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Final Exam Study Guide (almost Cumulative)

by: Heer Patel

Final Exam Study Guide (almost Cumulative) ECON 105

Marketplace > University of Massachusetts > Economcs > ECON 105 > Final Exam Study Guide almost Cumulative
Heer Patel
GPA 4.0
Intro to Political Economy
David Kotz

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About this Document

Read the tags (: This is the last 2/3 of the intro to political (macro) Econ combined into one study guide. There are questions and answers of the main points from each section.
Intro to Political Economy
David Kotz
Study Guide
#Econ #Economics Socialism Capitalism Labour Aggregated SSA Unemployment Assets SocialSecurity Great Recession Banks Fail
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This 0 page Study Guide was uploaded by Heer Patel on Tuesday December 15, 2015. The Study Guide belongs to ECON 105 at University of Massachusetts taught by David Kotz in Summer 2015. Since its upload, it has received 67 views. For similar materials see Intro to Political Economy in Economcs at University of Massachusetts.


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Date Created: 12/15/15
1 What are the four major classes in the contemporary American economy according to the political economy approach Explain what role each class plays in the economy Workers Do not own their capital goods work for a wage and do not control labour Capitalists Own enough property to live off income it generates Old middle class both own capital and do labour New middle class control labour of others but do not own enough property to live off it so they work for a wage 2 In what ways do workers and capitalists have opposing interests In what ways do they have common interests Opposing interests Wage rates job security job safety pace of work and unemployment rates Common interests High pro t in economy expansion rapid accumulation more jobs in the future high wages paid of one employer might lead to workers to work more effort for a job 3 Explain how some political con icts in the US today can be interpreted as class con icts between the working class and the capitalist class Give examples Labour class has been ghting for their right to join a union reversing a 35 year declining wage and job conditions insurance for all making the tax system more progressive and government action to create jobs The capitalist class don39t want that For that the labour class opts with voting lobbying demonstrations strikes and occasional revolts against the capitalists and that creates con icts 4 How can one explain the relative weakness of labor unions and labor parties in the United States in comparison to other developed capitalist countries US development was as one of the settler colonies so they had individual upward mobility The US working class was formed from many ethnic groups and working people tended to identify with their ethnic group rather than as worker is why the US working class has been relatively weak 5 Explain the difference among the following three measures of the size of government government production government purchases of goods and services and government expenditure Government Production Measured by the wages and salaries of government employees plus depreciation on government capital goods Government consumption and Investment Production of the value of goods and services purchased from the private sector Government Spending and expenditure Includes government consumption and investment plus transfer payments by the government to the private sectors and within the government 6 Explain three ways in which big businesses and the rich are able to have signi cant in uence on the government despite the system of elections and majority rule in the US Money Media and control of Investment 7 Explain the following economic roles of government a producer b macro regulator c microregulator d distributor What is the rationale for each of those four roles of government a Produces or subsidizes goods services or activities that are not effectively produced by private action Ex education police re department etc b Promotes economic stability and economic growth Ex unemployment rates price in ation rates and economic growth rate c Affects what is produced and how it is produced Ex Regulation of banks infrastructure agriculture etc Antimonopoly policy and social regulation d Distributed through social security retirement pensions disability programs unemployment compensation min wage laws and progressive income taxes 8 The government has come to play a large role in the economy in contemporary US capitalism How can one explain the expansion of the government39s economic role What classes and groups have bene tted from this expansion Economic expansion is pro t motive and accumulation drive of capitalist rms which leads them to export commodities and capital and have invest nancially in foreign markets The government39s economic role in expansion would be that they tend to dominate and now capitalism is the dominant system in the world Along with economic domination political domination follows From this expansion the capitalist class and the government of the dominating country bene t 9 What effect does a global economic system with free trade and free movement of capital have on the relatively bargaining power of workers and capitalists The export of capital from the expanding country leads to direct foreign investment which in end lowers production costs and opens up jobs for the workers in foreign countries 10 De ne quotimperialismquot Why according to political economy do capitalist economies tend to be imperialist The economic and political domination of one country of another The capitalist era saw the rise of the greatest empires under imperialism and imperialism involves domination and humiliation of entire population at time 11 Why does geographic expansion of economic activity by rms based in developed capitalist countries tend to lead to political domination over the areas into which they expand Economic expansion leads to political domination because it creates conditions for capitalist exchange and production in dominated country limits competition from capitalist based in other imperial powers protects against local threats to particular economic interests of dominant country capitalists and it keeps dominated country open to foreign investment 12 Discuss the reasons why economic activity in any economic system may tend to damage the natural environment Society may place low priority on maintaining the environment Incentive to damage the environment for economic growth Ignorance of effects of economic activity on the environment 13 What effects does a capitalist economic system tend to have on the natural environment Carefully explain why it has these effects How can