Economic Dimensions

Question 1

Economic Machine

Answer 1

The economy is described as a simple ‘economic machine’ driven by simple transactions based on human nature and repeated billions of times. The market system is driven by the simple laws of supply and demand, which influence prices for goods, labour, and interest rates.

Question 2

Free Market Economic System

Answer 2

An economy that operates with limited government intervention and relies on the choices individuals make in their own self-interest. Key principles include ownership of private property and economic freedom. Competition and the forces of supply and demand determine what goods are produced, how they are produced, and their prices.

Question 3

Supply and Demand

Answer 3

These are simple laws that drive the market system. They affect prices for goods, labour, and interest rates. In a free market, supply and demand, along with competition, determine which goods are produced, how they are produced, and at what prices they are sold.

Question 4

Self-Interest

Answer 4

Individuals making choices in their own self-interest is a driving force in a free market economy. Self-interest is believed to lead individuals to contribute to the common good of everyone, even unintentionally, guided by an ‘invisible hand’.

Question 5

Invisible Hand

Answer 5

A concept from Adam Smith suggesting that individual self-interest, when pursued in a free market, guides individuals to contribute to the common good of everyone, even if that was not their initial intention.

Question 6

Private Property

Answer 6

The right of individuals to own and control land, physical possessions, and intellectual property. It is a fundamental principle of individualism and classical liberalism.

Question 7

Economic Freedom

Answer 7

A key principle of a free market economic system. Individuals have the freedom to buy what they want and to sell their labour, ideas, or products to whomever they wish.

Question 8

Competition

Answer 8

A key principle of a free market economic system. Along with supply and demand, competition determines which goods are produced, how they are produced, and at what prices they are sold.

Question 9

Mixed Economic System

Answer 9

Combines free-market principles with some degree of government intervention. Governments play a role in safeguarding citizens from economic uncertainty.

Question 10

Government Intervention (in mixed economies)

Answer 10

A characteristic of a mixed economy. Governments intervene to regulate the economy, provide social programs, and address market failures.

Question 11

Monetary Policy

Answer 11

Actions taken by the government (specifically the central bank) to regulate the economy by managing the money supply and interest rates.

Question 12

Fiscal Policy

Answer 12

Actions taken by the government to regulate the economy by adjusting taxes or government spending.

Question 13

Command Economic System

Answer 13

A centrally planned economic system where government planners make all the decisions about which goods are produced, how they are produced, and at what prices they are sold.

Question 14

Central Planning

Answer 14

The process used in a command economy where government planners make the key decisions about the economy.

Question 15

Abolition of Private Property (in Command Economy context)

Answer 15

An essential characteristic of a command economic system. In contrast to free markets or mixed economies, individuals do not have the right to own private property.

Question 16

Centralization of the Means of Production

Answer 16

An essential characteristic of a command economic system. The means of production are controlled by the state.

Question 17

Public Property

Answer 17

Property that is owned or managed by the state or government in the interest of the collective or all of society.

Question 18

Privatization

Answer 18

A policy where the government sells off economic interests to private entities.

Question 19

Socialism

Answer 19

An ideology that believes resources should be controlled by the public for the benefit of everyone in society, rather than by private interests.

Question 20

Economic Equality (Socialism)

Answer 20

A value emphasized by socialist supporters. It means aiming for a more equal distribution of wealth and opportunity among citizens.

Question 21

Income Security (Socialism)

Answer 21

Emphasized in socialism, often achieved through guaranteed employment and living standards. It means ensuring people have a basic level of income or resources to meet their needs.

Question 22

Co-operation (Socialism)

Answer 22

Favoured over competition in socialism. It is also a key principle of collectivism, emphasizing working together to solve problems and collective enterprises.

Question 23

State Involvement (Socialism)

Answer 23

Typically required to a high degree to control and direct the economy. The state is seen as the entity that should direct the economy to achieve economic equality. This contrasts with the limited government role in free markets.

Question 24

Classless Society (Socialism)

Answer 24

Often a goal of socialism. It aims to eliminate the significant economic and social divisions between different classes of people, which are seen as arising from private ownership and capitalism.

Question 25

John Maynard Keynes

Answer 25

A British economist (1883–1946) who developed economic theory in response to the Great Depression. He believed the free-market economy was inherently unstable and balancing supply/demand wouldn't necessarily lead to full employment. He argued economic cycles were caused by consumer demand. Considered by some the originator of the mixed economy. His theory is known as demand-side economics.

Question 26

Demand-Side Economics

Answer 26

An economic theory developed by John Maynard Keynes. It argues that government can and should intervene to regulate demand. This is done by manipulating monetary policy (interest rates, money supply) and fiscal policy (taxing and spending) to influence money available to consumers and producers, thereby stimulating or cooling economic activity. The goal is to moderate the 'boom and bust' cycles of the market economy and lessen effects of inflation and recession.

Question 27

Roosevelt's New Deal

Answer 27

A series of programs and projects instituted by US President Franklin D. Roosevelt (FDR) during the Great Depression. It fundamentally expanded the size and scope of the US federal government, particularly its role in the economy. It challenged classical liberal ideas about limited government. It was an application of ideas similar to those of John Maynard Keynes.

