Economics: GED Test Prep
On the GED Social Studies Exam, questions about economics will include the areas of supply and demand, inflation and deflation, and economic systems. Many economics questions will ask you to interpret and analyze a chart or graph, so practice in working with visual aids will be helpful in your preparation.
Economics is defined as the study of the ways that goods (and services) are bought, sold, distributed, and used. The economics questions on the GED Social Studies Exam will require that you have a good grasp of the relationship of supply and demand, recession and depression, how economic growth is measured, and how the U.S. government is involved in the nation's economy.
Scarcity is the central concept of economics. We do not have unlimited time and resources, unfortunately; it is impossible to study for the GED and play basketball at the same time. For that same reason, it is impossible to buy all available consumer goods and services. There are limits to our time and money, and so we must make choices. Economics studies the factors that determine how individuals and businesses make these choices (this field of economics is called microeconomics). It also studies the way the economy as a whole behaves in response to individual choices, business choices, government intervention, international trade, and other large-scale influences (this field of economics is called macroeconomics).
Types of Economic Systems
In political terms, there are three basic economic systems operating in the modernized nations of the world: capitalism, socialism, and communism. The table lists defining characteristics of each. None of these systems exists in pure form; modern capitalist states typically also allow for some times of government planning and intervention, while communist states have grown more open to free trade and allowing citizens to profit from their businesses in recent years.
The terms capitalism, socialism, and communism describe economic systems, but they are not the terms economists favor. Economists prefer the terms market economy, which describes an economic system in which prices, wages, and production are set by markets; command economy, which describes an economic system in which the government plans production; and traditional economy, which describes an economic system in which certain jobs are reserved to certain classes of society (feudalism is one historic example of a traditional economy). Nearly all the world's economies are mixed economies, combining in different degrees elements of market, command, and traditional economies.
Consider the United States. In many areas, the United States allows markets to determine the amount of goods produced, the price at which goods are sold, and the wages paid to workers. However, the government imposes a minimum wage that prevents employers from paying workers an unfair, unlivable wage. The government also intervenes to provide goods and services that the market will not provide because they are not profitable enough. Health insurance and housing for the poor are two areas in which the government intervenes. Thus, the U.S. economy is a mixed economy in which markets usually, but don't always, drive economic activity.
Command economies have been disappearing from the world since the demise of the Soviet Union. North Korea is one of the world's few remaining command economies. Because all economic decisions, from the development of raw materials to production to shipping to retail sales, are made centrally by the government, command economies lack efficiency. They are characterized by frequent shortages of goods, underemployment, and poor economic growth.
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