History of Economic Thought

How did Aristotle perceive usury (charging interest on loans)?

• He supported usury as a fair way to increase wealth.

• He believed that usury is necessary for economic growth.

• He condemned usury because money itself should not generate more money.

• He had no opinion on usury.

According to Ricardo's theory of comparative advantage, countries should:

• Produce everything domestically to become self-sufficient

• Trade only when they have an absolute advantage

• Specialize in the production of goods in which they have a lower opportunity cost

• Avoid international trade to protect local industries

His works include the Communist Manifesto (1848) and Capital (1867, vol. 1; volumes 2-3 were published posthumously). Who is he?

• Karl Marx

• John Stuart Mill

• David Ricardo

• Thomas Malthus

Below are the main principles of Marxism, except?

• Rejection of the classical concept of harmony of interests

• Rejection of Say's law

• Emphasis on the substitution effect between capital and labor

• Support for collective action and public ownership of enterprises

What is the key assumption of classical economic thought?

• Government intervention is necessary to control markets

• Markets function best when left to their own devices

• Central planning is the most efficient economic system

According to John Stuart Mill, how are wages determined?

• Wages depend on the demand and supply of labor

• Wages are set by the government

• Wages are determined solely at the discretion of the employer

What key criticism of the classical labor theory of value did Karl Marx present?

• Rejected the idea that labor contributes to value

• Believed that only supply and demand should determine prices

• Argued that workers are exploited because they produce more value than they receive in wages

• Believed that value is based solely on technological innovations

How does the "invisible hand" regulate the market?

• Through direct government intervention

• By setting prices through agreements between companies

• Through competition and self-interest guiding supply and demand

• Through central planning determining production levels

What does the natural price respond to?

• Excessive government spending and inflation

• Normal levels of costs

• High levels of foreign investment and trade surpluses

• A surplus is not needed

What is the market price?

• Raising interest rates to reduce inflation

• Reducing government intervention in financial markets

• It is the price that prevails in the market, which is an interaction between supply and effective demand.

• Inflation rates are dependent on minimum wages.