Review Questions for Final Examination 1. Explain David Ricardo’s theory of income distribution and economic growth. How and why did economic growth, in the absence of international trade and government, lead to changing shares of wages, rent, and profit? How would these shares change? Why? What would happen to the economy, in the long run? Elaborate. 2. Explain David Ricardo’s labor theory of value. Why did he think this was an improvement over Adam Smith’s contradictory comments on the theory of value? What were Smith’s ideas on the theory of value? Elaborate. 3. Explain Karl Marx’s labor theory of value. Be Sure to comment on the distinction he makes between labor and labor power. Also, explain the relationship between the rate of surplus value, the organic composition of capital, and the rate of profit. Elaborate. 4. What did Leon Walras mean when he claimed that market systems tend to move toward a general equilibrium? What are the properties of a general equilibrium? In what sense is his conception of an equilibrium timeless? Is his theory compatible with the Classical idea that market prices converge toward their natural levels? Elaborate. 5. Explain Thorstein Veblen’s theory of consumption. Does he believe that economic behavior – such as consumption, is driven by utilitarian calculations or by socio-cultural factors? What is the point of conspicuous consumption? What is emulative consumption? What role do envy and invidious distinctions play in this process? What does this imply for the presumed efficiency of a capitalist society? Elaborate. 6. Explain John Maynard Keynes’s concept of the effective demand for labor. How does Keynes’s theory differ from the Neoclassical theory of the labor market? Elaborate.
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