Personal Finance- Economic Basics

The modern economic system, using money as the means of exchanging goods, is seen to provide the greatest total amount of utility to humanity as a whole, by creating the most efficient distribution of resources and level of activity in every area. While a pure market economy allows the "invisible hand" to guide this allocation of resources, and allows the severely impoverished to literally perish if their insufficient means prevent their affording the basic necessities of life, a socialist/welfare state imposes government control of economic activity to both provide sufficient means for all citizens to maintain a reasonable standard of life while preventing extravagance among the wealthiest members of society. The United States is essentially a "mixed economy" which is a balance or compromise between these two extremes; socioeconomic classes continue to exist, but the government manages and subsidizes programs to provide even the poorest Americans with access to food, clothing, education, etc. Gross Domestic Product (GDP), total value of all resources in the country, is seen to increase at a healthy rate (perhaps 3-5%) when the economy is strong, at an anemic pace (0-2%) in a sluggish economy, and to decrease during recessions. The distinction between "recession" and "depression" is unclear. The economy is cyclical, with periodic recessions being normal and necessary to direct readjustments needed for the economy's long-term growth.