The Economic Way of Thinking, 13e (Heyne)
Chapter 16 The Wealth of Nations: Globalization and Economic Growth
1) Fill in the blank: By 2011, GDP in the United States was approximately ________ times
greater than it had been in 1820.
A) 100
B) 225
C) 550
D) 775
E) 900
2) Fill in the blank: By 2011, U.S. GDP was approximately ________ times greater than it had
been in 1820, while GDP in India was approximately ________ times greater than it had been in
1820.
A) 50; 40
B) 775; 10
C) 200; 85
D) 315; 700
E) 5; 10
3) How do your authors explain the vast differences between the growth rates of the United
States and India?
A) The tremendous degree of central planning in the United States
B) Exploitation of the poorer nation by the richer nation
C) The problems of central planning in India
D) The lack of central planning in India
E) The strength of the union movement in the United States
4) Who wrote the following criticism of European colonial expansion into poorer non-European
nations? “The superiority of force happened to be so great on the side of the Europeans, that they
were enabled to commit with impunity every sort of injustice in those remote countries.”
A) Adam Smith
B) Karl Marx
C) Alfred Marshall
D) John Maynard Keynes
E) John Kenneth Galbraith
5) Ethiopia provides a counterexample to the claim
A) central economic planning doesn’t work well.
B) nations are poor because they are subject to exploitation by nations with superior military
power.
C) a nation can move to the ranks of the wealthiest in the world with few natural resources.
D) the rule of law is necessary for economic growth.
6) Switzerland provides a counterexample to the claim
A) nations are poor because they are subject to exploitation by nations with superior military
power.
B) the rule of law is necessary for economic growth.
C) military power is the source of the wealth of a nation.
D) central economic planning doesn’t work.
7) Sustained economic growth generally occurs when a nation
A) abandons the market system in favor of central economic planning.
B) abandons the rule of law in favor of a series of licenses, regulations, and tariffs to control and
protect the domestic economy.
C) subsidizes loss-generating enterprises and thereby preserves jobs and incomes.
D) creates conditions where people are free to specialize and exchange.
8) What is a necessary condition for sustainable economic growth?
A) Low cost systems of transportation and communication
B) Careful economic planning
C) Very high interest rates that encourage household saving
D) Government monitoring and manipulation of aggregate investment
E) All of the above.
9) What is a necessary condition for sustainable economic growth?
A) Fair tax rates
B) Public transportation
C) The accumulation of additional capital
D) A general price-level deflation to ensure low prices for goods and services
10) An increase in the stock of capital contributes to economic growth because it increases
A) federal funds rates.
B) labor productivity.
C) tax revenues.
D) the reserves of the banking system.
11) Technical innovation spurs economic growth because it
A) increases labor productivity.
B) increases the stock of capital goods.
C) provides more powerful means of production.
D) does all of the above.
12) Fill in the blank: According to your text, ________ may be the most powerful force behind
economic growth.
A) minimum wages
B) unionization
C) technical innovation
D) a well-motivated bureaucracy
E) price compression
13) According to your authors, the United States would probably not have experienced
tremendous economic growth between 1800 and 1870 were it not for
A) slavery.
B) sharecropping.
C) antitrust legislation.
D) balanced federal budgets.
E) technological innovation.
14) Nations with slower growth rates can “catch up” to rapidly growing countries by
A) using budget deficits as a long-run policy tool.
B) adopting the technologies of the wealthier nations.
C) pressuring the central bank to increase the money supply and reduce interest rates.
D) raising the minimum wage.
E) exporting more than it imports.
15) Which of the following strategies does your text suggest would allow a poorer nation to
“catch up” to richer nations?
A) Unionization
B) Higher minimum wages
C) Lower interest rates
D) Adoption of advanced technology
E) Minimizing imports and maximizing exports
16) What does the text suggest might be a possible advantage of being an economically
“backward” nation?
A) Illiteracy
B) The fact that many women have been systematically denied education, and have therefore
learned to become very good homemakers, which is a prerequisite for a stable society
C) The nation can adopt the advanced technologies of other nations without having to incur all
the costs of research and development.
D) If you invert the per capita GDP figures of the so-called “backward” countries, you find they
are, in real terms, among the wealthiest nations in the world.
17) An economically backward nation has the best chance of enjoying relatively high rates of
economic growth if it
A) turns toward central economic planning.
B) adopts advanced technologies.
C) raises its minimum wages and government pension programs.
D) limits imports as much as possible.
18) Economic growth is supported by
A) the rule of law.
B) competent and honest government officials.
C) an educated populace.
D) openness to international trade and investment.
E) all of the above.
19) What is the antithesis of the rule of law?
A) Arbitrary governance
B) Governance according to the will of whoever is in charge
C) Both of the above.
D) None of the above.
20) Foreign investment in poor nations often requires
A) low rates of return to ensure the poor have a fair deal.
B) high rates of return to justify the high risk of such investment.
C) a constantly changing political structure to enhance profit opportunities.
D) the total elimination of uncertainty in order to guarantee economic profit.
21) Other things constant, political instability in a poor nation tends to reduce
A) the money supply of the nation.
B) the rate of return required to attract foreign investment.
C) the level of foreign investment in the nation.
D) interest rates in the nation.
22) According to the text, the beneficiaries of economic growth in poor nations are often the
privileged government officials rather than the working masses. Why?
A) The officials deserve it.
B) The working masses can afford to get by with less, but the government can’t.
C) The officials are often willing to grant foreign investors special deals as long as the investors
share some of their investment returns with them and their cronies.
D) For all of the above reasons.
23) Why might private investment in poor countries, rather than aid by foreign governments and
international agencies, contribute more effectively to economic growth?
