real
GDP.
Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out
the effect of inflation on the price of the goods and services produced. In economics,
“economic growth” or “economic growth theory” typically refers to growth of potential
output, i.e., production at “full employment,” which is caused by growth in aggregate
demand or observed output.

Bibliography
Understanding Business,11th edition by Nickels & McHugh
Business, A changing World by Ferrell

Economics online

https://en.wikipedia.org/wiki/Economy_of_Bangladesh

https://bizfluent.com/info-7746218-indicators-economic-development.html