67. Which of the following would be most likely to enhance the growth rate of an economy?
a.
imposition of a quota restricting the quantity of steel imports
b.
gradual elimination of all tariffs over the next 10 years
c.
legislation limiting the number of hours employees can work during a week to 32
d.
legislation requiring employers to provide one year of severance pay to any employee who
is dismissed from employment
68. If a nation is going to achieve and sustain a high rate of economic growth, it must
a.
prohibit low-wage foreign producers from supplying goods to the domestic market.
b.
have an abundant domestic supply of low cost energy resources.
c.
have a mechanism capable of attracting savings and channeling them into wealth-creating
projects.
d.
impose regulations that will limit the intensity of competition among domestic firms.
69. Which of the following is true?
a.
In a competitive capital market, private investors have a strong incentive to evaluate
projects carefully and allocate their funds toward those projects expected to yield the
highest rates of return.
b.
In a competitive environment, profitable investment projects will tend to increase the
wealth of the nation.
c.
When investment funds are allocated by governments (rather than capital markets),
political clout rather than the expected rate of return will generally determine which
projects are undertaken.
d.
All of the above are correct.
70. An open capital market affects a nation’s economic growth by
a.
channeling capital into productive projects and away from wasteful projects.
b.
rewarding investors who find the most productive projects and invest in them.
c.
making the lowest-cost capital available from around the world.
d.
all of the above.
71. Which of the following is true?
a.
Marginal tax rates that take a large share of income will enhance the incentive of
individuals to invest and engage in productive activities.
b.
High tax rates will tend to drive investment funds and highly productive citizens to other
countries where tax rates are lower.
c.
As marginal tax rates increase, individuals get to keep a larger share of their earnings.
d.
Countries can gain by imposing higher tariffs and other barriers that will restrain
international trade.
72. Which of the following is true?
a.
Tax rates do not influence economic growth.
b.
Countries with high marginal tax rates have generally had higher rates of economic growth
than those with low tax rates.
c.
Countries with low marginal tax rates have generally had higher rates of economic growth
than those with high tax rates.
d.
Countries that impose high marginal tax rates at low-income thresholds generally have
high rates of economic growth.
73. How do high marginal tax rates affect the economic prosperity of a nation?
a.
They reduce the incentive of individuals to earn reported income.
b.
They encourage the nation’s most productive citizens to emigrate to countries where taxes
are lower.
c.
They discourage foreigners from investing in the country.
d.
All of the above are correct.
74. Which of the following will be most likely to contribute to the growth of a less-developed country?
a.
price controls that keep the cost of agricultural products low
b.
rapid population growth
c.
exchange rate controls and export restrictions
d.
secure property rights and low marginal tax rates
75. (I) Governments that respect property rights and freedom of exchange while following monetary (and
fiscal) policies consistent with relative price stability, establish the foundation for economic growth.
(II) Governments have often diminished the economic prospects of a nation by levying high taxes,
instituting price controls, and following inflationary monetary policies.
a.
I is true; II is false.
b.
I is false; II is true.
c.
Both I and II are true.
d.
Both I and II are false.
76. Which of the following will tend to retard the growth and prosperity of a country?
a.
imposition of price controls and regulations that restrain domestic and international trade
b.
an expansionary monetary policy that leads to high rates of inflation
c.
high marginal tax rates
d.
all of the above
77. Which of the following is an important ingredient for the achievement of efficient economic
organization?
a.
highly restrictive exchange rate controls
b.
secure property rights and political stability
c.
high and variable rates of inflation
d.
high marginal tax rates
78. (I) A monetary policy that results in price stability will encourage the realization of gains from trade
and thereby help promote economic growth.
(II) High tariffs and restrictive quotas will encourage rapid economic growth.
a.
I is true; II is false.
b.
II is true; I is false.
c.
Both I and II are true.
d.
Both I and II are false.
