This document discusses different economic systems and economic crises. It describes subsistence economies, market economies, centrally planned economies, and alternative economic models. It notes that market economies are prone to cyclical instability which can lead to downturns, recessions, and depressions during economic crises. Recovering consumption through monetary policy and state intervention is needed to change the negative spiral of an economic crisis.

1. ECONOMIC SYSTEMS AND ECONOMIC CRISES

2. Economy is based on people’s necessities. If
there is a necessity of something, someone can
think of making money by fulfilling this
necessity:
- If the necessity is a material thing (a good),
the best way of fulfilling it is to produce what
people need.
- If the necessity is not a material thing, but a s
service, the best way of fulfilling it is to offer or
provide the service people need.
The market is the place where the people who
supply products or services and consumers
meet: suppliers or providers offer their
products or services and consumers try to
satisfy their necessities.

3. Economic systems are the
different ways of organizing
production and service
provision in order to fulfil
people’s necessities
ECONOMIC SYSTEMS

5. People produce all they need to
fulfil their basic necessities. They
produce their own food, build
their houses, make their
clothes...They only exchange or
sell the things they don’t need
(surplus) in local markets. This
type of economy is only found in
societies with very low
development (tribes, very isolated
communities).
SUBSISTENCE ECONOMY

6. MARKET ECONOMY OR CAPITALISM
it’s a system based on free competition
between individuals and companies in
order to develop economic activities.
That’s why it’s also called free market
economy. It’s based on the law of
supply and demand: producers and
consumers interact in a free and
competitive market and prices are
established depending on the supply
and demand of products or services:
•If there is more demand than supply,
the price will increase
•If there is more supply than demand,
the price will decrease
The search for the maximum profit is
the main objective of economic
activities: people work or make
business to get the maximum profit.

7. Capitalism is based on the
accumulation of capital (money) in the
hands of few people (capitalists), who
are the owners of the means of
production (land, machinery,
companies...). The rest of the people
(workers), don´t have capital and they
have to work for the capitalists. The
means of production are private and
the State doesn’t intervene in economy.
Market economy is the predominant
economic system in the world
nowadays.
http://www.investopedia.com/video/play/market-
economy/

8. Theoretically in a market economy prices are
established according to the law of supply and
demand and the State doesn’t intervene in
economy. But this is not really true:
o There are different factors that can affect
the price of products: apart from
production and transportation expenses,
profit margins, the role of intermediaries,
advertising or marketing campaigns can
increase the price of products. Foreign
competition, the economic problems of a
company or government intervention can
reduce the price of products
o The State intervenes in economy through
subsidies, economic help to sectors in
crisis, defense of the interest of the
national companies in other countries.

10. Money received by stockbreeders in the OECD members
CAP subsidies distributed in the EU in 2009

11. CENTRALLY PLANNED ECONOMIC OR SOCIALIST SYSTEM
This system originated in the USSR after the
1917 Revolution and extended to Eastern
Europe and other countries that established
communist regimes outside Europe after
World War 2.
In this system:
-private property doesn’t exist
-the State is the owner of the means of
production and is in charge of producing and
providing all the products and services people
need.
-The State controls all the aspects of
economy: the Ministry of Planning decides on
what and how much has to be produced,
establishes the prices, the way the profit will
be distributed...
http://www.investopedia.com/terms/c/command-economy.asp

12. This system had important problems:
o As the State established the priorities of
production, sometimes people’s needs
were not taken into account. For
example, during Stalin’s rule in the USSR
heavy industry was priority to the
detriment of light industry and that
created a permanent lack of consumer
goods in markets and the development of
a persistent black market.
o The State planned the minimum details of
production and there was little space for
initiative.
o The unfulfilment of the State plans was
considered to be a betrayal to the nation.
o As jobs and salaries were assured, there
were high levels of work absenteeism
and that affected productivity.

13. These problems were one of the
causes of the failure of communist
regimes, which were rather State
capitalism economies.
Some countries like China started
introducing controlled changes,
opening their markets to foreign
companies, allowing private property,
but the State keeps the control of
some strategic sectors.
After the fall of the Berlin Wall and the
disintegration of the USSR the
centrally planned system has almost
disappeared in the world.

14. ALTERNATIVE ECONOMICS
Different economic propositions that
reject the capitalist system, because it
doesn’t take into account the real
necessities of most of the people and
contributes to the growth of inequality.
They are based on people’s
cooperation, the respect for the
environment and look for the
common welfare. One of these
alternative propositions is the
economy for the common good,
promoted by Austrian economist
Christian Felber.
https://www.youtube.com/watch?v=pxnH9N6EQcU

15. An economic crisis is a period
during which all the economic
data and activities of a place
have a negative evolution and
most of the population suffer
the consequences:
-purchasing power and
consumption levels reduce
-production reduces
- companies close
-unemployment increases
- banks don’t give loans
- prices and salaries reduce due
to the lack of consumption
(deflation)...
ECONOMIC CRISES

16. Cyclical instability is one of the main
disadvantages of capitalism. The internal
dynamics of market economy, based on
competition, makes the companies and
individuals take risks in order to get the
maximum profit and this leads to cyclical
crises when consumption reduces for
any reason (credit restriction,
consumers’ mistrust or fear for the
future, saturation of the market…).
Consumption reduction provokes an
abrupt fall in the prices of products and
companies or banks start having
problems, dismiss workers,
unemployment increases and
consumption reduces more and more.
Economy enters in a vicious circle.

18. - Downturn: economic growth
reduces substantially, but
continues to be positive.
- Recession: negative economic
growth for at least six months.
- Depression: this happens when
recession extends for a longer
period and negative growth rates
are high.
All crises have the same stages:

19. - The beginning of the current crisis in Spain started in 2008: in 2007 economic growth was
3.7% and in 2008 it reduced to 1.2% (economic downturn)
- Recession started in Spain in the last trimester of 2008 (-0.7%) and the first trimester of
2009 (-3%).
- Recession became a depression when all economic data continued to be negative and the
national debt increased too.

21. Recovering consumption is the only way to
change this negative spiral. This can be done
in different ways:
•Monetary policies: the central banks can
lower the interest rates of money in order to
put more money in the hands of the banks,
so that they can give loans and reactivate
economy.
•State intervention: if private economic
agents don’t act, the State has to intervene
investing money and creating jobs in order
to reduce unemployment and recover the
demand for products.
Monetary policy