Questions and Answers
According to Malthus, what happens to prices when money income increases?
Prices rise
What is the result of an excess of demand over supply according to Malthus?
A general depression in the economy
What is the main reason for under-consumption according to Malthus?
Low-income earners cannot afford goods
What is the main characteristic of investment according to business cycle theorists?
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What happens to investment when consumer demand increases?
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What is not mentioned as a factor influencing investment according to business cycle theorists?
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What is the main objective of the institutional school of thought in terms of economic reforms?
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What is the approach favoured by the institutional school of thought?
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What does the institutional school of thought recognize in terms of interest groups?
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What is the main criticism of the institutional school of thought against static equilibrium analysis?
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What does the under-consumption principle argue against?
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What is the alternative to the pleasure-pain psychology approached by the institutional school of thought?
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What is the main purpose of the institutional school of thought in terms of business slumps?
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What does the Darwinian evolutionary approach suggest about society and its institutions?
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What was the primary goal of social reform according to the content?
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What did Veblen prefer in terms of social change?
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What is an 'institution' according to the institutional school of thought?
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What did the institutional school of thought emphasize in economic thinking?
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What are maladjustments in economic life according to the institutional school?
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What was the essence of social change through social reform?
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What was the approach of the institutional school in terms of social change?
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What did the New Deal of the 1930s represent in terms of institutionalism?
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What does Adam Smith's concept of 'laissez-faire' imply?
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What is the primary function of the government according to Adam Smith?
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What is the significance of trade according to Adam Smith?
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What is the definition of Marginal Efficiency of Capital according to Keynes?
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What is the idea behind Say's Law?
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What is the role of the government in the Keynesian school of thought?
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What is the title of Jeremy Bentham's book published in 1789?
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Who is the founder of the Institutional School of Economics thought?
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What is the primary driving force behind individual behavior according to Jeremy Bentham?
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What is the year in which the Institutional School of Economics thought is said to have ended?
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What is the term used by Jeremy Bentham to describe the forces of demand and supply in the market?
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What was Thorstein Veblen known for in the Institutional School of Economics thought?
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What is the primary goal of Jeremy Bentham's approach to economics?
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What was Wesley C. Mitchell known for in the Institutional School of Economics thought?
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What was John R. Commons known for in the Institutional School of Economics thought?
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What is the goal of the government's action in reducing the rate of interest according to the Keynesian school of thought?
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Study Notes
Laissez-Faire Economy
- Adam Smith advocated for a laissez-faire economy, where the government does not interfere with the economy.
- He believed in a "natural law of economic behavior" where the government should not intervene in the economy.
- The government's role should be limited to maintaining law and order, protecting private property, and regulating the monetary system.
Adam Smith's Ideas
- Trade plays a crucial role in bringing about the most productive and efficient uses of society's resources.
- Specialization and divisions of labor are essential in an economy.
- The government should not use society's resources for things people would not want to spend their money on (Say's Law).
Jeremy Bentham
- Published "Principles of Morals and Legislation" in 1789, which focused on the welfare of the nation.
- The book discussed how to measure the welfare of the nation and how to achieve it.
- Bentham believed that the wealth of the nation should be shared among the people for the greatest total welfare.
Jeremy Bentham's Ideas
- Individuals are motivated by self-interest and desire to do things that serve their own best interests.
- The market system works through the force of demand and supply, known as the "invisible hand."
Keynesian School of Economics
- Defined Marginal Efficiency of Capital as the rate of discount that makes the present value of expected returns equal to the supply price of the capital asset.
- The government should intervene to promote full employment, rather than relying on laissez-faire.
- The government can stimulate private investment during depression by reducing interest rates.
The Institutional School of Economics
- Founded by Thorstein Veblen in 1900 and represents an American contribution to economic thought.
- The school emphasized the importance of institutions in economic life and the need for social reform.
Key Ideas of the Institutional School
- The economy should be studied as a whole, rather than examining small parts separately.
- Institutions are organized patterns of group behavior, including customs, norms, and laws.
- Maladjustments in the economy are normal and require continuous correction.
- The Darwinian evolutionary approach should be used to understand the constantly changing society and its institutions.
- The school promotes liberal democratic reforms for a more equitable distribution of income and wealth.
- The institutional school favors an inductive approach, emphasizing fact-finding and statistical studies.
- The school recognizes serious clashes of interest between different groups.
Under-Consumption Principle
- Thomas Malthus argued that the wealthy class consumes less proportion of their income and saves more, while the poor may not be able to purchase most goods produced.
- Under-consumption leads to a general depression when consumer goods industries curtail output.
Instability of Investment Principle
- Investment is highly unstable and can be affected by changes in technology, interest rates, and final demand.
- An increase in consumer demand can lead to more investment, but static demand means no new investment is needed.
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Description
Learn about Adam Smith's advocacy for a laissez-faire economy, where the government doesn't interfere with the economy, and how trade plays a crucial role in bringing about productive and efficient uses.