If we think of a country as a single person, we can better understand how important an economy is. In this example I see the citizens and government of a country as the heart and mind, they are important in that without them you simply have a system that cannot be implemented or run. However, if the citizens and government are the heart and mind then the economy would be the circulatory system. The economy is interconnected with everything and without a properly run economy certain parts of the system will die or the entire thing may fall apart all together. My example aside, an economy can be thought of as a large set of inter-related production, consumption, and exchange activities that aid in determining how scarce resources are allocated. The production, consumption, and distribution of goods and services are used to fulfill the needs of those living and operating within the economy, which is also referred to as an economic system.
If I was in charge of creating my own nation my choice in which economic system to use would be one of if not the most important choice I make. Economic systems differ as to (1) who owns the factors of production and (2) the method used to motivate, coordinate, and direct economic activity. There are really three types of market systems, laissez-fair capitalism, the command system, and the market system. All three types are really differentiated by how much government intervention and oversight there is. Under the laissez-faire system government intervention is very minimal so markets and prices are allowed to direct all economic activity. Under this system the government’s role is limited to protecting private property from theft and aggression and establishing a legal environment in which contracts are enforced and people interact in markets to buy and sell goods, services, and resources. Contrastingly, under the command system the government has total control over the economic system. Under this system the government owns most property resources and economic decision making is set by a central economic plan created and enforced by the government.3 In the middle is the market economic system which uses a combination of centralized government regulations and decentralized markets and prices. The precise mixture varies from country to country, but in each case this system features the private ownership of resources and the use of markets and prices to coordinate and direct economic activity.3 In my opinion the market economic system is the one I would choose for my country. The market economic system takes the safety and control that is offered under the command system but still offers the freedom that is offered under the laissez-fair system.
Like most mixed economic systems, the market in my country would be mostly free of government ownership. The government would still have control over certain essential programs such as education, national defense, and transport as is the case in the United States. While I believe a healthy economy can be run with minimal government intervention I still think basic and fundamental functions like the education of my citizens, the availability of safe and effective transportation, and the ability of my country to defend itself and its citizens are functions that would need the stability of a government to make sure they are properly run. I would allow the private sector to also be involved in these functions if they so choose. Things like private school and private delivery companies are good in that they meet demands in niche markets while also providing an alternative to government services. Private defense manufactures have access to additional funds that my government might not and thus they can make advances and manufacture goods in a more efficient manner than a system solely run by my government would. My governments services would simply offer a floor beneath which no citizen should have to fall.
In order to provide this floor through government services we would need to collect both direct and indirect taxes. Direct taxes are paid straight from the individual or business to the government body that imposes the tax. Examples of direct taxes include individual income taxes, corporate taxes, and property taxes. Indirect taxes are typically added on transactions for goods and services like imports, gas, alcohol and tobacco. They include sales taxes, value-added taxes, sin or excise taxes, and tariffs.4 While I would need to be carful on things like tariffs because my new nation would be very dependent on imports it is still important to bring income along with government purchases from other nations.
Economic development is generally believed to be dependent on the growth of real factors such as capital accumulation, technological progress, and increase in quality and skills of labor force. Along with these factors’ money is an extremely important part of economic development. Money serves as the standard of value in which other values are measured.5 Geoffrey Crowther was a well-respected British economist defined money as “anything that is generally acceptable as a means of exchange (i.e., as a means of settling debts) and that at the same time, acts as a measure and as a store of value.” By this definition we can see how important money is to an economic system. A standard currency selected by the government give citizens confidence in the general acceptability of that currency while also giving the economic system its value.
The standard paper currency in my economy would be issued by a central bank which would be an organization run by both the public and private sectors. In order to ensure the central bank would operate with the publics best interest in mind it would have members with strong economic backgrounds that were elected by qualified government officials who had been elected by the public. The main job of my central bank would be to regulate the supply of money in my economic system. This type of control has proven valuable especially in times like now where countries are facing economic shutdowns in light of a global pandemic. The central bank has the power to keep the market going by buying and selling securities to other banks in order to supply or take back cash. My central bank would also have the ability to manage interest rates. Like the Fed’s primary influence on the economy through its ability to change the money supply which affects interest rates. While my economy would be run mostly by the private sector it would be stabilized by my central banks ability to raise or lower interest rates thereby curbing the pace of economic activity. Finally, my central bank would be able to regulate the amount of money in circulation by managing the amount of money that banks need to keep in reserve. Decisions can be made to play it safe in good times and keep large reserves thus having the ability to empty the reserves if the economy needs a boost via an inflow of money through the banks.
