Economic Doctrines and Major Crises Practice Quiz (34 questions)

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Mercantilism equates national wealth with accumulated precious metals and supports state intervention to increase them. The agricultural-surplus view belongs to physiocracy, which identifies farming rather than bullion as the source of wealth.

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Mercantilist policy promotes exports and restricts imports through measures such as subsidies, tariffs, quotas, and bans. Removing trade barriers reflects free-trade principles rather than mercantilist protectionism.

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Physiocracy considers farming productive because it generates a net surplus that increases national wealth. The accumulation of precious metals is the mercantilist explanation, not the physiocratic one.

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Quesnay’s Economic Table presents flows of goods, income, and money among three classes and is regarded as the first macroeconomic model. The other choices concern mercantilist policy or classical theories rather than this physiocratic model.

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Physiocracy calls farmers productive because agricultural activity creates a surplus, while artisans are sterile because they transform existing materials without generating a net product. Receiving wages or rents does not determine the classification.

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The Classical School emphasizes natural economic laws, competition, and the self-regulating capacity of markets. Extensive state direction and protectionism are associated more closely with mercantilism than with classical economics.

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Smith’s 1776 Wealth of Nations develops the idea of the invisible hand and the theory of absolute advantage in international trade. Comparative advantage is associated with Ricardo, while the other concepts belong to physiocratic or Marxian analysis.

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David Ricardo is associated with comparative advantage, whereas Adam Smith is associated with absolute advantage. The invisible hand is also linked to Smith, but it is not Ricardo’s contribution or a definition of comparative advantage.

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The neoclassical approach is microeconomic and static, beginning with rational agents and analyzing how markets coordinate supply and demand toward equilibrium. The Classical approach is associated instead with macroeconomic and dynamic analysis, not the individual-agent starting point described here.

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Methodological individualism explains broader phenomena by starting from the rational choices of sovereign individuals. Class-based analysis begins from social classes and institutions, making it a distinct analytical approach.

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Marginal utility is the extra satisfaction from consuming one additional unit, and it decreases as consumption increases. Declining average productivity concerns output per input rather than the satisfaction generated by consumption.

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Money-market equilibrium requires money supply to equal money demand, represented by $M = pY$. An excess supply of money is a disequilibrium condition rather than the equality that defines monetary equilibrium.

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Canceling the common consumption term in $Y = C + E = C + I$ gives $E = I$, meaning expenditure and investment are equal in equilibrium. The equation does not imply that consumption equals investment or that income consists of consumption alone.

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Keynes published The General Theory of Employment, Interest and Money in 1936 amid the Great Depression and widespread unemployment. The other titles are not the work identified with this publication and historical context.

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Effective demand is the demand firms anticipate, and it guides their production decisions and therefore employment. Say’s law differs because it assumes production creates sufficient demand rather than treating anticipated demand as the constraint on output.

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Underemployment equilibrium combines equality between goods-market supply and anticipated demand with unemployment among available workers. Full employment would not leave willing workers unemployed, even if the goods market were in equilibrium.

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Keynes argues that intervention should increase demand so firms have an incentive to expand production and employment. The argument rejects the idea that capitalism spontaneously guarantees full employment without demand-supporting policies.

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The crash began on 24 October 1929, when 13 million shares were offered against almost no demand. The nearby date of 29 October is associated with the later panic selling known as Black Tuesday, not the stated beginning of the crash.

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Wall Street’s market capitalization fell by approximately 87% during that period. The smaller percentages underestimate the exceptionally severe scale of the market collapse.

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The crisis spread through bank failures, the repatriation of European capital, falling production, collapsing trade, and protectionist measures. The second sequence describes demand expansion rather than the contractionary mechanisms that transmitted the crisis.

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Deflationary policy reduces prices, wages, public spending, and money creation, thereby contracting demand; Keynesian stimulus uses spending and credit to support demand and employment. The second choice reverses the defining effects of the two approaches.

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The period lasted approximately 23 years, beginning in the early 1950s and ending with the oil shock of October 1973. Its conventional name suggests 30 years, which creates the documented confusion.

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Japan recorded the highest average annual GDP growth, exceeding 9% between 1950 and 1973. Germany, France, and the United States experienced strong growth but at lower stated rates.

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Mass production combined standardized output, assembly-line work, capital accumulation, and technical progress to raise productivity and lower unit costs. The artisanal-production choice conflicts with the reliance of mass production on large-scale standardized output.

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During the first oil shock, the price of a barrel increased from 10 dollars to 40 dollars. The falling-price choices reverse the direction of the shock, while the smaller increase does not match the stated scale.

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The oil-price increase raised firms’ costs and consumer prices while reducing real household income, worsening trade balances, and weakening production and investment. The second choice describes the opposite pattern and therefore misses the inflationary and contractionary effects of the shock.

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The second oil shock followed the Iranian Revolution in 1979 and doubled the real price of oil relative to its 1973–1979 level. The other choices assign the shock to different events or describe the price movement incorrectly.

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Recovery was supported by fiscal deficits, less restrictive monetary policy, and an oil counter-shock that lowered energy prices and inflation. The second choice reverses these mechanisms by confusing the counter-shock with the original oil shock.

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Toxic assets had lost nearly all their value and were particularly associated with subprime mortgages and securitized loans. The second choice describes ordinary marketable assets rather than assets impaired by the crisis.

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Lehman Brothers declared bankruptcy on 15 September 2008, a major event in the escalation of the global financial crisis. The other dates do not mark Lehman Brothers’ bankruptcy.

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The monetarist account focuses on excess liquidity and excessively low Federal Reserve interest rates from 2002 to 2004, while the Keynesian account focuses on intrinsically unstable financial markets. The second choice reverses the theories’ central explanations.

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Recovery relied on expansionary policies, especially public spending and very low central-bank interest rates. The other choices describe contractionary measures that would reduce demand rather than provide the stated recovery support.

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The Coronavirus crisis affected the economy during 2020–2022, whereas the Russia–Ukraine conflict and its economic consequences began in 2022. The second choice reverses the periods associated with the two crises.

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The Coronavirus crisis spans 2020–2022, and the economic consequences of the Russia–Ukraine conflict begin in 2022. The second choice incorrectly exchanges the timelines of the two crises.