29) Classical growth theory predicts that increases in
A) real GDP per person are permanent and sustainable.
B) real GDP per person are temporary and not sustainable.
C) resources permanently increase labor productivity.
D) resources permanently increase real GDP per person.
E) competition increase economic growth.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
30) If real GDP per person is above the subsistence level then, according to classical
growth theory,
A) the population will increase.
B) the population will decrease.
C) the standard of living will continue to improve.
D) labor productivity will increase.
E) more technological advances occur.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
31) According to classical growth theory, when real GDP per person ________, the
population grows.
A) is less than the subsistence real income
B) exceeds the subsistence real income
C) exceeds capital per hour of labor
D) is less than capital per hour of labor
E) is constant
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
51
32) New growth theory predicts that
A) economic growth is only temporary.
B) economic growth can last indeinitely.
C) economic growth is eroded by changes in taxes.
D) government policies can do nothing to foster increased growth.
E) ultimately people earn a subsistence wage.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
33) The new growth theory states that
A) technological advances are the result of random chance.
B) technological advances are the result of discoveries and choices.
C) technological advances are the responsibility of the government.
D) the subsistence level income leads to technological advances.
E) it is impossible to replicate production activities.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
34) According to new growth theory, growth
A) occurs when real GDP greater than the subsistence level.
B) is unending.
C) ends when competition disappears.
D) depends on the population growth rate.
E) cannot be sustained without government help.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
52
35) The theory that suggests that our unlimited wants will lead to perpetual economic
growth is the
A) classical growth theory.
B) sustained growth theory.
C) old growth theory.
D) new growth theory.
E) Malthusian growth theory.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
36) According to the new growth theory, ________ is the factor that motivates technological
change.
A) random chance
B) proit
C) diminishing returns
D) the replication of activities
E) decisions about how much human capital to acquire
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
9.4 Achieving Faster Growth
1) At its most basic level, economic growth depends on
A) creating the right incentives.
B) saving by the government.
C) government leadership.
D) government’s ixing prices to encourage stability.
E) political freedom.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
53
2) If a country lacks ________, economic growth ________.
A) a democratic form of government; cannot occur
B) a proper incentive system; cannot occur
C) pure capitalism; will be slower compared to other countries
D) a proper incentive system; will occur at a pace suggested by the new growth theory
E) economic freedom; will increase at a faster pace
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
3) The presence of an incentive system that encourages growth
A) guarantees that growth will occur.
B) creates the right conditions for growth to occur.
C) cannot exist in poor countries.
D) existed even in hunter-gatherer societies.
E) means that the government must be a democracy.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
4) All of the following are preconditions for economic growth EXCEPT
i. property rights.
ii. democracy.
iii. free markets.
A) i only
B) ii only
C) iii only
D) Both i and ii
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
54
5) A key reason why some nations show little or no growth is
A) overpopulation that overuses limited resources.
B) lack of incentives to undertake actions toward growth.
C) too much private property not directed by the government.
D) patents in rich nations that keep technology only for the rich.
E) too much international trade so that all economic growth spills over to foreigners.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
6) An important condition required for economic growth is
A) a democratic government.
B) a totalitarian government.
C) a libertarian government.
D) economic freedom.
E) the incentive to limit international trade so that all economic growth remains within the
country.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
7) A basic precondition necessary to achieve economic growth is
A) well-functioning factories.
B) well-being of society.
C) a well-functioning legal system.
D) a well-organized work force.
E) a strong central government that directs the nation’s research and development
activities.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
55
8) Economic freedom
A) is not important for nations to grow.
B) must come from a democratic government.
C) is founded, in part, on the rule of law.
D) is created when the nation imposes many regulations on businesses.
E) is harmed by having too many property rights.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
9) Economic freedom requires
A) that there are no regulations and restrictions set on businesses and households by the
government.
B) the rule of law and the ability to enforce the laws.
C) strong labor unions.
D) freedom to bribe government oicials.
E) that the government be a democracy.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
10) Economic freedom provides the
A) political system that encourages democracy.
B) social system that supports families.
C) production system that discourages property rights.
D) incentive system that encourages growth-producing activities.
E) necessary alternative to free markets.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
56
11) Countries that enjoy economic growth
A) have property rights and markets which provide incentives for discovering new
technologies.
B) have economies that allow the government to make decisions in everyone’s best
interests.
C) restrict international trade so that domestic industries can grow.
D) place high taxes on saving and investment.
E) place controls on property rights so that irms are protected from competition.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
12) For economic freedom to exist,
B) democracy must exist.
C) property rights must be protected and markets must be free.
D) human capital must be given away free.
E) money must be free.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
13) Hong Kong is an example of an economy that
A) does not experience economic growth because it is not a democracy.
B) experiences economic growth in spite of the fact that is lacks democratic freedom.
C) grows more slowly than other Asian countries because property rights are not valued.
D) needs to promote investment so that economic growth can occur.
E) lacks economic freedom and therefore experiences the slowest economic growth of all
developed economies.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
57
14) A condition necessary for a country to achieve economic growth is
A) high tax rates so the government can purchase a lot of capital equipment.
B) strict environmental regulations.
C) economic freedom.
D) government control of the banking system.
E) democracy.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
15) Economic freedom is a precondition for economic growth. Which of the following is a
characteristic of economic freedom?
i. A democratic form of government
ii. Property rights must be protected.
iii. The government must support and pay for inventions and innovations.
A) i only
B) ii only
C) Both i and ii
D) Both ii and iii
E) Both i and iii
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
16) Economic freedom is present, at least in part, when
A) there are no property rights to limit people’s freedom.
B) there is no private property.
C) people are able to make personal choices.
D) there is no government.
E) money is free.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
58
17) Economic growth is slow or absent in some economies because those lack
A) political freedom.
B) economic freedom.
C) democracy.
D) cultural freedom.
E) a strong government.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
18) A key reason why some countries are growing very slowly is
A) they lack a democratic government.
B) they lack economic freedom.
C) their inlation rate is too high.
D) they are too poor, so there is no saving.
E) there is too much competition within their economies.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
19) A reason why many of the third world countries are not achieving an increase in their
standard of living is that they
A) don’t have enough natural resources.
B) don’t have strong military power to force people to work harder.
C) don’t have social institutions with a strong rule of law and economic freedom.
D) strongly encouraged international trade.
E) don’t have a strong central government.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
59
20) Property rights
A) don’t include intellectual property.
B) don’t include inancial property.
C) don’t include physical property.
D) include physical, inancial, and intellectual property.
E) slow the economic growth by placing limits on who can use what.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
21) Property rights assure people that
A) the government will not coniscate their income or savings.
B) the government will provide a minimum standard of living.
C) the factors of production and goods are owned jointly by the government and the people.
D) economic growth will enhance government involvement in the economy.
E) international trade will be limited.
Skill: Level 1: Deinition
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
22) Jose and Julia were discussing the necessary components to achieve economic growth.
Jose stated that the economy must include free markets, specialization and trade, and an
ethical judicial system. Julia reminded Jose that another key component is
A) freedom of speech.
B) freedom of religion.
C) a guaranteed high rate of return on savings.
D) property rights.
E) democracy.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.4
Status: Old
AACSB: Relective thinking
60