The USA is one of the biggest economies in the world with over 50 States. As a citizen of the country or even an outsider, you might wonder what is the US economy type. It is basically a mixed economy – a hybrid between a command economy and a free-market economy. Earlier in the days, the US economy resembled a free market economy with industries and markets having full autonomy over how they operated. Now, it’s a mix where the government has some control over certain economic sectors and practices; and it governs the overall flow of the economic structure in the US.
So what makes up an economy in general? A country’s economic system includes individuals, banks, businesses, and social institutions, etc. Each and everything produced by these institutions is what makes up the US economic system.
Let’s look at the factors that impact the US economy to know what type of economy is the US economy:
The US Economy’s Measurement Criteria
What are the most crucial criteria for measuring any country’s economic growth? Number one is its Gross Domestic Product (GDP).
GDP encompasses everything that is produced by the country including production from citizens, businesses, and industries. This is the overall measure of the wealth of a country. Let’s look at what is the actual measures of a GDP:
- Nominalized GDP is actually an annual rate that projects the overall growth of a country even if the GDP was to be kept the same as last year.
- Real GDP is the same as above but without inflation’s effects and is used to compare GDP growth by economists
- The GDP growth rate is calculated by using the real GDP to see how the country grew economically year over year or quarter over quarter.
Apart from this, it is crucial for us to know what constitutes the GDP of a country:
- Consumer spending is 70% of the GDP
- Real estate construction, intellectual properties, and manufacturing all makeup business investment
- Government spending includes local, state, and federal expenditures
- Net exports include all exports and the imports are subtracted from it
There are a few factors that impact the US economy. Let’s dive into the details:
Factors that influence the US Mixed Economy
The US Government
In the past, the US economy was considered a free market economy. Slowly, most of the markets and the industries came into the public sector’s fold. A free-market economy usually means that the bodies in the private sector like businessmen and industries were unregulated and unaffected by the government’s rules and sanctions.
Now, the US economic system is a mixed economy, it is governed by both; the government and some principles of the free market economy. This means that businessmen may need to have the government’s permission to do certain things and also that the government may end up banning some activities.
The government in the US has control over sectors like education, sports, courts, roads, etc. There are also certain subsidies given to agricultural operators and oil companies to make business easier for them. Certain products can only be purchased and regulated by the government to discourage their use, for example, cigarettes, cocaine, and raw milk, etc.
More commonly referred to as the Fed, the Federal Reserve System is the national bank of the country. The Fed is responsible for regulating the country’s money supply through its interest rates and sanctions. It adjusts the money available to the banks to be able to use in open markets and also manages the interest rates to regulate unemployment in the country.
It uses its expansionary money policy to add to the money supply and support declining inflation rates and it can also use its contractionary money policy to curb the excess in the market.
Another crucial factor in understanding what type of economy is the US economy we have to know the commodities market. This is unregulated because it includes the trade of all commodities like food and oil etc. These prices change every day and cannot be regulated by anybody.
The US economy operates with a healthy mix of command and free-market economy practices. This ensures the smooth running of the economic system while giving the government enough power to intervene in times of crisis.
US Economy – FAQs
2. Centrally planned economy
3. Socialist and communist economies
4. Mixed economy