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a.
Japan and Italy
b.
Nigeria and Pakistan
c.
Sierra Leone and Zimbabwe
d.
Estonia and Hungary
62. Researchers have found that countries that were settled by Europeans who planned on staying
permanently were
a.
more likely to protect private ownership rights and limit the power of the government.
b.
less likely to protect private ownership rights and limit the power of the government.
c.
more likely to protect private ownership, but less likely to limit the power of the
government.
d.
less likely to protect private ownership, but more likely to limit the power of the
government.
63. Which of the following adopted reforms that have substantially improved their economic freedom
rating since 1980?
a.
Ireland
b.
China
c.
New Zealand
d.
All of the above.
64. Which of the following adopted reforms that have substantially improved their economic freedom
rating since 1980?
a.
Ireland
b.
Zimbabwe
c.
Venezuela
d.
Republic of Congo
65. These two countries adopted reforms that liberalized their economies during the 1960s and they
eventually became two of the world's freest economies. The two economies are
a.
Russia and India.
b.
Nigeria and Zimbabwe
c.
Hong Kong and Singapore
d.
Brazil and Venezuela
66. (I) Historically, countries with colonial settlers who planned on staying for long periods of time set
up sound economic institutions.
(II) Countries with harsh environments not suitable for permanent settlements resulted in colonial
settlers adopting weaker and less productive economic institutions before leaving.
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.
67. Which of the following is one of the reasons to believe that institutional change is more likely now
than in the past?
a.
The colonial era is over and countries are in the position to make their own institutional
choices.
b.
The collapse of communism has expanded the opportunity for institutional change.
c.
Reductions in transportation and communication costs have increased the importance of
institutions and policies.
d.
All of the above are true.
68. Which countries undertook economic reforms in the 1960's that resulted in more economic freedom
and stronger economic growth?
a.
Venezuela and Zimbabwe
b.
Malawi and Niger
c.
Hong Kong and Singapore
d.
United States and Switzerland
69. Which of the following countries began economic liberalization in the 1970s and have achieved an
impressive record of economic growth since that time?
a.
Venezuela and Zimbabwe
b.
China and Chile
c.
Mexico and Canada
d.
United States and Norway
70. Which of the following countries began liberal economic reforms during the 1980s and now have
significantly more economic freedom than during the mid-1980s?
a.
Ireland and New Zealand
b.
France and Italy
c.
Sierra Leone and Haiti
d.
United States and Germany
71. According to the Economic Freedom of the World measure, the United States was
a.
the freest economy in the world during 1980-2000.
b.
the third freest economy in the world, behind only Hong Kong and Singapore during
1980-2000.
c.
less free than Australia and Canada throughout the 1980-2000 era.
d.
less free than the large economies of Western Europe throughout the 1980-2000 era.
72. According to the Economic Freedom of the World measure, between 2000 and 2010 the economic
freedom of the United States
a.
declined and its rank fell from third to tenth during this period.
b.
increased, and the U.S. became the freest economy in the world during this decade.
c.
was largely unchanged and the U.S. remained the third freest economy in the world,
behind only Hong Kong and Singapore.
d.
decreased, but the U.S. was still the freest economy in the world in 2010.
73. The Economic Freedom of the World measure indicates that the United States
a.
was the freest economy in the world in 2010.
b.
has experienced a decline in economic freedom since 2000.
c.
has experienced an increase in economic freedom since 2000.
d.
continues to be substantially more free than Australia, Canada, and Chile.
74. During the 2000-2009 decade,
a.
the economic freedom rating of the United States fell, but the growth rate of real GDP
was more rapid than in recent decades.
b.
the economic freedom rating of the United States increased and the growth of real GDP
was more rapid than that of recent decades.
c.
the economic freedom rating of the United States fell and the growth of real GDP was less
rapid than that of recent decades.
d.
the economic freedom rating of the United States increased but the growth of real GDP
was less rapid than that of recent decades.
75. Which of the following helps low income countries grow rapidly relative to high income countries?
a.
Low income countries are in a better position to save a larger share of their income.
b.
