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Free Market Depicting the Impact of This Change - Assignment Example

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The first part of the assignment "Free Market Depicting the Impact of This Change" deals with “Transition Economies” and explores the reasons. The 2nd essay describes “Advantages and Disadvantages of the European Monetary Union”, the 3rd essay elucidates the “Corporation Social Responsibility”. …
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Free Market Depicting the Impact of This Change
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Download file to see previous pages Today the Central and Eastern European block and the Baltic States are knocking at the doors of the European Union (IMF, 2000).
The centrally planned economies existed in the Soviet Union. The problem in the central economies was its inability to generate wealth and raise the living standard. The production and distribution would come from central government, deciding for the states, what to produce and how to distribute in what quantities. The workforce was assumed to be fully employed and the salary was predetermined, regardless of the potential of the worker (Greenspan, 1997).

In these economies there was no effective market clearing mechanism, the result was a huge surplus of unwanted goods by population on one side and shortage of goods, which were needed. This imbalance in demand and supply led to rationing the quota, as the quantity of the goods was limited. As production and planning were followed through state borders rather than by market demand, the finance had no control over the actions that were remotely planned by the center without following the market rules (Greenspan, 1997).
In such economies, there was nothing like credit, interest or market values, as everything belonged to the state. Due to the lack of a developed financial system, these economies as a consequence wasted their resources as much five to seven times more than Western European economies, yet without any productive result, which led to the dismemberment of the Soviet Union and the rest of Eastern Bloc in the early 1990s (Greenspan, 1997).

The macroeconomic stabilization process after the initial burst of high inflation stabilizes inflation and allows the liberalization to take place, which keeps tight control over the state budget and growth of money allowing the growth of progressive fiscal system to develop.
These economies had no financial infrastructure; they had to develop their economies from scratch allowing liberalization, macroeconomic stability, and market mechanism, despite the surmounting hurdles in their ways.  ...Download file to see next pagesRead More
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