1 - Economic Systems and Models

Abstract

This chapter discusses the economic systems and models. The types of economic system that can be distinguished in theory include: (1) the pure market economy, which is without a public sector of industry; the centrally planned economy, which is without a private sector of industry; and the mixed economy, where both sectors operate side by side. Most developed and developing countries have established some form of a mixed economy. However, the size of their public sectors differs considerably. Economic models have been devised to aid the understanding of how economic systems function and to serve as the basis for government decision-making. The sector model is one of the economic models used by governments. It shows the inter-relationship of the private and public sectors as they are producers and consumers. The sectors are linked by a flow of money. Each sector receives income or revenue from which it consumes, saves, and invests. Government transfer payments appear in the model as expenditure and revenue of the government and as receipts and payments of the private sector.