79. If the political leaders of a country want to promote economic growth, which of the following policy
alternatives would be most effective?
a.
imposition of price controls on agricultural products in an effort to keep food cheap
b.
a public-sector investment program financed by highly progressive taxation
c.
low taxes, a monetary policy consistent with long-run price stability, and the abolition of
price controls and trade restrictions
d.
expansionary monetary policy designed to keep interest rates low
80. The recent growth records of Japan and Hong Kong during the last fifty years indicate that a nation
can grow rapidly without
a.
securely defined property rights.
b.
adopting modern technology.
c.
significant capital formation.
d.
abundant domestic natural resources.
81. Which of the following is true?
a.
Nations achieve high rates of economic growth primarily because of their natural resource
endowments.
b.
Human and physical capital investments are largely irrelevant to economic growth.
c.
Poor nations grow slowly because they do not have access to modern technology
d.
A favorable institutional environment will tend to attract more investment in human and
physical capital.
82. The historical record indicates that foreign aid has
a.
played a major role in helping formerly poor countries grow rapidly and achieve high
income levels.
b.
re-enforced corrupt governments and policies that stifle productive activities.
c.
helped poor countries escape counterproductive policies imposed by authoritarian political
leaders.
d.
promoted economic growth, but slowed the movement toward political democracy.
83. Most economists believe that the poor economic performance of countries located in tropical areas is
primarily the result of
a.
the hot climate that saps the energy of people in tropical countries.
b.
the poor institutional quality in most tropical countries.
c.
the lack of natural resources in most tropical countries.
d.
the failure of rich countries to provide foreign aid to tropical countries.
84. The English economist, Thomas Malthus, believed that sustained growth of income per person would
be impossible because of
a.
rapid growth of capital formation if population increased above the subsistence level.
b.
rapid growth of population if income increased above the subsistence level.
c.
rapid growth of government if income increased above the subsistence level.
d.
political democracy if income increased above the subsistence level.
85. Which of the following did Thomas Malthus believe would make sustained economic growth and the
achievement of high income levels impossible?
a.
rapid growth of government spending
b.
the expansion of political democracy
c.
the expansion of communism to the developed world
d.
growth of population
86. Which of the following is most important if a country is going to grow rapidly and achieve a high level
of per capita income?
a.
an abundance of natural resources
b.
a warm moist climate
c.
a small population relative to the geographic size of the country
d.
institutions and policies that encourage people to engage in productive activities
87. In a market economy, what must an entrepreneur do in order to be successful?
a.
purchase resources at lower prices than rivals
b.
produce a good that can be sold for more than its production cost
c.
obtain large subsidies from the government
d.
hire workers at low wage rates
88. Which of the following is true?
a.
Poor countries are unable to ignite the growth process unless they receive financial aid
from richer countries.
b.
Countries that fail to adopt institutions and policies supportive of trade, entrepreneurial
discovery, and private investment will remain poor in the foreseeable future.
c.
Countries that lack an abundance of natural resources have been unable to grow and
achieve high income levels.
d.
Countries with a large population relative to their land area are destined to remain poor.
89. Which of the following is true?
a.
The United States is rich because it has democratic political institutions.
b.
Economic growth is primarily the result of gains from trade, discovery of better ways of
doing things, and capital investment.
c.
Without foreign aid, poor countries are unable to break the cycle of poverty, low savings
and investment, and economic stagnation.
d.
Most all countries with an abundance of natural resources have been able to achieve rapid
growth and high levels of per capita income.
90. Which of the following is most important for the achievement of long-term economic growth and a
high level of per capita income?
a.
abundant natural resources
b.
foreign aid
c.
policies and institutions that encourage productive activities
d.
institutions and policies that control the growth of population
91. Individuals are more likely to engage in productive activities when institutions and policies
a.
create a fair and unbiased judicial system.
b.
result in high and variable rates of inflation.
c.
transfer a large share of income through the political process.
d.
are used to centrally plan the economy.
92. When a nation’s institutional environment is more favorable, it will
a.
attract more physical investment.
b.
encourage individuals to invest more heavily in human capital.
c.
encourage the development and efficient use of natural resources.
d.
all of the above.