The best way to measure the value or output of my economy would be through calculations of the gross domestic product (GPD). The components that make up the gross domestic product in my economy are personal consumption (C), gross private domestic investment (I), government purchases (G), and net exports (Xn). By adding all of these variables together we will get a number that will either rise with increased economic health or fall in hard economic times. A focus would be put on the output of goods from our private and public sectors and the standard of living of our citizens, both of which are often intertwined as can be seen by a further breakdown of the GDP formula.
Personal consumption gives a good indication of the demand for goods and services placed on companies by the citizens. Through this number we can see the value of goods and services purchased by households during a time period. A higher rate of consumption can often be seen as a higher standard of living so as this number rises it should be a good indication that the standard of living in my country is also rising. Gross private domestic investment is the value of all goods produced during a period for use in the production of other goods and services.8 When there is high private investment it can be interpreted as a high demand placed on companies for the production of capital goods which is a good indication of a healthy economy and trust that the economy will remain healthy. Government purchases are the sum of purchases of goods and services from firms by government agencies plus the total value of output produced by government agencies themselves during a time period.8 The more government purchases there are the higher the demand on companies to produce. Like personal consumption and gross private domestic investment an increase in the production of goods and services raises incomes for households. Therefore, a higher output is a good indication of strong economic health. Finally, net exports are the sale of a country’s goods and services to buyers in the rest of the world during a particular time period. Being a new nation we will have to rely on the exports of other nations to meet the needs of our citizens, however as the economy strengthens and grows so will our net exports, or output, making this variable a good indication of how far the country and economy has moved from its inception.
Given how I believe my market economy should be judged based on the output of goods I think it should be guided by the theories of the aggregate expenditure from British economist John Maynard Keynes. Under the aggregate expenditures model the amount of goods and services produced and therefore the level of employment depends directly on the level of aggregate expenditures (total spending). Under this theory I will be able understand how my new economy is likely to initially adjust to various economic shocks, that are likely to come, over shorter periods of time.
At its core the main components of this great market economy that I have created will be (1) the business and financial institutions, (2) consumers and labor, and (3) my government. Business are the main purchasers of materials and goods which then are made into the items or services that can be bought and sold on the market. My central banking system along with all the other banks will have the ability to give loans to those businesses, and allow people to invest in them, making money on the interest and fees. The consumers are the citizens and people of my country that purchase the items and services which keeps the economy moving. These people also provide the labor which is needed by the businesses in order to produce goods and render services.10 Finally, my government can stabilize and regulate the economy to an extent through the central bank, services rendered, and safety provided by the law enforcement and the military especially under dire circumstances such as the one the world is facing today.
Just like some corrective surgery can be done to a body that is not running properly some tweaking and adjustments may need to be made to my economy as my countries grows or shrinks through the years. These changes can be made through the government via publicly elected officials to ensure the public always has a say in how much government control there is in my market economic system. No economic system is perfect but the one I created was done so with the public in mind as they are at the heart of this system and their health is a vital part of this economy.
P.S. Thank you for a wonderful semester. I enjoyed reading your comments and apologize for not always responding but the work, family, and school balance can be difficult at times especially when it’s all being done from home. I learned so much this semester! Thanks again!
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 McConnell, C. R., Brue, S. L., & Flynn, S. M. (2018). Macroeconomics: Principles, problems, and policies. New York, NY: McGraw-Hill Education p.27
 McConnell, C. R., Brue, S. L., & Flynn, S. M. (2018). Macroeconomics: Principles, problems, and policies. New York, NY: McGraw-Hill Education p.28
 Josephson, A. (2020, December 04). Understanding How Your Taxes Work. Retrieved December 16, 2020, from https://smartasset.com/taxes/understanding-taxes
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 B, S. (2018, August 01). Money in Economics: Definition, Types, Functions, Characteristics, Importance and Evils: Economics. Retrieved December 16, 2020, from https://www.microeconomicsnotes.com/money/money-in-economics-definition-types-functions-characteristics-importance-and-evils-economics/15100
 McConnell, C. R., Brue, S. L., & Flynn, S. M. (2018). Macroeconomics: Principles, problems, and policies. New York, NY: McGraw-Hill Education p.323
 University, M. (2016, June 17). 21.1 Measuring Total Output. Retrieved December 16, 2020, from https://open.lib.umn.edu/principleseconomics/chapter/21-1-measuring-total-output/
 McConnell, C. R., Brue, S. L., & Flynn, S. M. (2018). Macroeconomics: Principles, problems, and policies. New York, NY: McGraw-Hill Education p.221
 Wood, D. (n.d.). Components of the U.S. Economy. Retrieved December 16, 2020, from https://study.com/academy/lesson/components-of-the-us-economy.html