BU1010 Final Assessment Essay Example | Topics and Well Written Essays - 2000 words

BU1010 Final Assessment - Essay Example And as result today the Central and Eastern European block and the Baltic States are knocking at the doors of European Union (IMF, 2000). The centrally planned economies existed in 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 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 huge surplus of unwanted goods by population on one side and shortage of goods, which were in needed. This imbalance in demand and supply led to rationing the quota, as the quantity of the goods was limited. As production and planning was followed through state orders 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 every thing belonged to the state. Due to the lack of a developed financial system, these economies as a consequence wasted their resources as much as much five to seven times more than Western European economies, yet without any productive result, which led to the dismemberment of Soviet Union and the rest of Eastern Bloc in early 1990s (Greenspan, 1997). The macroeconomic stabilization process after initial burst of high inflation stabilizes the inflation and allows the liberalization to take place, which keeps a tight control over the state budget and growth of money allowing the growth of progressive fiscal system to develop. These economies had no financial