Economics Theories Flashcards

The Austrian Business Cycle Theory attributes booms and busts primarily to:

Answer: Artificially low interest rates set by central banks

Austrian economists (Mises, Hayek) argue that central bank credit expansion distorts investment, creating unsustainable booms that end in busts.

Which concept describes the additional utility gained from consuming one more unit of a good?

Answer: Marginal utility

Marginal utility is the change in total satisfaction from consuming one additional unit, and it typically declines as consumption increases.

Endogenous growth theory, associated with Paul Romer, emphasizes that long-run growth is driven by:

Answer: Knowledge, innovation, and human capital

Romer's model shows that ideas and technological progress, generated inside the economy, sustain long-run growth without diminishing returns.

According to the quantity theory of money (MV = PQ), if velocity and real output are constant, doubling the money supply will:

Answer: Double the price level

With V and Q fixed, the equation of exchange implies price level P moves proportionally with money supply M.

The concept of 'moral hazard' in economics refers to:

Answer: Increased risk-taking because someone else bears the cost

Moral hazard occurs when a party takes on more risk because another party (e.g., an insurer) absorbs the consequences.

In game theory, a Nash Equilibrium is a situation where:

Answer: No player can improve their outcome by changing strategy alone

Named after John Nash, this equilibrium exists when each player's strategy is the best response to the strategies of all others.

The Phillips Curve originally described a trade-off between:

Answer: Unemployment and inflation

A.W. Phillips observed an inverse relationship between unemployment and wage inflation in UK data, later generalized to price inflation.