Austrian School Of Economics Quiz-advanced Level

1. The value of economic goods is determined by?

Intrinsic Value of goods

Subjective value of market agents (i.e people who buy and sell goods)

Value is determined by labour

The value of economic goods is determined by the subjective value of market agents, which refers to the individual preferences and perceptions of people who participate in buying and selling goods. This means that the value of a good is not inherent or fixed, but rather depends on the desires, needs, and willingness to pay of consumers. It is influenced by factors such as scarcity, utility, and market demand. The subjective value theory suggests that the value of a good is ultimately determined by the subjective judgments and choices made by individuals in the market.

Explanation

The value of economic goods is determined by the subjective value of market agents, which refers to the individual preferences and perceptions of people who participate in buying and selling goods. This means that the value of a good is not inherent or fixed, but rather depends on the desires, needs, and willingness to pay of consumers. It is influenced by factors such as scarcity, utility, and market demand. The subjective value theory suggests that the value of a good is ultimately determined by the subjective judgments and choices made by individuals in the market.

2. In Mises's critique of socialism, the case when members of a socialist society have an incentive for bad decision making due to socializing the costs of individual action is called:

Mises's critique of socialism highlights the concept of moral hazard, which refers to the situation where individuals in a socialist society are encouraged to make poor decisions because they do not bear the full costs of their actions. In this context, socializing the costs of individual actions means that the negative consequences of these actions are spread across the entire society rather than being borne solely by the individual responsible. This lack of personal accountability incentivizes individuals to engage in risky behavior or make decisions that may have negative effects on the society as a whole.

Explanation

Mises's critique of socialism highlights the concept of moral hazard, which refers to the situation where individuals in a socialist society are encouraged to make poor decisions because they do not bear the full costs of their actions. In this context, socializing the costs of individual actions means that the negative consequences of these actions are spread across the entire society rather than being borne solely by the individual responsible. This lack of personal accountability incentivizes individuals to engage in risky behavior or make decisions that may have negative effects on the society as a whole.

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3. Original definition of inflation is:

The rise of prices in goods and services

The inflation of money supply in economy

The correct answer is "The inflation of money supply in economy." This answer accurately reflects the original definition of inflation, which refers to an increase in the overall money supply in an economy. This can lead to a decrease in the purchasing power of money and ultimately result in a rise in prices for goods and services.

Explanation

The correct answer is "The inflation of money supply in economy." This answer accurately reflects the original definition of inflation, which refers to an increase in the overall money supply in an economy. This can lead to a decrease in the purchasing power of money and ultimately result in a rise in prices for goods and services.

4. In the mengerian analysis of marginal theory, he differed from co-founders of the marginal theory Gossen, Jevons and Walras in methodology by which of the following approaches:

Menger differed from the co-founders of marginal theory by recognizing that the importance of marginal units of a certain good for an individual is relative to the importance of other marginal units of different goods in the market. This means that the value or utility of a good is not determined in isolation, but rather in comparison to other goods. Menger's approach emphasizes the subjective nature of value and the role of individual preferences in determining the value of goods in the market.

Explanation

Menger differed from the co-founders of marginal theory by recognizing that the importance of marginal units of a certain good for an individual is relative to the importance of other marginal units of different goods in the market. This means that the value or utility of a good is not determined in isolation, but rather in comparison to other goods. Menger's approach emphasizes the subjective nature of value and the role of individual preferences in determining the value of goods in the market.

5. Are money prices measurement of value?

Yes

No

Money prices are not a measurement of value. While money prices indicate the amount of money required to purchase a particular item or service, they do not accurately measure the inherent value of that item or service. Value is subjective and varies from person to person, depending on their individual preferences and needs. Therefore, money prices cannot be considered as a universal measurement of value.

Explanation

Money prices are not a measurement of value. While money prices indicate the amount of money required to purchase a particular item or service, they do not accurately measure the inherent value of that item or service. Value is subjective and varies from person to person, depending on their individual preferences and needs. Therefore, money prices cannot be considered as a universal measurement of value.