the harmful effects capitalism has on the environment be prevented Consequences include extreme heat drought water shortages crop failures severe weather rising sea level etc Burning fossil fuels produces excess heat and the gases in the atmosphere trap that heat and things melt To prevent these we have engineering solution carbon sequestration and sunlight re ector and market solutions cap and trade system 14 Explain how a cap and trade system is supposed to solve the problem of global climate change What are the advantages and disadvantages of that solution Government sets limit on total emissions of greenhouse gases Permits to emit pollutants are either auctioned or given to rms that emit greenhouse gases Market for trading emissions permits is organized Company that is able to reduce emissions can make a pro t by selling permits Company that emits a lot has to pay by buying permits Supporters this is an ef cient way to create incentives to reduce emission of greenhouse gases Critics too slow and uncertain 15 What approach to preventing harmful global climate do you support Explain your answer NONE KOTZ LOVES CATS I WILL BE A CAT AND WATCH THE WORLD BURN 16 Why does a capitalist economy tend to have a high degree of income inequality Discuss income inequality a between capitalists and workers and b among workers Because Capitalism a Capitalists makes the pro t that the workers work so hard for Capitalists receive surplus b wages depend mainly on the bargaining power of workers in particular occupation or sector of the economy 17 What institutions or conditions in a capitalist economy tend to reduce the degree of income inequality Why does the US have a higher degree of income inequality than other developed capitalist countries Government income maintenance programs large sector of public employees progressive taxation system strong labour unions low unemployment rate Because Government maintenance programs less generous and comprehensive public employment relative to private is lower and weaker labour unions represent smaller share of labour force 18 Why did income inequality in the US rise signi cantly after about 1980 Because government income maintenance programs cut backabolished many public sector jobs contracted out to private sector at lower wages federal taxation less progressive labour unions weakened unemployment rate signi cantly higher than before on average and growing competition from lowwage countries due to globalization 19 Discuss the arguments in favor of and opposed to a high degree of income inequality Favour of belief in property rights fair in market economy economic growth necessary for incentive to work harder and ef ciently Opposed to Property is a creation of state pay differences are major and unfair association with slower growth equal opportunity is not possible and egalitarian values 20 Compare and discuss the validity of the following two statements concerning capitalist society a anyone can become rich b everyone can become rich a having so much money that you can buy whatever you want without doing work b everyone cannot become rich because if everyone is rich no one is rich 21 De ne the quotunemployment ratequot What is the difference between the unemployment rate and the broader underemployment rate the rate of unemployed peoplepercent of the labour force that does not have a job Unemployment rate people actively seeking work potential labour force underemployment is the expanded measure of unemployment which includes the unemployed parttime employed and people what want to work but are no seeking work 22 What evidence can be cited to support the view that the existence of unemployment in the US economy cannot be explained by the personal characteristics of the unemployed such as work ethic or education It is caused by forces outside the control of individual workers Even if every unemployed person tried getting a job it would not increase the number of available jobs Existence of unemployment is involuntary 23 Compare the answers to the following questions a Why does a particular person end up unemployed b Why is there normally unemployment in a capitalist economy a Unemployment is due to a mismatch between job vacancies and characteristics of the jobless b There are individuals without jobs so if a workers acts up and threatens the capitalist for better wages and working conditions it won39t stop the ow of the job because they capitalist can always hire a new worker Also if there is full employment workers will get more power over the capitalists and that is not how capitalism works 24 Explain how the interaction of aggregate demand and aggregate supply determines an equilibrium level of employment in the economy If the AD AS the economy is in microeconomic equilibrium because there is no change in the GDP 25 Use aggregate demand and supply analysis to explain how the government can vary its level of spending or taxation to achieve a lower unemployment rate The unemployment is determined by the level of Aggregated demand the higher the aggregated demand the higher the employment rate 26 Explain how quotautomatic stabilizersquot reduce the severity of the business cycle NOT IN ME NOTES 27 Explain the roles of coordination failures and class con ict in causing business cycles and unemployment Coordination failure rms make decisions independently and the net results of their decisions can bring a recession that hurts everyone MWAHAHAHAHAH HA Class con ict Unemployment rate affects the relative bargaining power of labour and capital 28 Explain why a condition of full employment causes problems in a capitalist economy Employees get more power in a full employment situation gt them getting higher wages gt increase in prices and competition limits the power of rms to raise the prices and if the prices are raised it results in a wageprice spiral in ationAlso capitalists cannot make much pro t 29 Explain what is meant by a quotsocial structure of accumulation SSAquot What are the four dimensions of each social structure of accumulation SSA set of institutions that support pro tmaking and accumulation Four dimension Capitalcapital relation capitallabour labourlabour labour state 30 How does an SSA promote pro tmaking and capital accumulation Affect determinants of the pro t rate in ways that produce high rate of pro t wage rate productivity intensity and duration of labour Encourage accumulation by creating stability and predictability 31 According to SSA theory why does every SSA eventually stop working effectively What happens to the economy when an SSA stops working effectively Capitalist produces con icts and problems that undermine further expansion of the SSA Long term economic crisis begins when the SSA stops working effectively and it is followed by long period of economic instability and stagnation 32 What was the