Economic Theories Flashcards
What is Adam Smith’s Classical Theory? 3 points
Adam Smith believed that if the market is left to its own devices it will naturally find a point of equilibrium that will bring stability and prosperity. (1) He felt that government policies were unnecessary and costly to tax payers, only restricting the market’s ability to form a new equilibrium. (2)
Adam Smith’s view on economic development was that competition and free trade would drive producers, workers and owners to find more efficient methods of production, providing lower production costs, enhancing profit and/or lowering the price to consumers. (3)
Who is linked with the Classical Theory?
Adam Smith.
Which theory is Adam Smith linked with?
The Classical Theory.
What is Karl Marx’ Communism (Marxism) Theory? 2 points
Karl Marx’ theory is that labourers are not paid their true value in a capitalist economy and are exploited by employers who take profit from their work. (1) He believed the inequality would lead labourers to seize control of production to establish a social economy. (2)
Who is linked to the Communism (Marxism) Theory?
Karl Marx.
Which theory is Karl Marx linked to?
Communism (Marxism) Theory.
What is John Maynard Keynes’ Keynesian Theory? 3 points
The Keynesian theory argues that aggregate demand drives the business cycle and during downturns the demand drops leading to periods of unemployment. (1) John Maynard Keynes’ view was that governments should boost its own spending during downturns in the business cycle to fill the gap in aggregate demand from the private sector. (2) By spending on new projects or cutting taxes, funds are made available to firms to employ more workers, who will in turn spend their earnings creating a virtuous cycle of growth that would get the economy out of the recession. and reduce unemployment. (3)
Who is linked to the Keynesian Theory?
John Maynard Keynes.
Which theory is John Maynard Keynes linked to?
Keynesian Theory.