93. When institutions and policies provide secure property rights, a fair and balanced judicial system,
monetary stability, and effective limits on the power of government, which of the following is most
likely to be encouraged?
a.
rent-seeking
b.
actions that reduce the value of resources
c.
productive activities
d.
destructive activities
94. If the legal and regulatory environment fails to protect property rights and is often used to favor some
at the expense of others, which of the following is most likely to be encouraged?
a.
productive activities
b.
a high rate of investment
c.
rent-seeking and unproductive activities
d.
competitive markets
95. Institutions that encourage productive activities and discourage counterproductive ones, will tend to
promote
a.
economic growth.
b.
rent-seeking
c.
economic fluctuations
d.
high rates of unemployment.
96. Which of the following is true of sub-Saharan Africa?
a.
Sub-Saharan Africa has received very little foreign aid and as a result, the poverty rate in
the region is high.
b.
Sub-Saharan Africa has received more foreign aid than any other region and nonetheless
the poverty rate in the region remains high.
c.
The economic freedom rating of sub-Saharan African countries is high, but the poverty
rate in the region is still the highest in the world.
d.
the reduction in the poverty rate in sub-Saharan Africa has been faster than for other
regions of the world during the past quarter of a century.
97. During the past several decades, foreign aid to sub-Saharan Africa
a.
has been smaller than the aid to other regions, but the reduction in the extreme poverty
rate has been larger in Africa than in other areas of the world.
b.
has been larger than the aid to other regions, but the reduction in the extreme poverty rate
has been smaller in Africa than in other areas of the world.
c.
has declined and as a result the poverty rate in sub-Saharan Africa has risen sharply.
d.
has risen and, as a result, the poverty rate in sub-Saharan Africa has declined
substantially.
98. Which of the following is true of sub-Saharan Africa?
a.
The poverty rate in the region is low.
b.
Most of the sub-Saharan African countries rank among the freest economies in the world.
c.
The poverty rate in sub-Saharan Africa is the highest of any region in the world, and the
reduction in the rate during the past quarter of a century has been modest.
d.
The poverty rate in sub-Saharan Africa is the lowest of any region in the world, and the
rate has declined sharply during the past quarter of a century.
99. Which of the following is true of sub-Saharan Africa?
a.
The poverty rate in the region is low.
b.
The region has received more foreign aid than any other area of the world.
c.
Most of the countries in the region rank among the freest economies in the world.
d.
The poverty rate in the region is the lowest of any region in the world, and the rate has
declined sharply during the past quarter of a century.
100. If the per capita income of a country is growing at 3.5 percent per year, approximately how long will it
take for that income to double?
a.
20 years
b.
25 years
c.
35 years
d.
70 years
101. Which of the following will be required for a country to move up the income ladder and achieve
high-income status?
a.
rapid growth of the money supply.
b.
restrictions limiting the import of goods from other nations, particularly low-wage
countries.
c.
tax incentives that encourage consumption rather than investment
d.
sustained economic growth
102. Which of the following is true?
a.
in recent decades, the rich countries of the world have consistently grown more rapidly
than poor countries.
b.
no LDC was able to achieve a more rapid growth rate than the United States during the
1980 through 2005 period.
c.
during recent decades, most LDCs have stagnated economically.
d.
during 1980 through 2005, the fastest growing countries in the world were mostly LDCs.
103. Which of the following would be most likely to improve the standard of living of a less-developed
country?
a.
development of strong labor unions.
b.
more foreign investment, attracted by the expectation of economic and political stability.
c.
adoption of trade barriers (higher tariffs and quotas).
d.
widespread use of price controls to allocate goods and resources.
104. Private ownership and competitive markets are important for economic growth because they provide
individuals with a strong incentive to
a.
care for resources and use them beneficially.
b.
innovate and introduce new products that are highly valued relative to their cost.
c.
produce goods efficiently.
d.
all of the above are correct.
