Advanced Theories and Critiques Flashcards
What is the invisible hand in classical economics?
The self-regulating nature of markets ensuring resource allocation through individual self-interest.
How does the classical theory address unemployment?
It assumes unemployment is temporary and markets adjust to restore equilibrium.
What is a major flaw in Say’s Law according to Keynes?
It ignores the possibility of insufficient aggregate demand causing unemployment.
How does the classical model view savings?
As automatically leading to investment due to flexible interest rates.
What did Keynes argue about savings?
Excessive savings can lead to reduced consumption, lowering aggregate demand.
What does the classical economic model assume about wages?
That wages are flexible and adjust to labor market conditions.
How does the Marxist model view wage adjustments?
As mechanisms for exploitation, ensuring profits for capitalists.
What is one strength of the classical model?
It provides a foundational framework for market efficiency and free trade.
How do classical and Keynesian models differ in government roles?
Classical models advocate minimal intervention, while Keynesian models emphasize active policy measures.
What is a common critique of Marxist economics?
It underestimates the adaptability of capitalism and overemphasizes class conflict.
