Exam #1 Flashcards
The U.S. is about “Life, Liberty and the Pursuit of Happiness” - What are the governing principles of Canadian Government?
Peace, Order and Good Government
Who is Canada’s Head of State?
The Queen of England. Queen Elizabeth
In Canada, the majority of the Federal Government’s spending - 61% - is on:
61% goes to transfer payment to the Provinces - Old Age Security, Retirement Funding, Employment Insurance
Which is an example of progressive taxation?
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)
What type of policy is the Bank of Canada responsible for?
Monetary Policy
The federal government is split into three branches: to which do the Prime Minister and his Cabinet belong?
Executive: PROPOSES - Prime Minister, Cabinet
What are the three main branches of power in government?
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
In order for a bill to become law at the federal level, it has to get FINAL approval from
Governor General on behalf of Queen
The 80/20 rule is a power law that often applies to the distribution of ______ and _____ in society?
Wealth and People?
These two rights are particularly important to making markets work
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
What is about individual human rights that makes them different from property rights?
Human Rights are not for sale
Oliver Wendell Holmes Jr. said that “Taxes are the price we pay for ________”
Living in a civilized society
How does Neoclassical economics define economics?
The Science which studies human behaviour as a relationship between ends and scarce means which have alternative uses
Who thought that countries should try to model their political and economic system on the corporation?
Karl Marx that society should be run like a corporation - with central planning.
Class 2, slide 43
Which of these political/economic systems was based on having no private property?
Communism
U.S. President Franklin Delano Roosevelt (FDR) described fascism as
.
Ownership of Government by an individual, by a group or by any other controlling private power
After what historic events did countries switch to “Keynesian” economics?
World War 2
After what historic events did countries switch away from “Keynesian” economics?
The Interregnum. The Oil Crisis
What period was considered “the golden age of capitalism”?
1945-1973
Under the law, corporations are “artificial __________” so that they they can enter into contracts.
Persons
Under “shareholder value,” corporations have one goal only - what is it?
Maximize return to shareholders
Jack Welch, former CEO of GE, referred to “shareholder value” as:
The dumbest idea in the world
Which part of government is responsible for “fiscal” policy?
Government. Minister of Finance
Which part of government is responsible for “monetary” policy
Central Bank
The Bank of Canada
In recent years, the value of the Canadian dollar has become tightly connected to the price of:
Oil
What is the name of the phenomenon when the Canadian dollar goes up, making manufactured exports harder to sell?
Dutch Disease??
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 ________
Stabilization
Class 3, Slide 3
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:
It Demands the sacrifice of output and employment
Adam Smith said there were two ways of thinking about the value of money, as having value in _____ and value in _______.
Use and Exchange
The argument over why we find diamonds expensive while water is cheap is known as ______.
The paradox of value
The idea that an item’s price is related to the amount of work that went into it is known as:
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
The Marginal Theory of value is based on the idea that the price of something varies based on
The value for the customer (bag of grain theory)
The Bank of England says that most money in the economy is created by
Whenever a bank makes a loan it simultaneously creates a matching deposit in the borrowers bank account, thereby creating new money
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:
Bad money drives out good
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
Government should borrow to stimulate the economy putting people to work on infrastructure and other projects
These two types of efficiency are necessary for “Pareto efficiency”
Management efficiency and production efficiency
Canada’s economy is known as being defined by “Hewers of wood and drawers of water.” What does this mean?
Canada relies on Natural Resources
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?
Countries can specialize in what they do best. There are gains from trade. Specialization in different countries you can gain from trade.
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?
Good for the status quo but not for those that want to change it
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.
- How are capitalists different?
Then: Owned and runed by single individual capitalists or by partnerships
Now: Owned and operated by unnatural persons/Corporations
How is liability different?
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.
How are workers different?
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.
How are markets different?
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
How are money and the financial system different?
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.
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.
- That markets will continue to grow (housing)
- That preferences of people would go unchanged and that people will continue to act in their own self interest
- That companies could cover the debts that they incur if they were required to pay (Bad insurance schemes).
Countries also have “factor endowments” that make up part of of their comparative advantage. Which is included as “factor endowments?”
Factors of endowment = trees, water, climate, farmland, education levels. This is why Canada exports lumber to China and imports coffee from Brazil.
Ha-Joon Chang argues that “all markets, in the end, are politically constructed” - why?
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.
By 1929 the USSR has established an economic system that was no longer capitalist, by:
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