Question 28

Supply-Side Economics (Trickle-Down Theory)

Answer 28

An economic approach often associated with neo-conservatism. Focuses on promoting business profitability. Suggests policies favouring businesses and wealth creation, like lowering taxes overall (especially on the wealthy), will stimulate the economy. The idea is that increased wealth at the top will 'trickle down' through investment and job creation. Reaganomics is an example. It was a key aspect of the policies of Reagan and Thatcher.

Question 29

Neo-Conservatism (as related to economics)

Answer 29

Described as a revival of classical liberalism, sometimes called neoliberalism. Associated with the economic policies of Ronald Reagan and Margaret Thatcher and the ideas of economists like Milton Friedman and Friedrich Hayek (Monetarism). Key aspects: fiscal restraint, privatization, restricting social spending, and deregulation. Strongly supports business and promotes supply-side economics. Associated with the Right side of the economic spectrum.

Question 30

Laissez-Faire Capitalism

Answer 30

A form of capitalism with a reduction of government involvement in the economy. French for 'leave (people) alone to do (as they wish)'. Emerged from theories of thinkers like Adam Smith. Core belief: individual actions driven by self-interest in a free market are more productive than government actions and will ultimately benefit everyone. Associated with classical liberalism and the Industrial Revolution. Created great wealth for some but also poverty and injustices for many workers. Defenders believe market fluctuations are like natural laws, and individuals should be responsible for saving for bad times, with no need for government intervention. It represents Minimal/Limited Government involvement.

Question 31

Classical Liberalism (as related to economics)

Answer 31

Associated with Laissez-Faire Capitalism and a free-market economy. Emphasizes limited government involvement in the economy. Core principles: private property, economic freedom, self-interest, competition. Believes individual actions driven by self-interest in a free market benefit everyone (invisible hand). Associated with the Industrial Revolution, which created wealth but also poverty and injustice. Challenged by socialism, welfare capitalism, and modern liberalism due to its negative effects. Neo-conservatism is a revival of classical liberalism. It is on the Right side of the economic spectrum.

Question 32

Industrial Revolution (as related to economics)

Answer 32

Associated with Laissez-Faire Capitalism and classical liberalism. While it created great wealth for some, it often resulted in great poverty and injustices for the vast majority of workers. This led to significant income disparity.

Question 33

Economic Spectrum (Left vs. Right)

Answer 33

A spectrum on which economic ideologies and systems can be placed. Left side: Represents greater economic control by the state, valuing economic equality and the common good over individual gain. Examples: Marxism (command economy) and Socialism (public control). See a positive role for government in social/economic issues. Right side: Represents greater economic freedom and less state control, emphasizing individual freedom, private property, self-interest, and competition. Values: autonomy, self-reliance. Examples: Classical Conservatism, Classical Liberalism (free market), Neo-Conservatism. Usually see government as interfering or counterproductive. In between: Mixed Economies, Welfare Capitalism, Modern Liberalism, which blend elements of individual freedom and government intervention.

Question 34

Self-Reliance

Answer 34

The quality of being solely responsible for one’s own well-being. In some views of individualism, people should do everything possible before asking for assistance. It is a principle of individualism. It is a value emphasized by Right-Wing economic ideologies. It aligns with the idea in Laissez-Faire Capitalism that individuals should be responsible for saving for bad times without government help.

Question 35

Collusion

Answer 35

When two or more people or organizations secretly work together to deceive or cheat others, usually to gain an unfair advantage. In economics, it often happens between companies that should be competing but instead cooperate secretly. They might fix prices, limit supply, or divide up markets. Collusion is illegal in most countries because it hurts consumers by keeping prices high and reducing choices.

Question 36

Capitalist Economy

Answer 36

Closely linked to classical liberalism and the free market. Emphasizes private property and private ownership of the means of production. Driven by self-interest and competition. Operates with limited government intervention (in its classical form). Goal is often profit-seeking. Associated with the Industrial Revolution and wealth creation. Can be characterized by the 'boom and bust' economic cycle.

Question 37

Socialist Economy

Answer 37

Key characteristics include public or state control of resources and means of production. Emphasis on economic equality and meeting human needs rather than making profits. Values co-operation. Aims for a classless society. Involves a high degree of state involvement or central planning. Associated with Socialism and sometimes Command Economies.

Question 38

Government Subsidies

Answer 38

Financial help or support that the government gives to individuals, businesses, or industries. Used to reduce costs and encourage certain activities or outcomes. Reasons for use: support struggling industries, encourage production of essential goods, make things cheaper for consumers, create jobs, boost growth, promote positive social goals. Types: direct cash payments, tax breaks, lower-interest loans, price supports, government buying surplus goods.

Question 39

Individualism (as related to economics)

Answer 39

A fundamental concept underlying ideologies. Emphasizes the importance of the individual. Key principles include individual rights and freedoms, autonomy, self-interest, personal achievement, self-reliance, private property, economic freedom, rule of law, and competition. Individualist ideologies tend to advocate for freedom from government and collective controls. Associated with Classical Liberalism, Neo-Conservatism, and free-market economies.

