Economics: Review for Chapter Six

What two parts of Adam Smith's philosophy earned for him the title of Laissez-Faire Economics?

1. Limited Government 2. Personal Responsibility

Identify two potential weaknesses of capitalism. Give biblical support for your answer.

1. Exploitation - Because of a lack of government interference, capitalism has, at times in the past, allowed business owners to exploit their workers. Of course, for the believing business owner, this is unacceptable, because the Bible instructs us to love others as we love ourself. 2. Greed - Capitalism can create a culture of money-lovin'. A money-lovin' society, however, will never be a healthy society, for Scripture tells us that the love of money is the root of all evil.

Identify the five points of mercantilism.

1. Exploration: Discover and size new sources of gold and silver. 2. Trade: Increase expiration of goods and services while decreasing importation of foreign goods. 3. Domestic Manufacturing (Manufacturing within the country): Increase domestic manufacturing to produce more goods to sell abroad. 4. Colonisation: Encourage the colonisation of new territories to acquire new supplies of the factors of production. 5. Alliances: Arrange all foreign relationships in a way that minimises competition.

Name and briefly describe each of the three forms of capitalism discussed in this chapter.

1. Radical Capitalism - Radical Capitalism, which is the most extreme form of capitalism, exists only in theory. Were this system to ever be implemented, citizens could expect to: a. own all of the factors of production b. make all decisions regarding what and how to produce and who would receive what was produced c. be without a government d. operate economically without any outside regulations or interference. 2. Classic Liberal Capitalism - Classic Liberal Capitalism, which is the form of capitalism that arose from the writings of Adam Smith, accepts the existence of government but allows it only minimal ownership of resources and decision-making power to perform its responsibilities. 3. State Capitalism - State Capitalism occurs when private citizens own the vast majority of natural resources, financial capital, and labor, but the government freely intervenes in the decision-making process to carry out its economic and social goals.

Name and briefly describe each of the three forms of socialism discussed in this chapter of the textbook?

1. Social Democracy - Social Democracy, which is a transitional economic system bridging the gap between capitalism and socialism, is identified primarily by the state's taking possession of industries that serve as cornerstones to the economy. 2. Centralised Socialism - Centralised Socialism maintains that the national government should be both the central owner and the decision maker in economic affairs of the state. 3. Communism - Communism, which exists only in theory, is the most radical form of socialism. If this system of economics were ever to occur, the government would happily disband and turn the management of the factors of production to everyone in common. The citizens of the nation would then work together to wisely manage the nation's resources and responsibilities, ensuring that every citizen was of equal stature.

Name two economics principles of capitalism that are supposed by Scripture, and give a Bible reference for each.

1. The right to private property ownership (Acts 5:4) 2. Accountability for financial decisions (Matt. 25:14-30)

The answer to what two questions can determine whether a nation is capitalistic or socialistic?

1. Who owns the nation's factors of production? 2. Who answers the three economic questions?

In what area do supporters of capitalism say their economic system is successful?

A higher standard of living.

In what two areas do supporters of socialism say their economic system is successful?

A low unemployment rate and classless society in which no businesses exploit the working class.

What did Adam Smith declare to be the three functions of government?

A. To protect citizens from foreign aggression B. To protect citizens from internal aggressions C. To provide citizens with public goods

What is the full title of Adam Smith's landmark economic treatise?

An Inquiry into the Nature and Causes of the Wealth of Nations

According to Adam Smith, how might a mercantilist nation create bad feelings among its own people and with its neighbours?

By pursuing an increasing of wealth at all costs, including aggressive actions towards one's neighbouring countries.

Which economic system is closest to Adam Smith's writings?

Classic Liberal Capitalism

Why is radical capitalism unscriptural?

It denies the necessity of government.

According to Adam Smith, why would a laissez-faire economic policy work?

Laissez-fair means "let alone". Smith believed that a nation was more likely to flourish economically if the government would keep its interference to a minimum, Why? Individuals would help themselves by producing and selling new products, and in helping themselves, they would in turn help others, who had a desire for the product mentioned above. This trend would continue, and the nation would enjoy economic prosperity.

What is liberalism according to the classical definition?

Liberty

What economic system prevailed in Europe from the 1500s to the 1700s?

Mercantilism.

To an economist, what is meant by the phrases standard of living and real income?

Standard of living: Economists generally focused on the average level of real income, the availability of goods and services, access to education, and the availability of health care as indicators of the level of a person's standard of living. Real Income: What a person's income can actually buy.

What kind of economy does the United States have?

State capitalism

What was the major economic goal of European countries from the 1500s to the 1700s?

To acquire as much monetary wealth as possible.

Social democracy is marked by the government's nationalizing which vital industries?

Transportation, communication, energy, financial markets, and health care.