Exam #1

Question 1

The U.S. is about “Life, Liberty and the Pursuit of Happiness” - What are the governing principles of Canadian Government?

Answer 1

Peace, Order and Good Government

Question 2

Who is Canada’s Head of State?

Answer 2

The Queen of England. Queen Elizabeth

Question 3

In Canada, the majority of the Federal Government’s spending - 61% - is on:

Answer 3

61% goes to transfer payment to the Provinces - Old Age Security, Retirement Funding, Employment Insurance

Question 4

Which is an example of progressive taxation?

Answer 4

The More you make, the more you pay. The higher your income, the higher percentage of tax you pay.
Ex. $5,000 - 0% ($0)
$50,000 - 22% ($11,000)
$500,000 - 43% ($215,000)

Question 5

What type of policy is the Bank of Canada responsible for?

Answer 5

Monetary Policy

Question 6

The federal government is split into three branches: to which do the Prime Minister and his Cabinet belong?

Answer 6

Executive: PROPOSES - Prime Minister, Cabinet

Question 7

What are the three main branches of power in government?

Answer 7

Executive - PROPOSES. The Prime Minister, Premiers and their Cabinets

Legislative - DECIDES. Legislators, MP’s, Senator and MLAs. Those who vote on bills

Judiciary - JUDGES courts, who both apply and evaluate the law

Question 8

In order for a bill to become law at the federal level, it has to get FINAL approval from

Answer 8

Governor General on behalf of Queen

Question 9

The 80/20 rule is a power law that often applies to the distribution of ______ and _____ in society?

Answer 9

Wealth and People?

Question 10

These two rights are particularly important to making markets work

Answer 10

Property Rights - If you own property, you own the right to that property. If you have land or a vehicle and its registered somewhere you have right to that property. You can buy and sell property rights.

Human Rights - Aren’t for sale. Those are the right in the Constitution - Freedom of Speech. The right to a fair trial. The right to vote. You can’t sell these rights

Question 11

What is about individual human rights that makes them different from property rights?

Answer 11

Human Rights are not for sale

Question 12

Oliver Wendell Holmes Jr. said that “Taxes are the price we pay for ________”

Answer 12

Living in a civilized society

Question 13

How does Neoclassical economics define economics?

Answer 13

The Science which studies human behaviour as a relationship between ends and scarce means which have alternative uses

Question 14

Who thought that countries should try to model their political and economic system on the corporation?

Answer 14

Karl Marx that society should be run like a corporation - with central planning.

Class 2, slide 43

Question 15

Which of these political/economic systems was based on having no private property?

Answer 15

Communism

Question 16

U.S. President Franklin Delano Roosevelt (FDR) described fascism as
.

Answer 16

Ownership of Government by an individual, by a group or by any other controlling private power

Question 17

After what historic events did countries switch to “Keynesian” economics?

Answer 17

World War 2

Question 18

After what historic events did countries switch away from “Keynesian” economics?

Answer 18

The Interregnum. The Oil Crisis

Question 19

What period was considered “the golden age of capitalism”?

Answer 19

1945-1973

Question 20

Under the law, corporations are “artificial __________” so that they they can enter into contracts.

Answer 20

Persons

Question 21

Under “shareholder value,” corporations have one goal only - what is it?

Answer 21

Maximize return to shareholders

Question 22

Jack Welch, former CEO of GE, referred to “shareholder value” as:

Answer 22

The dumbest idea in the world

Question 23

Which part of government is responsible for “fiscal” policy?

Answer 23

Government. Minister of Finance

Question 24

Which part of government is responsible for “monetary” policy

Answer 24

Central Bank

The Bank of Canada

Question 25

In recent years, the value of the Canadian dollar has become tightly connected to the price of:

Answer 25

Oil

Question 26

What is the name of the phenomenon when the Canadian dollar goes up, making manufactured exports harder to sell?

Answer 26

Dutch Disease??

Question 27

The fact that Canadians and Canadian provinces all share the Canadian dollar means that we have a monetary union. Equalization payments also have the effect of being ________

Answer 27

Stabilization

Class 3, Slide 3

Question 28

One of the major goals of the Bank of Canada is to keep inflation low. While low inflation is seen as a positive, the downside to the “crusade against inflation” is:

Answer 28

It Demands the sacrifice of output and employment

Question 29

Adam Smith said there were two ways of thinking about the value of money, as having value in _____ and value in _______.

Answer 29

Use and Exchange

Question 30

The argument over why we find diamonds expensive while water is cheap is known as ______.

