Econ434MC3 - Topic 3 Economic Theory in the Era of Adam...

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1. The Age of Enlightenment reflected increased reliance on scientific methodology and logic as mechanisms for ascertaining truth, and a growing belief that hierarchical authority lacks a monopoly on reason and wisdom. This school of thought set the stage for such documents as the: (a) Declaration of Independence and Adam Smith’s Wealth of Nations . (b) Treaty of Paris and Treaty of Versailles. (c) Monroe Doctrine and Treaty of Ghent. (d) Magna Carta and St Augustine’s City of God. 2. John Locke and David Hume outlined an early version of the: (a) circular flow of income. (b) permanent income hypothesis. (c) quantity theory of money. (d) marginal disutility of poverty. (e) backward-bending supply function for capital. 3. The equation ∆MV=∆PQ when real GDP (adjusted for inflation) is fixed is a modern way to characterize: (a) Adam Smith’s labor theory of value. (b) Francois Quesnay’s circular flow model. (c) Roberto Michaels’ Iron Law of Oligarchy . (d) David Hume’s Price Specie-Flow Mechanism, which is an early version of the Quantity Theory of Money]. 4. David Hume’s observations about the relationship between the money supply and the price level are known as the: (a) Price Specie-Flow Mechanism. (b) Law of Comparative Advantage. (c) Law of Absolute Advantage. (d) Laissez Faire. 5. David Hume argued that: (a) money is a “veil” that hides the real workings of the economic system. (b) Corn Laws protected English workers from competition by low-wage foreign workers. (c) capitalism is the system most compatible with democracy. (d) fair punishment is proportional to the harm done by a criminal. 6. David Hume, who said of money that “‘Tis none of the wheels of trade. Tis the oil’,” exposed a major error in mercantilism by explaining what is now referred to as the: (a) quantity theory of money. (b) price level theory. (c) velocity theory of money. (d) wages-fund doctrine. 7. In modern parlance, David Hume statement about money that, “‘Tis none of the wheels of trade. Tis the oil’,” was referring to the notion that money: (a) is relatively costly to produce. (b) facilitates divisions of labor and specialization and trade according to comparative advantage. (c) increases transactions costs. (d) generates seignorage profits for the Treasury at lower costs than is true of taxation. (e) lubricates overspeculation in financial instruments. 8. The key concept underpinning David Hume’s price-specie flow mechanism that most mercantilists failed to grasp is known today as: (a) the equimarginal principle. (b) the wages- fund doctrine. (c) the quantity theory of money. (d) partial equilibrium analysis. (d) competitive resource markets. 1
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This note was uploaded on 01/12/2010 for the course ECON 434 taught by Professor Byrns during the Spring '09 term at UNC.

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Econ434MC3 - Topic 3 Economic Theory in the Era of Adam...

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