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Flashcards in TEST 2 Deck (34):

Karl Marx Said

We should produce according to our abilities


In the 1950's socialists changed their emphasis in advocating socialism in capitalist countries. Why?

Because Marx's predictions about the labor market did not materialize


What is the capitalist answer to the externalities rationale for socialism?

Externalities are a problem, but self-interested state decision makers with bad information might make the problem worse.


For property to be taken by civil forfeiture...

the owner does not need to be arrested or convicted of a crime


the latest rationale for socialism is...

if an individual receives benefits from goods provided by the state, the state has a right to the individuals property


about how much per person does the US spend on anti poverty programs



Don Bordreaux's tale about Smith and Jones points out that....

fairness has more dimensions than just worldly goods

individual choices have unequal outcomes


Burkhauser, Larrimore and Simon point out that, because more people are living together without being married, Piketty and Saez...

identify some taxpayers as being poor, even though they are not


Thomas Sewell points out that..

this decades poor may be next decade's middle class


Bastiat says that machines...

do not cause unemployment


If the Fed lowers the required reserve ratio....

Excess reserves of banks immediately rise


If the Fed puts money into the banking system...

the Federal Funds rate will fall because money is now more abundant


If the required reserve ratio is .2, then a $25 Billion purchase of bonds by the fed will...

raise the money supply by $250 million


If the price index was 220 in the year 2005 and is 275 today, then since 2005 we have seen a total of....

25% inflation. Because the inflation formula is..

I = (PI year1 / PI year2) - 1


If Bubbles earned $30,000 in 2000 when the CPI was 180 and earned $40,000 in 2013 when the CPI was 230....

Bubbles was worse off in 2000


What does M1 include?

currency held outside banks

checking account balances

travelers checks


If the CPI in the 2013 is 650, with a base year of 1967, then....

The same stuff that wouldve cost $100 in 1967 costs $650 in 2013


When the price of an important resource in the economy rises sharply...

This cannot cause a general inflation because in order to spend more on some things, people must spend less on others, which lowers the prices of other things.


If the money supply is 8 trillion, velocity is 3, price level is 6 and output is 4 trillion, then according to the simple quantity theory....


(8) (3) = (6) (4)
24 = 18
12 = 9
MV rises to 12 price level rises to 9


what are the assumptions of monetarism?

The equation of exchange holds

Velocity is a stable function of a few variables

eventually output is at potential


The pizza place example teaches...

evenly spread anticipated inflation does not change wellbeing


Suppose that we have unanticipated inflation, if it is evenly spread throughout the economy, then problems include..

destabilization due to lenders getting poorer and borrowers getting richer


Inflation can cause unemployment because

people are unsure of the value of goods, services and resources


What is behind the idea of "the inflationary tax?"

inflation reduces the real value of government debt


Many view normal inflation as...



when we say that intermediaries divide denominations, we mean that they solve the problem that..

savers want to save different amounts that borrowers want to borrow


The Department of Housing and Urban Development....

encouraged Fannie Mae to purchase loans that banks made to poor people


the Dodd -Frank bill's "Bailout Insurance" will...

encourage risks due to being insured against risks


If we compare excess reserves in the banking system in August 2008 to excess reserves currently in the banking system, we find that they have multiplied by a factor of



The reason that someone would purchase a zero coupon bond is...

they buy the bond for less than the face value


Credit card interest rates are higher than mortgage interest rates because...

mortgage loans are secured

credit card loans expand or contract making them harder to service


in Bastiat's chapter on thrift, how do people say Ariste's saving harms the economy?

lower spending kills jobs


The Financial Stability Oversight Committee may be hindered in that..

it is supposed to monitor systemic risks but its members themselves were the causes of systemic risk


In Bastiat's example of the loaned plow, he thinks the plow is misallocated because government

guarantees loans for uncreditworthy borrowers