Short definitions

Question 1

Usury

Answer 1

Lending of money at interest. Aristotle

Question 2

Zero-sum game

Answer 2

When in a transaction adding together the value of the loss of one individual’s with another ones gain it equals to zero. Mercantilists

Question 3

Stationary state

Answer 3

when the economy of a country stops growing. Ricardo

Question 4

Proletariat

Answer 4

the lower or working classes. Marx

Question 5

Consumer surplus

Answer 5

When the price of a good is set lower than what the consumer was willing to pay. Marshall

Question 6

Automatic stabiliser

Answer 6

Government policies that prevent the economic instability. Keyenes

Question 7

Money illusion

Answer 7

Relates to human behaviour that think money in nominal terms rather than real terms. Fisher

Question 8

Methodological individualism

Answer 8

Studying from the point of view of individuals about their choices. (Austrian school, Von Mises)

Question 9

Bounded rationality

Answer 9

When in decision making there is limited time and can’t focus on optimization since there are cognitive limitations. Simon

Question 10

Prospect theory

Answer 10

People hate losing more than they like gaining.

Question 11

Monetary policy

Answer 11

Central bank, interest rates, supply of money

Question 12

Fiscal policy

Answer 12

Government, taxation, government spending

Question 13

Preventive & positive checks

Answer 13

1) decrease number of births 2) increase number of deaths

Question 14

Capital vs Income

Answer 14

Capital is liquid, income eg wage

Question 15

the price-specie flow mechanism of David Hume

Answer 15

The price-specie flow mechanism explains how countries with positive trade balance are the ones that import gold for exports whereas countries that export gold for imports have a negative trade balance

Question 16

Explain the last 3 of the 6 modes of production discussed in the Communist Manifesto of Marx and Engels

Answer 16

Under capitalism, everyone is a self-employed worker and the system is based on free markets. Socialism is a transitional system in which the government owns the means of production but individuals have ownership rights over revenue and products. A planned economy, or communism, is one in which the “common” owns the means of production and resources. Resources are created according to each person’s requirements.

Question 17

bounded rationality and the theory of satisficing of Herbert Simon

Answer 17

The theory of satisficing describes how people tend to choose a solution that is satisfactory but not always ideal.