Key Economists

Question 1

Who was Adam Smith?

Answer 1

A Scottish philosopher considered to be the founder of modern (Western) economics.

Question 2

When was Adam Smith alive?

Answer 2

1723-1790

Question 3

What famous book did Adam Smith write and when?

Answer 3

The Wealth of Nations in 1776

Question 4

What was Adam Smith’s main theory?

Answer 4

The Invisible Hand

Question 5

Explain the Invisible Hand theory.

Answer 5

The market is self-regulating, or guided by an ‘invisible hand’.

This essentially means that, when each individual acts in their own self-interest, collectively they manage to produce the correct amount of goods / services needed for society as a whole.

Question 6

The Invisible Hand is seen as a ‘laissez-faire’ approach to economics. What does this mean?

Answer 6

It requires little intervention from the government; the market regulates itself

Question 7

What is thought to be the benefit of the Invisible Hand?

Answer 7

It creates the greatest amount of good for the greatest number of people.

Question 8

Did Adam Smith support capitalism? Why, why not?

Answer 8

Yes, he saw it as harmony and growth

Question 9

Who was Karl Marx?

Answer 9

A German economist and political scientist

Question 10

Did Karl Marx like capitalism? Why, why not?

Answer 10

No, he saw instability, struggle and inequality

Question 11

What famous book did Karl Marx write and when?

Answer 11

Das Kapital in 1867

Question 12

What was Marx’s main idea?

Answer 12

That a capitalist’s profits came from exploiting labour, explicitly from underpaying workers for the value they were creating

Question 13

Karl Marx supported the idea of a profit-orientated organisation. True or false?

Answer 13

False, he opposed it

Question 14

Marx saw capitalism as a class struggle. How?

Answer 14

He saw it as a struggle between a few wealthy capitalists and a mass of underpaid, underprivileged workers

Question 15

What did Marx predict and why?

Answer 15

The fall of capitalism and a move towards communism, under which ‘the people’ would own the means of production / labour exploitation would end. This would result from the intensifying class struggle between capitalists and workers.

Question 16

Marx’s ideas had a huge impact on politics and society. Name one example.

Answer 16

The USSR in the twentieth century

Question 17

2 ideas undermine Marx’s theory. What are they?

Answer 17

1. Socialist, centrally-planned economies are less efficient at delivering goods / services than capitalist ones (they do not deliver the greatest good for the greatest many)
2. Workers’ incomes have risen over time, so they are now sharing in the profits they help to create

Question 18

When was Marx alive?

Answer 18

1818-1883

Question 19

Who was John Maynard Keynes?

Answer 19

A British economist

Question 20

When was Keynes alive?

Answer 20

1883-1946

Question 21

What famous book did Keynes write and when?

Answer 21

The General Theory of Employment, Interest and Money in 1936

Question 22

What was Keynes’ main idea?

Answer 22

That fiscal policy by an activist government is needed to manage the economy

Question 23

Keynes developed his theory on fiscal policy during the Great Depression. How did this come about? Give 3 points.

Answer 23

1. U.S. unemployment had reached 25%. Millions of people had lost their jobs and life savings.
2. The Invisible Hand wasn’t working, there was no clear path out of the depression
3. Keynes said the only solution was for the government to intervene

Question 24

Keynes’ ideas founded Keynesian economics. What does this mean?

Answer 24

A school of economic theory that favours fiscal policy, i.e. government spending, taxation and borrowing, to keep the economy steadily growing

Question 25

Who was Milton Friedman?

Answer 25

An American economist and statistician

Question 26

When was Milton Friedman alive?

Answer 26

1912-2006

Question 27

What did Milton Friedman advocate for?

Answer 27

Free market capitalism (similar to Adam Smith)

Question 28

What was Milton Friedman best known for?

Answer 28

He created the theory of monetarism

Question 29

In 1957, Friedman devised a theory called the 'consumption function'. What was it?

Answer 29

The idea that a person's consumption / saving habits are more greatly impacted by permanent changes to income, rather than short-lived changes.

Question 30

What did Friedman's consumption function lead to?

Answer 30

The Permanent Income Hypothesis, which explains how short-term tax increases keep consumption levels static

Question 31

What did Friedman highlight with his theory of monetarism? Give 2 points.

Answer 31

1. He highlighted the importance of monetary policy | 2. He pointed out that changes to the money supply affect price levels

Question 32

Friedman 'defied the intellectual climate of his era'. Why?

Answer 32

Keynesian economics was dominant at the time, but he thought that monetary was more important than fiscal policy

Question 33

Friedman was awarded a Nobel Prize - which year and for what?

Answer 33

1976 His research on income, consumption and his development of monetary theory

Question 34

Friedman always said to 'judge policies by their intentions, not their results'. True or false?

Answer 34

False - he always said it was better to judge a policy by its RESULTS, not its intentions

Question 35

Define libertarianism.

Answer 35

An extreme laissez-faire political philosophy advocating only minimal state intervention into the lives of citizens.

Question 36

Friedman was considered a libertarian activist. Why?

Answer 36

Because he believed the government should not intervene in the economy.

Question 37

"to recognise that the very measures you favour are a major source of the evils you deplore" - when / why did Friedman say that?

Answer 37

He opposed the war on drugs because it created un-intentioned consequences. This lost him a swathe of conservative followers, to whom he said that.

Question 38

Why did Friedman oppose government intervention into the economy?

Answer 38

He saw that government policy was carried out by force, thus creating unintended consequences that do not come from voluntary trade.

Question 39

What did Friedman mean by 'government failure'?

Answer 39

When government power creates an incentive for the wealthy / devious to misuse it

Question 40

Friedman did not agree with government power. He thought that free market was more 'ethical and efficient'. What did he mean by this?

Answer 40

Ethical = trade is voluntary / no one is being forced into anything Efficient = people are acting in their own self-interest and therefore want to get things done

Question 41

What did Friedman famously say about taxes?

Answer 41

"No bureaucrat could or would spend money as carefully as the taxpayers from whom it was taken"

Question 42

Friedman often spoke of regulatory capture. What is regulatory capture?

Answer 42

The phenomenon where powerful special interests co-opt the very agencies designed to control them.

Question 43

Friedman opposed government intervention in the economy. Give 3 reasons why this was.

Answer 43

1. Government policies often have unintended consequences 2. Economists should focus on results, not intentions 3. Voluntary trade between consumers and businesses often produces superior results to government policy