24. Which group would be most likely to support Washington Consensus policies?
a. labor unions representing steel workers
b. the owners of an American-owned car company
c. advocates for the poor who want expanded access to welfare programs
d. stockholders of a large, multinational corporation
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Apply What You Know
26. Critics of globalization argued that it caused a “race to the bottom.” By this they meant
that multinational corporations forced countries to compete for their investments by:
a. raising the minimum wage.
b. strengthening environmental and workplace regulations.
c. lowering corporate and individual taxes.
d. imposing authoritarian measures on the public.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Understand the Concepts
27. Supporters of the __________ position argued that Washington Consensus policies raised
workers’ incomes in both high-income and low-income countries and benefited
companies in less-developed countries.
a. race-to-the-top
b. neoliberal
c. race-to-the-bottom
d. nationalist
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Easy
Skill Level: Understand the Concepts
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28. The stated goal of the ______________ is to help less-developed states avoid severe
economic crises and loan money when crises occur.
a. World Bank
b. World Trade Organization
c. European Union for Cooperation and Development
d. IMF
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Easy
Skill Level: Remember the Facts
29. The record of the Washington Consensus in promoting economic development shows
that:
a. the race-to-the-top argument was correct.
b. the race-to-the-bottom argument was correct.
c. poor countries such as Haiti were helped more than wealthier less-developed
countries.
d. the Washington Consensus was theoretically incomplete and often contradicted by the
evidence.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Understand the Concepts
30. What impact has globalization had on the developing world?
a. Globalization contributed to a race to the top that has contributed to unprecedented
levels of wealth and freedom.
b. Globalization led to a race to the bottom that reduced the quality of life for ordinary
people.
c. Globalization helped the populations of Thailand and Taiwan, but done little to help
those in South Korea.
d. Globalization increased the standard of living for the average person, but also
increased economic inequality.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Apply What You Know
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31. The main reason globalization has benefited some countries and not others that opened
themselves to globalization is that some states were:
a. more active than others in seeking foreign investment by multinational corporations.
b. more successful than others at keeping workers’ wages down.
c. more willing to lower regulatory standards and cut bureaucratic red tape.
d. more effective at putting in place the foundations that enable markets to work well.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Apply What You Know
32. If the findings in the comparative analysis “Does Globalization Help or Hurt Workers in
the Developing World?” are correct, the best strategy for a state in a less-developed
county for helping workers’ rights is to:
a. seek more foreign trade.
b. avoid integration into the world economy.
c. seek more foreign direct investment.
d. place greater emphasis on agricultural exports to help agricultural workers.
or thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Apply What You Know
33. States can use fiscal policy to stimulate economic growth by:
a. printing more money.
b. reducing interest rates.
c. raising interest rates.
d. cutting taxes.
Topic: Forms of State Intervention
Difficulty Level: Moderate
Skill Level: Apply What You Know
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34. States can use monetary policy to stimulate economic growth by:
a. reducing budgetary spending.
b. reducing interest rates.
c. raising interest rates.
d. cutting taxes.
Topic: Forms of State Intervention
Difficulty Level: Moderate
Skill Level: Apply What You Know
35. Monetary policy decisions are made by:
a. legislatures.
b. chief executives.
c. legislatures and chief executives jointly.
d. central banks.
Topic: Forms of State Intervention
Difficulty Level: Easy
Skill Level: Understand the Concepts
36. One of the least-regulated economies in the world is that of:
a. Japan.
b. Brazil.
c. Great Britain.
d. the United States.
Difficulty Level: Forms of State Intervention
Difficulty Level: Easy
Skill Level: Understand the Concepts
37. If you were to test the hypothesis that the more a government regulates the economy, the
slower its economic growth, which of the following measures could be used to
operationalize the concept of governmental regulation?
a. the level of taxation that paid by business owners
b. the method by which public officials are appointed
c. the percentage of workers in a firm who belong to a union
d. the number of days it takes a firm to start a new business
Topic: Forms of State Intervention
Difficulty Level: Difficult
Skill Level: Apply What You Know
134
38. The following bar chart tests the hypothesis that the higher the level of economic freedom
in a country, the lower the infant mortality rate (Quintile 1 countries have the highest
rates of economic freedom, and Quintile 5 countries have the least). The results show
that:
a. countries with the most economic freedom have the highest infant mortality rates.
b. Quintile 2 countries have higher infant mortality rates than Quintile 3.
c. Quintile 5 countries have higher infant mortality rates than Quintile 4 countries.
d. Quintile 3 countries have infant mortality rates approximately eight times that of
Quintile 1 countries.
according to the standards of the good society.
