History Of Economic Thought Exam Prep

Front 1

Equation of Exchange:

Back 1

MV = PT

where

M = quantity of money, V = velocity of money, P = average price level of goods, T = number of transactions

**assume V is constant, rewrite equation**

Front 2

Mercantilists' believe in a zero-sum economy:

Back 2

a nation amassed its wealth at the expense of another nation

inflating pressure from an influx of specie from the new world could be neutralized since more M quickens trade, meaning an increase in T

Front 3

assumptions behind the Equation of Exchange/Quantity Theory of Money

Back 3

V is constant

M and T increase proportionally

--> increase of M does not necessarily lead to an increase of P

Front 4

Keynes: 'tacit assumptions' mean that the classical economy comes into its own

Back 4

-tacit assumption was that the economy was at full employment; central controls had succeeded in establishing an aggregate output corresponding to full employment

-he denied the previous believe that competitive markets will automatically result in full employment; rather, under employment is likely to be the natural state unless corrective measures are taken

Front 5

to include in the Keynes 'comes into its own' diagram:

Back 5

-AS line; solid then dotted

-axes are employment (Y) and price (P)

-multiple AD lines, starting from the bottom

-be sure to mark Y sub FE and Y sub R

Front 6

Title of the book Keynes published in 1936:

Back 6

The General Theory of Employment, Interest, and Money

Front 7

Smith on distribution:

Back 7

distribution shares were rent, profit, and wages

natural order was static, harmonious, and 'natural'

Front 8

Ricardo on distribution

Back 8

distribution shares were rent, profit, and wages

natural order was dynamic, conflictual and problematic

Front 9

Smith on technological unemployment

Back 9

technological unemployment would be absorbed by other sectors and was optimistic that employment would rise elsewhere, causing the standard of living to stay the same and not decrease

Front 10

Ricardo on technological unemployment

Back 10

technological unemployment induced 'immiseration' and permanent unemployment that would not be reabsorbed by other sectors of the economy

Front 11

Smith on the stationary state

Back 11

saw it as a very far-off prospect and that the division of labor increased efficiency and distributional shares were 'natural'

Front 12

Ricardo on the stationary state:

Back 12

saw it as a much closer prospect, and that its likelihood of happening was made stronger by technological immmiseration and that there were trends in distributional shares which affected growth

Front 13

Ricardo's rent theory

Back 13

as less fertile lands are cultivated due to population pressures, rent can be charged on the more fertile lands, the amount of which is determined by how much more fertile the land is as compared to the least fertile tracts of land

Front 14

Ricardo on the Corn Laws

Back 14

the Corn Laws were put in place to protect English growers of corn, and tariffs were placed on imports of the grain. However this drove prices up, which Ricardo saw as inefficient and instead argued that if prices dropped because of the introduction of foreign corn, rent would drop, wages would increase, causing economic gains

Front 15

dynamic comparative advantage

Back 15

the concept that comparative advantages enjoyed by industries or countries change as technology advances or economic parameters shift

Front 16

learning effects

Back 16

arise in advantages of trade; different stages of development

Front 17

protection vs free trade

Back 17

protection was advocated as opposed to completely free trade in order to protect infant industries in developing countries, e.g. the US and Germany

Front 18

first-comers vs late-comers

Back 18

first-comers are those who entered the market first, industrialized first, and whose main industries have achieve economies of scale

late-comers are those who entered the market late, are still in the development stage and who are attempting to compete with mature industries

Front 19

infant industries

Back 19

closely related to the idea of first-comers; industries who have not yet achieved economies of scale and require government protection in order to compete and continue to grow

Front 20

the 'Post Washington Consensus'

Back 20

its ideology combined the aspects of a market economy with some intervention, in regards to trade it advocated free trade with some protection, and was in essence a combination of the two earlier modes of thinking