ch 4 (vb) ON FINAL EXAM

Question 1

capitalism

Answer 1

An economic system based on private ownership of capital

Question 2

central bank

Answer 2

an institution designed to oversee the banking system and regulate the quantity of money in the economy

Question 3

currency

Answer 3

money

Question 4

deflation

Answer 4

A situation in which prices are declining

Question 5

enlightened self-interest

Answer 5

the realization that by helping others we are really helping ourselves in the end

Question 6

federal reserve rate

Answer 6

Interest rate Federal Reserve charges on loans to banks

Question 7

feudalism

Answer 7

A political system in which nobles are granted the use of lands that legally belong to their king, in exchange for their loyalty, military service, and protection of the people who live on the land

Question 8

humanist

Answer 8

European scholars, writers, and teachers associated with the study of the humanities (grammar, rhetoric, poetry, history, languages, and moral philosophy), influential in the fifteenth century and later.

Question 9

inflation

Answer 9

A general and progressive increase in prices

Question 10

laissez-faire capitalism

Answer 10

an economic system in which the means of production and distribution are privately owned and operated for profit with minimal or no government interference

Question 11

means of production

Answer 11

farms, factories, railways, and other large businesses that produce and distribute goods

Question 12

monetary policy

Answer 12

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates

Question 13

socialism

Answer 13

A system in which society, usually in the form of the government, owns and controls the means of production.

Question 14

stag hunt

Answer 14

a commonly used parable that demonstrates how the interdependence of actions and choices affects collective efforts to attain a goal

Question 15

tragedy of the commons

Answer 15

A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole

Question 16

what does our author argue in this chapter?

Answer 16

Our author begins by making the argument that economics may be the reason why people created government in the first place. Remember their story of Caveman Bob trying to protect his rice. He had a resource that was valuable, and government formed to protect it.

Question 17

textbook explanation of tragedy of commons

Answer 17

It is defined as the over-exploitation of shared resources. The idea centers around a pool of shared resources, like fish or trees or grazing lands. If everyone is responsible and follows the agreed-upon limits, the resource should last indefinitely. However, if even one person goes beyond those limits, then the resource will become exhausted at some point.

ENLIGHTENED SELF INTEREST SHOULD PREVENT THIS IN THEORY

IN REALITY COLLECTIVE ACTIVE WILL (GOVERNMENT)

Question 18

enlightened self interest: idealist and realist

Answer 18

the idealist to benefit less in the long term than more up front, but then not at all later.

the realist believe that enlightened self-interest is not enough to keep this from happening. All it takes is one person to be selfish, and the tragedy will occur. In fact, they argue that rational choice may force us to cheat, since we operate from the idea that someone else will probably cheat.

Question 19

productiction versus labor

Answer 19

production: which are the mechanisms for transforming labor into wealth.
labor: is a resource that can be overexploited and produce the tragedy of the commons.

Question 20

karl marx’s beliefs

Answer 20

1. The first thing we need to know about him is that he believed that economics is the key variable in politics.
2. can be described as a humanist, or an idealist who is interested in and motivated by concern for the broader human condition and the quality of people’s lives.
3. In particular, he appreciated how it made people constantly search for better, more efficient ways to do things

Question 21

key principle of capitalism

Answer 21

competition

Question 22

four elements of cost for owners

Answer 22

Profit = not optional; has to be present to justify the risk of initial investment
Materials = also not optional; must have materials to make product
Overhead = again, not optional; production costs money
Wages = the only area with some flexibility

Question 23

marx argument

Answer 23

Labor, at this point, is a resource that can produce the tragedy of the commons if over-exploited. And this is Marx’s argument. If wages are constantly bid down, due to a large supply of unskilled labor, you can hit a point where the workers can no longer afford to purchase the products they produce.

Question 24

what else did Marx argue

Answer 24

Marx argued that the workers would eventually catch on to this and, using collective action, revolt against this exploitive system.

Question 25

what is socialism

Answer 25

It is an economic system in which society controls the means of production. Instead of competition for profits, the goal is equality in the distribution of wealth. Everyone should share in the proceeds of their labor.