Topic: States, Markets, and the Good Society
Difficulty Level: Moderate
Skill Level: Apply What You Know
135
39. The following bar chart tests the hypothesis that the higher the level of economic freedom
in a country, the higher the level of democracy. It uses the Fraser Institute’s ranking of
economic freedom, with the countries in Quintile 1 having the most freedom, and the
ones in Quintile 5 having the least freedom. The results show that:
a. countries in Quintiles 1 and 3 have higher democracy rankings than those in Quintile
4.
b. Quintile 4 has the lowest democracy ranking.
c. Quintile 2 has the third-lowest democracy ranking.
d. Quintile 4 has a higher democracy ranking than Quintile 3.
according to the standards of the good society.
Topic: States, Markets, and the Good Society
Difficulty Level: Moderate
Skill Level: Apply What You Know
136
40. According to the text, postcommunist Russia is an example of:
a. the freedoms democracy brings.
b. the perils of too little state control.
c. the advantages a free market can bring.
d. the evils of too much state intervention.
and allocating goods and services.
Topic: States, Introduction
Difficulty Level: Easy
Skill Level: Understand the Concepts
Short Answer Questions
41. What kinds of actions are necessary by states for markets to function properly?
Learning Objective: LO 5.2: Explain how economies that rely on markets require states to
work and are alternatives to them.
Topic: States and Markets
Difficulty Level: Easy
Skill Level: Remember the Facts
42. List the three reasons why countries in which market systems prevail tend to have high levels
of democracy.
Learning Objective: LO 5.3: Identify the advantages of market systems.
Topic: The Advantages of Market Systems
Difficulty Level: Moderate
Skill Level: Understand the Concepts
Essay Questions
43. Identify the two main ways of coordinating economic activities of large numbers of people
and explain why, according to the economist Joseph E. Stiglitz, the struggle between these
two alternatives is the defining political question of our age.
Learning Objective: LO 5.1: Distinguish between state and market systems for producing and
allocating goods and services.
Topic: Introduction
Difficulty Level: Moderate
Skill Level: Understand the Concepts
44. Explain why market systems need states and why the quality of the rules states make for
markets determines why some countries have better economic performance than others.
Learning Objective: LO 5.2: Explain how economies that rely on markets require states to
work and are alternatives to them.
Topic: States and Markets
Difficulty Level: Moderate
Skill Level: Understand the Concepts
137
45. Analyze the three main strengths and weaknesses of market systems, providing specific
examples of each weakness.
Learning Objective: LO 5.4: Identify the shortcomings of market systems.
Topic: The Dark Side of Markets
Difficulty Level: Moderate
Skill Level: Understand the Concepts
46. Evaluate the debate between critics and supporters of the Washington Consensus, providing
three supporting arguments for each side in the debate. Which side of the debate do you
believe has the better evidence to support its case?
Learning Objective: LO 5.6: Define globalization and evaluate whether it contributes to or
thwarts the Good Society.
Topic: Globalization
Difficulty Level: Moderate
Skill Level: Understand the Concepts
47. Evaluate the assertion that increasing economic globalization means that all states will be
forced to adopt similar levels of taxation and regulation. Use evidence on current levels of
taxation and regulation in advanced democracies to make your case.
Learning Objective LO 5.6: Define globalization and evaluate whether it contributes to or
thwarts the Good Society.
Topic: Globalization
Difficulty Level: Difficult
Skill Level: Apply What You Know
48. Explain why there was increasing criticism of state intervention in markets in the 1970s,
what the proposed alternatives were, and why these alternatives have come under increasing
criticism since 2008.
Learning Objective: LO 5.6: Summarize the historical swings in the balance between states
and markets.
Topic: The Shifting Balance Between States and Markets
Difficulty Level: Difficult
Skill Level: Apply What You Know
49. Explain why some developing countries benefited from globalization while others have been
victimized by it.
Learning Objective: LO 5.7: Describe the different ways states intervene in the economy.
Topic: Forms of State Intervention
Difficulty Level: Difficult
Skill Level: Understand the Concepts
138
50. Explain the difference between fiscal policy and monetary policy and how each can be used
to stimulate a sluggish economy or slow growth in an economy that is experiencing
increasing inflation.
Learning Objective: LO 5.7: Describe the different ways states intervene in the economy.
Topic: Monetary Policy
Difficulty Level: Moderate
Skill Level: Apply What You Know
51. Explain why countries in which market systems prevail tend to have high levels of
democracy, discuss the evidence showing that this is not always the case, and explain why
some countries have been able to have a market system, but not democracy.
Learning Objective: LO 5.8: Evaluate the performance of state and market systems according
to the standards of the good society.
Topic: Democracy
Difficulty Level: Moderate
Skill Level: Understand the Concepts
52. Evaluate whether countries with market systems do a better job of enhancing individuals’
capabilities than those where states intervene heavily.
Learning Objective: LO 5.8: Evaluate the performance of state and market systems according
to the standards of the good society.
Topic: Conclusion
Difficulty Level: Moderate
Skill Level: Understand the Concepts
139