Unit 3

Question 1

BEFORE 1776

Answer 1

• Mercantilism
• Gold and silver
• More on export than import
• The colonial models

Question 2

• The birth of classical economics
• Wealth of the Nations – 1776

Answer 2

ADAM SMITH

Question 3

Smith introduced that if a person followed their own _______, they would be serving the common good.

Answer 3

self-interests

Question 4

“The _________ is not based on accumulation of gold and silver but on the value of good and services”

Answer 4

wealth of the nations

Question 5

To increase the wealth one of the key is worker productivity (Division of labor and Specialization of Labor)

Answer 5

TRANSFORMATIONAL THOUGHT

Question 6

cost of production

Answer 6

Labor theory value

Question 7

o Consumer maximize utility
o Producers maximize their profits

Answer 7

Invisible hand

Question 8

It means happiness

Answer 8

utility

Question 9

______ is key to the prosperity of nations

Answer 9

Free trade

Question 10

British economist, __________ expanded on Smith’s idea by introducing the theory of comparative advantage

Answer 10

David Ricardo

Question 11

“When both countries concentrate on producing what they are best at and then trade, everyone benefits.”

Answer 11

theory of comparative advantage

Question 12

Comparative advantage, both countries have opportunity costs. But the country who has a __________ has the comparative advantage.

Answer 12

lower opportunity cost

Question 13

the foundation of modern
international trade

Answer 13

theory of comparative advantage

Question 14

When almost all scholar are peaching ideas like private property and free-trade and free-market, along comes the __________ in 1848.

Answer 14

Communist Manifesto

Question 15

Communist Manifesto was created by?

Answer 15

KARL MARX AND FRIEDRICH ENGELS

Question 16

“Rather than investigating individual behavior observed economic classes and argued that history can be explained by the struggle between workers and property owners”.

Answer 16

Communist Manifesto

KARL MARX AND FRIEDRICH ENGELS

Question 17

In spite of Marx’s criticisms, ________ theory dominated economic thinking until the end of 19th century, with influences from American, British, and French economists.

Answer 17

market-based

Question 18

Broke from classical economist because the economy shifted focus from supply and demand side of the economy.

Answer 18

NEOCLASSICAL ECONOMICS

Question 19

In neoclassical economics, the _______ of the product is not the main issue

Answer 19

value

Question 20

NEOCLASSICAL ECONOMICS

“rather than the value of good being derived from the cost of value is derived from the _____ of consumer of the product”

Answer 20

utility

Question 21

Measuring the utility in economics

Answer 21

the law of diminishing marginal utility

Question 22

Mathematics began to emerge in economics

Answer 22

NEOCLASSICAL ECONOMICS

Question 23

Wrote the “Principle of economics” 1890

Answer 23

ALFRED MARSHALL

Question 24

Advent of the supply and demand diagram and the beginning of models to explain human behavior.

Answer 24

ALFRED MARSHALL

Question 25

• The beginning of model building
• Based on assumptions about rational economics behavior
• Consumer and producer seen as optimizers
• The movement towards “science”

Answer 25

NEOCLASSICAL ECONOMICS

Question 26

British economist who proposed A General Theory of Money Interest and Employment, published in 1936.

Answer 26

John Maynard Keynes

Question 27

John Maynard Keynes founded what?

Answer 27

macroeconomics

Question 28

“Keynes argued that market economies do not correct itself fast enough because prices and wages take time to adapt. They proposed that during _______, the government must be involved and intervened through monetary and fiscal policies. This is to increase production and decrease unemployment, even this if it means going into debt”

Answer 28

economic busts

Question 29

With the ill-effects of the Great Depression lingering, many countries have pushed for an ideology called _______, despite it being thrown around since the middle of 19th century.

Answer 29

socialism

Question 30

These countries provide generously for their citizens through universal healthcare and social safety nets, they do so through heavy taxation, operating in a capitalist framework.

Answer 30

socialist economies

Question 31

As socialism and Keynesian economics drove some economies, other economists persisted to push for private
property and free market.

The most outspoken group was the ___________

Answer 31

Austrian School of Economics.

Question 32

The Austrians, _______ and ____________, argued that heavy reliance on state intervention has never produced the results it sought to accomplish, and that government interference and strict regulations create more problems than solutions.

Answer 32

Friedrich Hayek and Ludwig von Mises

Question 33

They rejected nearly every idea of monetary and fiscal policy and for the Austrian School, the economy is too complex to warrant _________

Answer 33

government manipulation.

Question 34

But since the government intervenes in the economy, _____ and _____ occur

Answer 34

booms and busts

Question 35

As with Hayek and Von Mises, _________ promoted the privatization of many roles that the government has assumed and taken control.

He was notable in proposing the deregulation of the economy.

Answer 35

MILTON FRIEDMAN

Question 36

Friedman established that the failure of the response to the Great Depression was because of ________________

Answer 36

Keynesian economics.

Question 37

In the 1970’s, Friedman ideas became more widespread when the US experienced very high inflation rate and low production, a __________

Answer 37

stagflation.

Question 38

Stagflation became the very thing that the __________ claimed to have debunked Keynesian economics.

Answer 38

Chicago School of Economics

Question 39

Friedman also built another idea from economic theory. It is called _________

It is focused on the stability of prices and recommended the slow and controlled increase of money supply to permit for consistent economic growth

Answer 39

monetarism.

Question 40

Today, modern economic theory stands on the shoulders of classical economics, Friedman’s monetarism and Keynesian economics. This integrated theory is often called the _________

Answer 40

NEW NEOCLASSICAL SYNTHESIS

Question 41

people who earn a wage for a living, especially people who are dependent on manual, daily, or casual labor.

Answer 41

Proletariats

Question 42

those who make their living through property or through ownership of the means of production

Answer 42

Bourgeois