LIBERALISM - Economy

Question 1

CLAS LIB

Adam Smith - who is he?

Answer 1

He was a leading classical liberal economist 1723-1790.

Wrote the Wealth of Nations 1776, exploring the ideas of free-market capitalism, and a self-regulating market.

Question 2

CLAS LIB

The ideas outlined in The Wealth of Nations 1776

Answer 2

‘Invisible hand of the economy’

The competitive market system compels producers to be more efficient and to respond consumer desires.

Supply and demand regulate what customers are prepared to pay for any item – if there is a surplus supply of any commodity, the price will drop until all is sold.

If it scarce, the price will rise because of high demand – This all works without any state intervention.

LAISSEZ-FAIRE ECONOMICS.

Question 3

CLAS LIB

What are the two main roles for the state in regards to the economy?

Answer 3

1. To maintain law and order so that contracts are enforced and deals are legally binding.
2. To prevent any one supplier from working together and creating a monopoly, so that competition is always present.

Question 4

MOD LIB

John Maynard Keynes - who is he?

Answer 4

He is another economist, though he proposed that the role of the government was to intervene in the economy to improve the situation.

Question 5

MOD LIB

Keynesianism ideas

*multiplier effect

Answer 5

This emerged as a reaction against some problems of free market capitalism, believing this had led to individuals not being free.

Great Depression = severe worldwide economic recession in the decade prior WWII.

He proposed that the government should borrow money to invest in the economy.

This would give jobs to the unemployed which would generate taxes, which could be used to repay the debts from the borrowing.

The employed workers would spend their wages to buy goods which would create demands for other goods – employers would hire more workers.

Keynes labelled this as the multiplier effect, where the economy overall expands much more than the money borrowed and invested by the government.

Question 6

MOD LIB

What book did Keynes write exploring his ideas?

Answer 6

1936 - The General Theory of Employment, Interest, and Money’

In this, he discusses how his main aim was to maintain the level of demand in order to create high and stable levels of employment.