Question 40

Collectivism (as related to economics)

Answer 40

A fundamental concept underlying ideologies. Emphasizes human interdependence and the importance of the group or collective. Key principles include working co-operatively, collective enterprises, teamwork, social harmony, the common good, economic equality, public property, collective interest, collective responsibility, and adherence to collective norms. Collectivist ideologies see a positive role for government assistance and control. Associated with Socialism, Marxism, and Command Economies. Social welfare programs are considered collectivist in nature.

Question 41

Market Economy

Answer 41

An economic system where decisions are guided by supply and demand and the interactions of individuals and businesses in the market. Decisions are made by market forces rather than by central planning. Similar to a free market economy. Can experience volatility and 'boom and bust' cycles.

Question 42

Income Disparity

Answer 42

Refers to glaring inequalities of wealth and opportunity. Under classical liberalism and the Industrial Revolution, significant income disparity arose, creating huge differences between the wealthy few and the poor many. This was a key criticism leading to the rise of socialist and other opposing ideologies. Suggested by the mention of five million Canadians living below the poverty line. Progressive taxation was implemented as an attempt to redistribute wealth and introduce more economic equality.

Question 43

Volatility of a Market Economy

Answer 43

A characteristic of a market economy. It can lead to social and economic issues. Characterized by the 'Boom and Bust' cycle with wild fluctuations. Can result in recessions or depressions, causing widespread business failures, impoverishment, and suffering. Seen as inherently unstable by economists like John Maynard Keynes. Addressing volatility often involves government intervention through fiscal and monetary policy. Some argue against simply accepting this volatility for potential growth.

Question 44

Boom and Bust Cycle

Answer 44

Refers to the wild fluctuations characteristic of the free-market economy. The 'boom' is a period of rapid growth, followed by a 'bust' (recession or depression). Demand-side economics and Keynesian intervention aim to moderate these cycles.

Question 45

Recession

Answer 45

A period of economic downturn within the 'boom and bust' cycle. Can be created and prolonged by people hoarding money and failing to invest. If long and severe enough, a recession becomes a depression.

Question 46

Depression

Answer 46

A long and severe recession. The Great Depression is cited as a direct result of a free-market economic system, causing widespread business failures and impoverishment, and much suffering. It spurred moves towards the welfare state and government intervention.

Question 47

Social Welfare Programs / Social Safety Net

Answer 47

Government services designed to help those in need. Also referred to as a 'social safety net'. Examples: health care, employment insurance, welfare, public education. Considered collectivist in nature because they are paid for through taxation by all citizens, demonstrating a commitment to the well-being of the group. Their development is characteristic of the welfare state and modern liberalism. Emerged as a response to perceived failures of classical liberalism. Governments use them to balance individualism and collectivism. Part of government intervention to ensure a basic standard of living.

Question 48

Welfare State

Answer 48

A state characterized by the development of extensive social welfare programs and a government that takes responsibility for the social and economic well-being of its citizens. Emerged particularly after the Great Depression. The government uses fiscal and monetary policy (Keynesian economics) to regulate the economy and provides a social safety net funded by taxation. Represents a form of Balanced Government involvement.

Question 49

Modern Liberalism (as related to economics)

Answer 49

Evolved to include government intervention to address social and economic issues and provide a social safety net. Seeks a balance between individualism and collectivism. Accepts free markets and private property but with significant government intervention and social programs. Associated with Mixed Economies and the Welfare State. Represents a form of Balanced Government involvement. Better equipped to handle challenges like climate change than classical liberalism, though large-scale issues may still pose challenges.

Question 50

Anti-Trust Laws

Answer 50

Legislation enacted by government to prevent monopolies and protect competition. Seen as beneficial to consumers. An example of government interference in a free market economy. Such intervention conflicts with the classical liberal principle of limited government and economic freedom from interference, but is consistent with modern liberalism which addresses market failures. Their continued existence despite legislation suggests challenges in applying regulation to modern industries.

Question 51

Monopoly

Answer 51

Where one company is the only supplier of a good or service, preventing competition. Considered a problem that needs to be addressed. Addressing them involves government intervention like anti-trust legislation. Monopolies prevent competition, which is a free market principle, but government intervention to address them conflicts with classical liberal principles of limited government.

Question 52

Green Politics

Answer 52

An ideology that stresses environmentalism, ecology, and sustainable economics as alternatives to traditional approaches. Espouses principles like ecological wisdom and respect for ecology. Directly challenge traditional liberal economic approaches by placing environment and sustainability.

Question 53

What is a monopoly?

Answer 53

A market structure where a single seller controls the entire market, preventing competition.

Question 54

Why are monopolies considered a problem?

Answer 54

They prevent competition, which is a fundamental principle of a free market.

Question 55

How can monopolies be addressed?

Answer 55

Through government intervention, such as anti-trust legislation.

Question 56

What is anti-trust legislation?

Answer 56

Laws designed to promote competition and prevent monopolistic practices.

Question 57

What is the conflict between government intervention and classical liberal principles?

Answer 57

Government intervention to address monopolies conflicts with the principle of limited government espoused by classical liberalism.