Answer 30

The paradox of value

Question 31

The idea that an item’s price is related to the amount of work that went into it is known as:

Answer 31

The Labour Theory of Value

The value in exchange as being determined by labour. The real price of everything, what everything really costs to the man who wants to acquire it.

Class 3, slide 48

Question 32

The Marginal Theory of value is based on the idea that the price of something varies based on

Answer 32

The value for the customer (bag of grain theory)

Question 33

The Bank of England says that most money in the economy is created by

Answer 33

Whenever a bank makes a loan it simultaneously creates a matching deposit in the borrowers bank account, thereby creating new money

Question 34

Gresham’s law, which describes the phenomenon where people hoard quality goods or money while leaving low-quality goods or money in circulation is expressed by the saying:

Answer 34

Bad money drives out good

Question 35

When it comes to the boom and bust of the business cycle, what was the revolutionary insight of John Maynard Keynes?

Government should borrow to stimulate the economy putting people to work on infrastructure and other projects

Answer 35

Government should borrow to stimulate the economy putting people to work on infrastructure and other projects

Question 36

These two types of efficiency are necessary for “Pareto efficiency”

Answer 36

Management efficiency and production efficiency

Question 37

Canada’s economy is known as being defined by “Hewers of wood and drawers of water.” What does this mean?

Answer 37

Canada relies on Natural Resources

Question 38

Comparative Advantage is the key to the theory of “gains from trade”. According to the theory as presented by David Ricardo, because of comparative advantage, each side of a trade can benefit for what major reason?

Answer 38

Countries can specialize in what they do best. There are gains from trade. Specialization in different countries you can gain from trade.

Question 39

Ha-Joon Chang argued that the theory of comparative advantage, Ricardo’s theory is absolutely right within its narrow confines. What does Chang say the theory depends on?

Answer 39

Good for the status quo but not for those that want to change it

Question 40

Ha-Joon Chang argues that Capitalism has changed in five different ways since Adam Smith’s day in the 1700s. Explain what difference between then and now.

1. How are capitalists different?

Answer 40

Then: Owned and runed by single individual capitalists or by partnerships

Now: Owned and operated by unnatural persons/Corporations

Question 41

How is liability different?

Answer 41

Then: Unlimited Liability. If business failed had to sell of personal property.
Now: Limited Liability, business can go bankrupt and leave people owing money but protects people personally.

Question 42

How are workers different?

Answer 42

Then: People did not work for Capitalists. Worked in Agriculture, did not own land. Farmed it and payed a share to artistocrat landlord

Now: Child Labour is banned. 10% of people are self employed. 15-25% work for government, the rest are wage earners working for Capitalists.

Question 43

How are markets different?

Answer 43

Then: Markets are mostly local or at most National except for a few commodities - Sugar, slave and spices. Perfect Competition
Now: Market is populated, manipulated by large companies. Monopolies, Oligopsony

Question 44

How are money and the financial system different?

Answer 44

Then: Over 3000 types of currencies in the US alone. Many currencies. Tally sticks, markers, etc. Lender and borrower would have each half. Banknotes were backed by precious metals. Gold in exchange for money at a bank.

Now: Central Banks that set interest rates and are similar across the country. Stock markets exist now. Didn’t before.

Question 45

The 2008 financial crisis changed some basic assumptions about economics. There were three basic assumptions that people made that no longer seemed to be true - what were they?
1.
2.
3.

Answer 45

1. That markets will continue to grow (housing)
2. That preferences of people would go unchanged and that people will continue to act in their own self interest
3. That companies could cover the debts that they incur if they were required to pay (Bad insurance schemes).

Question 46

Countries also have “factor endowments” that make up part of of their comparative advantage. Which is included as “factor endowments?”

Answer 46

Factors of endowment = trees, water, climate, farmland, education levels. This is why Canada exports lumber to China and imports coffee from Brazil.

Question 47

Ha-Joon Chang argues that “all markets, in the end, are politically constructed” - why?

Answer 47

Because Markets are based on political beliefs of what is right and wrong. We don’t allow the sales of slaves, child labour, human trafficking.

Question 48

By 1929 the USSR has established an economic system that was no longer capitalist, by:

Answer 48

The USSR was established through the means of revolution and the economic system imposed was that of socialism. The Marxists approach of towards the economy entailed aspects such as central planning and the restriction of property rights.

Joseph Stalin coming to power and introducing Communism which transformed the USSR into a military superpower