6. In Austrian business cycle Malinvestment occurs due to:

Lack of Purchasing power of workers that cause a tendency of supply to be larger than demand

Low interest rates that stimulate credit boom

Fluctuations in aggregate demand

In the Austrian business cycle theory, malinvestment occurs due to low interest rates that stimulate a credit boom. When interest rates are low, it becomes cheaper for businesses and individuals to borrow money, leading to increased investment and economic activity. However, this artificial credit expansion can lead to investments in projects that are not economically viable or sustainable in the long run, resulting in malinvestment. This can cause imbalances in the economy and ultimately lead to a downturn or recession.

Explanation

In the Austrian business cycle theory, malinvestment occurs due to low interest rates that stimulate a credit boom. When interest rates are low, it becomes cheaper for businesses and individuals to borrow money, leading to increased investment and economic activity. However, this artificial credit expansion can lead to investments in projects that are not economically viable or sustainable in the long run, resulting in malinvestment. This can cause imbalances in the economy and ultimately lead to a downturn or recession.

7. Higgs-Hoppe cycle describes:

The cycle of how the state grows through domestic reforms and imperialistic foreign policy then breaks down

The cycle of how economy is inflated by money supply, till an economic bubble bursts

The Higgs-Hoppe cycle describes the process by which a state experiences growth through domestic reforms and an aggressive foreign policy, leading to an eventual breakdown. This cycle suggests that a state initially implements reforms and expands its power through imperialistic actions. However, this growth is unsustainable and eventually leads to a breakdown, possibly due to overextension or internal conflicts. The Higgs-Hoppe cycle highlights the cyclical nature of state development and the potential consequences of aggressive policies.

Explanation

The Higgs-Hoppe cycle describes the process by which a state experiences growth through domestic reforms and an aggressive foreign policy, leading to an eventual breakdown. This cycle suggests that a state initially implements reforms and expands its power through imperialistic actions. However, this growth is unsustainable and eventually leads to a breakdown, possibly due to overextension or internal conflicts. The Higgs-Hoppe cycle highlights the cyclical nature of state development and the potential consequences of aggressive policies.

8. Choose the correct chronological order of Austrian economist

Von mises, Bohm Bawerk, Menger, Hayek, Rothbard

Menger, Von Mises, Hayek, Keynes, Rothbard

Menger, Bohm Baverk, von Mises, von Hayek, Rothbard,

Hayek, Von mises, Rothabrd, Higgs, Hoppe

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Explanation

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9. First one to develop Capital and interest theory:

Von Mises

Menger

Bohm-Bawerk

Hayek

Bohm-Bawerk is credited with being the first to develop the Capital and interest theory. This theory explores the relationship between the use of capital and the generation of interest. Bohm-Bawerk's work focused on the time preference theory, which suggests that individuals value present goods more than future goods, leading to the emergence of interest. His contributions to this field laid the foundation for further developments by economists such as Von Mises, Menger, and Hayek.

Explanation

Bohm-Bawerk is credited with being the first to develop the Capital and interest theory. This theory explores the relationship between the use of capital and the generation of interest. Bohm-Bawerk's work focused on the time preference theory, which suggests that individuals value present goods more than future goods, leading to the emergence of interest. His contributions to this field laid the foundation for further developments by economists such as Von Mises, Menger, and Hayek.

10. According to Mises's typology of money objects in his treatise on money (Theory of money and credit-Theorie des Geldes und der Umlaufsmittel), which of the following is considered money in narrow sense:

Credit money

Uncovered bank deposits and notes

Fully covered token money

Fully covered bank deposits and notes

According to Mises's typology of money objects, credit money is considered money in the narrow sense. This refers to money that is not backed by any physical commodity but is based on the trust and creditworthiness of the issuer. It is created through loans and represents a claim on future money. Unlike uncovered bank deposits and notes, which are not fully backed by reserves, credit money does not require any physical backing. Fully covered token money and fully covered bank deposits and notes, on the other hand, are backed by reserves and therefore fall under a different category of money objects.

Explanation

According to Mises's typology of money objects, credit money is considered money in the narrow sense. This refers to money that is not backed by any physical commodity but is based on the trust and creditworthiness of the issuer. It is created through loans and represents a claim on future money. Unlike uncovered bank deposits and notes, which are not fully backed by reserves, credit money does not require any physical backing. Fully covered token money and fully covered bank deposits and notes, on the other hand, are backed by reserves and therefore fall under a different category of money objects.