[ 447 ] Economics GED ® TEST SOCIAL STUDIES FLASH REVIEW _____________ • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • _____________ • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. —Adam Smith, The Wealth of Nations, Book V, Chapter 2 Based on this quotation, Adam Smith would most likely support which of the following? a. anti-trust legislation b. a flat tax c. a graduated income tax d. parliamentary government Use the passage below to answer the following two questions. Laissez-faire economics refers to the idea that people are most productive when governments leave them alone to do whatever they please. The term was coined by the Physiocrats, a group of eighteenth-century French thinkers. The Physiocrats believed that the government should do nothing to hinder free competition among producers and sellers. They also thought that there should be no restrictions on foreign trade, and that countries that practiced free trade would grow rich. However, other economists, called Mercantilists, believed just the opposite. The Mercantilists thought that the government should try to control foreign trade to make it more profitable. Of course, neither the Physiocrats nor the Mercantilists ever imagined today’s world of multinational corporations. Today, laissez-faire can sometimes mean leaving corporations free to form unfair monopolies. Nevertheless, free trade remains popular in major exporting countries such as the United States. What is the author’s attitude toward laissez-faire economics? a. It is the most useful economic policy ever invented. b. It was wrong from the start. c. It should immediately be applied in the United States. d. It is not always the best policy in today’s world.