quotregulated capitalist SSAquot that arose after World War II in the USA What were its main features How did that SSA promote pro tmaking and capital accumulation Rise of transnational corporations wide practice of restrained competition peaceful collective bargaining government regulation of the nancial sector social programs progressive income taxation Fiscal and monetary policies promote growth environmental protection spending on weapons and transportation plays major role in the economy US BECOMES THE DOMINANT CAPITALIST POWER They promoted pro t making and capital accumulation through Keynesian ideologies 33 Why did the postWorld War II regulated capitalist SSA in the USA stop working effectively in the late 19605 and 19705 US workers were demand a bigger share of the income rival capitalists and Europe and Japan were gaining market shares there were rebellions against western control OIL 34 What is the quotneoliberal SSAquot that arose in the late 19705early 19805 What are its main features How has it been able to promote pro tmaking and capital accumulation It was a the new institutional form of capitalism capitalist economy produces optimal results without government regulations All unemployment in economy is voluntary The state is an enemy of individual freedom and labour unions are organizations that prevent free choice of individual workers 35 What does neoliberal or quotfree marketquot economic theory claim about a the cause of unemployment and b the proper government role in the economy a unemployment is voluntary b the state is an enemy and we are all bloody ne without a stupid government except when the government spends money to create jobs for us 36 Compare the economic performance of the US economy in the regulated capitalist era 194873 to the neoliberal era since 1979 with respect to the economic growth rate and the degree of income inequality SEE QUESTION 32 and 34 37 Why in the 20005 were nancial institutions willing to hold large amounts of securities backed by subprime mortgages that represented mortgage loans to people who did not have good credit ratings There were asset bubbles and people wanted money 38 What is an quotasset bubblequot Why did neoliberal capitalism tend to promote the development of large asset bubbles Sustained rise in the price of an asset due to purchases of the asset that are motivated by and expectation by the further rise in asset price They are a selfsustaining rise in the price of an assets without any relation to the true economic value of the asset 39 How did the institutions of neoliberal capitalism promote high pro ts and create a strong incentive for rms to invest and expand What obstacle to continuing economic expansion was always present in neoliberal capitalism resulting from the stagnation or decline of wages All features of neoliberal capitalism contributed to the rapid growth of inequality 40 Explain how a nancial sector seeking to make risky loans together with the development of large asset bubbles solved for a time the aggregate demand problem of neoliberal capitalism It stimulated uppermiddle and upperincome households income This allowed consumer spending to rise faster than the GDP which prolonged the expansion 41 Explain how three features of neoliberal capitalism growing inequality a nancial sector that engaged in rislq activities and a series of large asset bubbles together promoted long economic expansions during the neoliberal era SEE NUMERO 4O 42 What role did rising inequality and stagnating or falling wages play in the rapid increase in the amount of risky subprime mortgage backed securities in the mid 20005 inequality guaranteed demand for loans Household debts could not rise inde nitely It gave rise to MBS mortgage based security which in turn caused the subprime mortgages to rise outstandingly 43 Explain why the form of economic expansion during the neoliberal era created trends in the amount of household debt that were unsustainable over the long run household debt could not rise inde nitely and as the level of nancial fragility of nancial sector rose it became increasingly vulnerable to de ationso blame the asset bubbles and capitalism 44 What role did the bursting of the real estate bubble in 200607 play in causing the quotGreat Recessionquot that began in 2008 as its nal act It destroyed the nancial system 45 According to Keynesian theory what should the federal government have done when the Great Recession began in 2008 to stop the recession Stop capitalism 46 Discuss the following quote quotThe same mechanisms in a capitalist economy that have brought economic bene ts over time also are the cause of serious economic problemsquot The pro t motive and accumulation drive resulting from competition market as the coordinating mechanism predominant power in the economy and state held by owners of large corporations and banks Two solution for these problems are Reform of Capitalism replacement of capitalism 47 Critically evaluate the proposal that the government act as employer of last resort for the purpose of eliminating unemployment government nances a program that offers a job in public sector to anyone willing and able to work who cannot nd work in the private sector the federal government would nance it the jobs would be offered by state and local government on socially needed projects 48 Can capitalism be reformed to eliminate unemployment a high degree of inequality and a high degree of economic insecurity for most people How could these goals be achieved Yes it can be Raise min wage change labour laws make banks public institution WHO THE RUN THE WORLD NOT US free public higher education HEALTH CARE FOR ALL SS pension raised progressive income taxation regulated international trade public nancing of the mass media 49 What is a socialist economy What are the arguments for and against a socialist economy as a replacement for capitalism Socialism is a type of government and its main features are Social ownership of the means of production Production for use not for pro t Resources are allocated through economic planning instead of market forces A democratic state with individual rights and liberties Supporters full employment low degree of income inequality material needs of everyone are met Does not require endless economic growth could be environmentally sustainable would not have drive to domination like capitalism Make a better democratic society it would embody the values of equality corporation solidarity democratic participation Critics Economic planning cannot be does effectively lack ef cient work incentives lack innovation drive of competition and pro t seeking concentrate too much power in the government restrict individual freedom and believe that private property is the only way to guarantee individual independence


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