105. Stable money and prices are a key source of economic growth because
a.
they allow activist policymakers to fine tune the economy.
b.
uncertainty and instability in prices will attract investors and business decision makers.
c.
price instability increases capital formation.
d.
price stability reduces the risks that accompany investment and other long-term
commitments.
106. When competition is present and private ownership rights are clearly defined and securely enforced,
a.
production and trade are encouraged and plunder (taking from others) is discouraged.
b.
people get ahead by helping others in exchange for income.
c.
employers will have to provide prospective employees with at least as good a deal as they
could get elsewhere.
d.
all of the above are correct.
107. Investment in both physical and human capital tends to enhance economic growth because it generally
a.
increases consumption during the current period.
b.
makes it possible for individuals to produce more goods and services per hour worked.
c.
encourages firms to expand output by employing more low productivity workers.
d.
encourages workers to unionize and thereby fight for higher wages.
108. When individuals and businesses are permitted to trade freely over a larger market area,
a.
wages will decline to the level of the poorest country in the region.
b.
the monopoly power of business firms will increase.
c.
they will be able to produce a larger output and consume a more diverse bundle of goods.
d.
businesses will be able to earn higher profits, but the income levels of individuals will
decline.
109. The growth records of Japan and Hong Kong during the last fifty years indicate that an economy can
grow rapidly without
a.
securely defined property rights.
b.
abundant domestic natural resources.
c.
significant capital formation.
d.
adopting modern technology.
110. Some low-income countries generally remain poor because
a.
their institutional arrangements and policies often discourage productive activity and
reduce the potential gains from specialization and exchange.
b.
they are oppressed by developed nations that benefit from the cheap goods available from
countries with low wage rates.
c.
they are poorly endowed with natural resources, which are essential for long-term growth.
d.
when the average income level is low, workers have little incentive to earn higher
incomes.
111. High income countries with larger governments as a share of GDP have generally
a.
grown less rapidly than their counterparts with smaller governments.
b.
experienced less deadweight losses resulting from taxes and/or government borrowing.
c.
seen the government decrease in size as real GDP rises.
d.
been able to be more economically efficient.
112. Which of the following is a driving force underlying economic growth?
a.
trade restrictions that protect domestic businesses from competition with foreign producers
b.
regulations that require businesses to obtain permission from the government before
starting a new business
c.
tax increases that expand the revenues of the government
d.
entrepreneurial discovery and production of improved products
113. If a nation is going to achieve and sustain a high rate of economic growth, it must
a.
prohibit low-wage foreign producers from supplying goods to the domestic market.
b.
have an abundant domestic supply of low cost energy resources.
c.
have a mechanism capable of attracting savings and channeling them into wealth-creating
projects.
d.
impose regulations that will limit the intensity of competition among domestic firms.
114. The historical record indicates that foreign aid has
a.
played a major role in helping formerly poor countries grow rapidly and achieve high
income levels.
b.
re-enforced corrupt governments and policies that stifle productive activities.
c.
helped poor countries escape counterproductive policies imposed by authoritarian political
leaders.
d.
promoted economic growth, but slowed the movement toward political democracy.
ESSAY
115. How can increased investment help a country achieve increased economic growth? What costs are
involved?
116. How does private ownership and a competitive market affect the efficiency of economic organization?
117. Frequently, politicians enact restrictive trade policies to protect domestic industries. How does
economic theory predict this will affect the efficiency of economic organization?
118. How do high marginal tax rates influence the growth and prosperity of countries? What type of tax
policy is needed to foster economic efficiency and growth?
119. What are the primary sources of economic growth? Why are our real incomes and living standards
today so much higher than those of our great grandparents 50 or 100 years ago? Why is the income per
person so much higher in some countries than others?
120. Are abundant natural resources good or bad for economic growth?
121. Why is competition important? Do business firms operating in competitive markets have a strong
incentive to serve the interests of consumers? Do business owners have to care about the interests of
others if they are going to provide them with helpful products and services?