In a centrally planned economy, which institution plans and directs all the important economic activities of the country?

Introduction / Context:
Different economic systems are distinguished by who makes the key economic decisions about what to produce, how to produce, and for whom to produce. In a centrally planned economy, also known as a command economy, decisions are not left to the free market. Examinations often ask which body or institution is responsible for planning and directing economic activities in such a system.

Given Data / Assumptions:

• The question focuses on centrally planned or command economies.
• Important economic activities include production targets, investment, pricing, and distribution.
• We assume the classic textbook model of a central planning authority.
• We compare roles of government, citizens, industrialists, and judiciary.

Concept / Approach:
In a centrally planned economy, the central authority, usually the government through a planning commission or similar body, sets production targets, allocates resources, fixes prices, and decides distribution. Individual choice and market forces play only a limited role. This sharply contrasts with a market economy, where these decisions emerge from the interactions of many buyers and sellers. Therefore, the correct answer is that the government or central planning authority plans the economic activities.

Step-by-Step Solution:
1. Identify that a centrally planned economy is being discussed.2. Recall that in a command system, the government owns or controls major means of production and decides output and allocation.3. Recognise that decisions are made through plans such as five year plans or central directives.4. Understand that private industrialists or consumers do not independently decide overall production in such a system.5. Conclude that the government or central planning authority is responsible for planning economic activities.

Verification / Alternative check:
Historical examples help verify the concept. In former centrally planned economies, such as the Soviet Union, production and investment decisions were tightly controlled by central ministries and planning agencies. They decided how many units of steel, coal, and consumer goods should be produced and how resources were to be allocated. Citizens and industrial firms had very limited autonomy. This is very different from market economies where decisions are decentralised. These historical patterns confirm that planning is done by government bodies in centrally planned systems.

Why Other Options Are Wrong:
Option A: Industrialists are key decision makers in market or mixed economies where private firms dominate production decisions, not in strictly centrally planned systems.
Option B: Citizens influence decisions through buying and selling in a market economy. In a command economy, consumer choice is restricted and does not determine overall production.
Option D: The judiciary interprets and enforces laws but does not usually plan economic activities or set production targets.
Option E: Private commercial banks may influence credit allocation but are not the primary planning authority for national economic activities in a centrally planned setup.

Common Pitfalls:
Students sometimes confuse mixed economies, where government and private sector both play roles, with centrally planned economies, where the government dominates decisions. Another mistake is assuming that planning is always done by experts detached from government, but in standard textbook definitions the planning authority is either part of the government or fully controlled by it. Remembering the difference between central planning and market based coordination will help answer many similar questions.

Final Answer:
In a centrally planned economy, all important economic activities are planned and directed by the government or a central planning authority.