Low income countries can copy (or borrow at a low cost) technologies and practices that
have been successful in high income countries.
c.
Low income countries generally have legal systems that protect property rights and
enforce contracts in a more evenhanded manner.
d.
Low income countries generally have more favorable weather
76. Which of the following is true of modern technology?
a.
Improvements in technology have propelled the production possibilities and living
standards of people in North America, Western Europe, and several other parts of the
world.
b.
In low-income countries, proven technologies can be either emulated or imported at a low
cost.
c.
Often, perverse institutions and policies in low-income countries undermine the gains
from improvements in technology.
d.
All of the above.
77. Which of the following most accurately states the importance of technology as a source of economic
growth for less-developed countries?
a.
Restraints imposed by the slow advancements in modern technology have severely
constrained the growth of less-developed countries.
b.
If modern technology was the only requirement for economic growth, less-developed
countries would be growing rapidly.
c.
Most less-developed nations have the necessary complementary factors of production to
make good use of modern technology if they could just afford the complex machines.
d.
While modern technology has increased the income levels in less developed countries, it
has been unable to improve living standards.
78. Which of the following is true of technology?
a.
Technological improvements are less important today than was true in the past.
b.
Lack of access to modern technology is a major barrier restraining the growth of
low-income countries.
c.
Often, perverse institutions and policies in low-income countries undermine the potential
gains from adoption of modern technology.
d.
Countries with high investment rates will be unable to apply modern technology
effectively.
79. Which of the following provides the best explanation of why low-income countries generally remain
poor?
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 rapid
growth.
d.
When the average income level is low, workers have little incentive to earn higher
incomes.
80. The rapid growth rates of less developed countries (LDCs) after adopting institutions and policies
more favorable to economic freedom and voluntary exchange is not surprising when one considers that
a.
LDCs can emulate and borrow successful practices and technologies from other, more
developed nations.
b.
foreign aid payments to a less developed country are nearly always expanded rapidly when
the country begins to increase its income level.
c.
the governments of LDCs play a larger role in economic planning, when economic
freedom rises.
d.
economic theory indicates that improvements in institutions normally result from
economic growth, rather than growth stemming from better institutions.
81. When a low-income nation improves its institutions, so that growth results, one reason the growth may
be more rapid than would result from a similar improvement in a developed nation that brings the
same amount of added capital per worker to each nation, is that
a.
adding capital has constant returns to scale, rather than diminishing returns, in each nation.
b.
with diminishing returns to scale, and with richer nations starting with more capital per
unit labor, the added capital produces smaller increments to production in the
higher-income nations.
c.
wage rates are lower in the low-income nation, and lower-income workers are more
productive.
d.
capital is always more productive in lower-income nations.
82. A less-developed nation will be able to benefit substantially by adopting the technologies and the
business practices that have been successful in other nations, but only if
a.
its wages are low enough.
b.
its population is large enough.
c.
it first educates its citizens well, so they can use the new ideas.
d.
it improves its institutions so that investors are willing to import the capital and any
expertise needed to take advantage of the advanced production techniques that are
available.
83. The adoption of modern technologies and business methods have the possibility to improve economic
performance in a nation with low per capita income and low growth, but only if
a.
its natural resources are sufficient.
b.
its workers become educated rapidly enough.
c.
it improves its institutions, making them sound enough to attract capital and
entrepreneurial activity.
d.
its government has enough skilled planners to properly deploy new capital.
84. Nations will attract investment and its citizens will engage in productive activities when the
institutions and policies of that country
a.
encourage market exchange.
b.
reward innovation.
c.
protect people and their property.
d.
all of the above.
85. Nations will attract investment and its citizens will engage in productive activities when the
institutions and policies of that country
a.
discourage market exchange.
b.
protect people and their property and enforce contracts even-handedly.
c.
abolish private property rights.
d.
all of the above.
86. Democracy tends to best promote economic freedom when there is
a.
checks on the power of both the executive and legislative majorities.
b.
constitutional protection of private property rights.
c.
political decentralization.
d.
all of the above.
87. Democracy tends to best promote freedom when there is
a.
unrestrained executive and legislative majority power.
b.
constitutional protection of private property rights.
c.
a large and centralized government sector.
d.
all of the above.
