Explain Planned Economy.

A planned economy is an economic system in which key economic decisions, such as what to produce, how to produce, and for whom to produce, are centrally planned and coordinated by the government or a central authority rather than being determined by the forces of supply and demand in markets. In a planned economy, the government typically owns or controls the means of production, including land, labor, and capital, and allocates resources according to predetermined goals and priorities.

Key features of a planned economy include:

1. Centralized Planning: In a planned economy, economic planning is conducted by a central planning authority, such as a government ministry or planning commission, which sets production targets, allocates resources, and coordinates economic activities across different sectors and industries. The central planning process involves forecasting demand, setting production quotas, and allocating inputs such as labor, capital, and raw materials to achieve specific economic objectives.

2. State Ownership or Control: In a planned economy, the government typically owns or controls key sectors of the economy, including heavy industry, utilities, transportation, and finance. State ownership allows the government to direct investment, regulate prices, and influence production decisions to align with national priorities and development goals. However, some planned economies may also allow for limited private ownership or entrepreneurship in certain sectors.

3. Price Controls and Rationing: Planned economies often involve extensive price controls, subsidies, and rationing systems to regulate the distribution of goods and services and ensure affordability for consumers. Prices may be set by the government based on production costs, social objectives, or affordability considerations, rather than being determined by market forces. Rationing systems may be used to allocate scarce resources or essential goods in times of shortage or crisis.

4. Long-Term Planning and Stability: Planned economies are often characterized by long-term planning horizons and stability in economic decision-making. The government sets multi-year plans and targets for economic growth, investment, and development, providing a framework for guiding resource allocation and industrial policy over extended periods. This long-term planning approach aims to promote stability, predictability, and coordination in the economy.

5. Social and Political Objectives: Planned economies may prioritize social and political objectives, such as equitable distribution of income and wealth, employment generation, poverty reduction, and national self-sufficiency. The government may use planning mechanisms to address social inequalities, provide public goods and services, and pursue strategic economic goals, such as industrialization, infrastructure development, and technological advancement.

Overall, a planned economy represents a centralized approach to economic organization and management, where the government plays a dominant role in directing economic activity and allocating resources according to predetermined plans and priorities. While planned economies can offer certain advantages, such as coordinated development, social welfare, and strategic investment, they also face challenges such as inefficiency, lack of innovation, and susceptibility to bureaucratic inefficiencies and political interference.