88. The sound economic institutions and policies needed for economic growth and prosperity
a.
emerge from the political process, if they emerge at all.
b.
are unaffected by political decision-making and constitutional rules.
c.
are virtually guaranteed to emerge, if democracy becomes the form of government in a
nation.
d.
can only emerge from a democracy
89. Authoritarian political regimes
a.
never produce sound economic institutions, due to corruption.
b.
have produced movement toward sound economic institutions in Chile, South Korea and
several other nations.
c.
will generally produce sound economic institutions and policies.
d.
are necessary for the emergence of sound institutions, but not for their continued
operation.
90. Economic theory and history indicate that open elections and democratically elected governments
a.
are unique in their ability to produce good economic institutions.
b.
must be accompanied by economic institutions that will allocate resources efficiently, or
otherwise democratic institutions will not survive.
c.
reflect only transactions that are based on mutual agreement and voluntary exchange.
d.
are unable to guarantee either the emergence or continuation of economic institutions and
policies that will encourage productive behavior.
91. In a majority-rules democracy, economic thinking suggests that we should expect to see institutions
and policies that
a.
are short-sighted.
b.
take the long view, sacrificing current benefits to get larger future benefits.
c.
benefit the common citizen at the expense of narrow special interest groups which, after
all, have fewer voters.
d.
are biased against income transfer programs, regardless of constitutional limits.
92. Political institutions are more likely to allow and encourage the emergence of good economic
institutions and policies when
a.
the top government executives have enough power to impose good economic
arrangements on the nation.
b.
constitutional constraints prevent laws and regulations that weaken the rights of property
owners, curtail voluntary exchange, and provide for decentralization of government.
c.
the elected executive and legislative branches have fewer constraints on what they can do,
leaving them free to innovate and improve economic institutions.
d.
well organized interest groups exert a powerful influence on the political process.
93. 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
94. If a country's political leaders wanted 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.
imposition of high marginal tax rates designed to reduce income inequality.
c.
imposition of tariffs and other trade restraints limiting international trade.
d.
monetary policy consistent with long-run price stability
95. 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.
96. 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.
97. 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.
98. 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.
99. 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.
100. Which of the following is true?
a.
economic freedom is present if a country is a political democracy.
b.
economic freedom ratings indicate the consistency of a nation's institutions and policies
with personal choice, freedom of exchange, and protection of private property.
c.
economies that are highly free tend to grow less rapidly than those with less economic
freedom.
d.
all of the above are correct.
101. 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.
102. 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.
103. 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.
104. Which of the following is true?
a.
Economic freedom is present if a country is a political democracy.
b.
Economic freedom ratings indicate the consistency of a nation's institutions and policies
with personal choice, freedom of exchange, and protection of private property.
c.
Economies that are highly free tend to grow less rapidly than those with less economic
freedom.
d.
All of the above are correct.
105. The experience of Ireland in the last four decades indicates that in order to achieve high rates of
economic growth countries must
a.
hold free (democratic) elections
b.
maintain a government expenditure/GDP ratio of at least 40 percent.
c.
restrain the growth of government, keep taxes low, remove trade barriers, and follow a
monetary policy consistent with price stability.
d.
obtain financial aid from foreign governments in order to get the growth process started.
ESSAY
106. What are some of the key economic factors that characterize countries with poor growth records?
107. For most less-developed countries, the proven technologies of the high-income countries are readily
available. Why hasn't this always led to economic growth for these low-income countries?
108. How do growth rates vary across countries? Are the rich countries getting richer while the poor are
getting poorer?
109. What is the Economic Freedom of the World index designed to measure? What will determine whether
the rating of a country will be high or low on this index?
110. How does investment as a share of GDP in countries with more economic freedom compare with
economies that are less free? How does the productivity of investment in the freer economies compare
with its productivity in the less free economies? How will this influence differences in growth rates
and income levels? Explain.
111. From the viewpoint of economic growth, why is the legal structure of a country crucially important?
What are some of the key attributes of a legal system that will encourage economic growth?