A) Private investment is more consistent with central economic planning.
B) Technical assistance is often part of the private investment package.
C) Private investment is always selfish.
D) Private investors are smarter and more street-wise than public authorities.
24) Foreign aid to a poor country might
A) improve its long run economic growth prospects.
B) interfere with its domestic affairs.
C) be allocated to useless projects and thereby reduce its growth rate.
D) be used to keep its ruling party in power rather than spur economic growth.
E) do any of the above.
25) According to the textbook, when a foreign government provides aid to a poor nation, it
A) interferes in the domestic affairs of the poor nation.
B) behaves in the interest of the poor nation.
C) pursues the global interest.
D) does all of the above.
E) does none of the above.
26) Who would be least inclined to engage in “feel good” foreign projects, which contribute
minimal benefits to the poor but look impressive to outside observers?
A) Private investors
B) Foreign governments
C) International aid agencies
D) The World Bank
27) Which of the following is a prerequisite for sustainable economic growth?
A) Private foreign investment
B) A literate populace
C) Aid provided by international agencies
D) An easy monetary policy
E) An abundance of natural resources
28) Economic growth requires
A) private foreign investment.
B) domestic budget deficits.
C) investment in human capital.
D) governance according to the will of whoever is in charge.
29) In the economic way of thinking, an example of “capital” might include
A) literacy.
B) natural resources.
C) knowledge.
D) stable rules of the game.
E) all of the above.
30) A stable rule of law
A) invariably turns losses into profits.
B) allows people to cooperate more effectively with one another.
C) converts price searchers into price takers.
D) renders the law of comparative advantage ineffective.
31) What factor, more than anything else, tends to make people wealthy?
A) Time
B) Money
C) Productive knowledge
D) Control over non-renewable resources
E) The ability to day-trade internet-related stocks
32) In the economic way of thinking, countries are poor because they lack
A) money.
B) access to the New York Stock Exchange.
C) foreign aid.
D) productive knowledge and ideas.
E) effective minimum wage legislation.
33) What factor probably contributes most to economic growth?
A) Money
B) Political influence
C) Foreign aid and investment
D) The exploitation of poor countries by rich countries
E) Productive knowledge
34) What helps to explain the remarkable 7.3% growth rate in South Korea between 1960 and
2011?
A) The education of South Korean women
B) A radical reduction in foreign imports and a maximization of South Korean exports
C) Huge foreign aid from the World Bank
D) All of the above.
E) None of the above.
35) What helps to explain the remarkable 7.3% growth rate in South Korea between 1960 and
2011?
A) A radical reduction in foreign imports and a maximization of South Korean exports
B) Huge foreign aid from the World Bank
C) A relatively high rate of saving among South Korean households
D) All of the above.
E) None of the above.
36) What helps to explain the remarkable 7.3% growth rate in South Korea between 1960 and
2011?
A) A relatively high rate of saving among South Korean households
B) The education of South Korean women
C) A general attempt to honor the rule of law
D) All of the above.
37) Which of the following economies performed the worst between 1960 and 2011?
A) South Korea
B) India
C) Japan
D) Taiwan
38) Why did India’s economic growth rate lag far behind growth rates in South Korea, Japan, and
Taiwan between 1960 and 1999?
A) Indian households saved too much and spent too little.
B) Indian government officials opened the nation up to free international trade.
C) India engaged in central economic planning.
D) India has too small of a population to generate a highly specialized division of labor.
39) Economic growth in Latin America between 1960 and 2011 is best summarized as
A) a remarkable success.
B) an abject failure.
C) a mixed record.
D) a noteworthy attempt.
40) Which of the following Latin American countries had by far the worst growth rate between
1960 and 2011?
A) Brazil
B) Columbia
C) Mexico
D) Venezuela
41) Which of the following Latin American countries had the strongest growth rate between
1960 and 2011?
A) Argentina
B) Chile
C) Peru
D) Venezuela
42) According to your text, with the exception of South Africa, the record of economic growth in
sub-Saharan Africa
A) is tragic.
B) mirrors that of most of the Latin American countries.
C) is about the same as South Korea.
D) is respectable, but not fantastic.
43) According to your textbook authors, the growth rates in sub-Saharan Africa (excluding South
Africa) have been plagued
A) exclusively by economic problems.
B) exclusively by political problems.
C) by meteorological and geographical problems.
D) by purchasing power parity problems.
44) Both the Latin American countries and the sub-Saharan countries have poor economic
growth records due to
A) climate.
B) geography.
C) colonization.
D) arbitrary governance.
E) indifference from the World Bank.
45) Which of the following regions had the most impressive growth rate between 1960 and
2011?
A) India
B) East Asia
C) Latin America
D) Sub-Saharan Africa
46) Which of the following nations had the lowest growth rate between 1960 and 2011?
A) Taiwan
B) Chile
C) Ethiopia
D) South Korea
47) Which is essential to economic growth, whether in Latin America, sub-Saharan Africa, Asia,
Europe, or North America?
A) Limits on the use of non-renewable resources
B) International aid
C) The rule of law
D) An effective system of trade tariffs and quotas
E) The evolution of a single world currency
48) Roughly what was the change in Chile’s per capita GDP between 1960 and 2011?
A) 2.65%
B) 26.5%
C) 265%
D) 2,650%
49) Roughly what was the change in Columbia’s per capita GDP between 1960 and 2011?
A) 25%
B) 90%
C) 150%
D) 185%
50) Roughly what was the change in Peru’s per capita GDP between 1960 and 2011?
A) 105%
B) 85%
C) 40%
D) 20%
51) Roughly what was the change in Venezuela’s per capita GDP between 1960 and 2011?
A) 4%
B) 14%
C) 44%
D) 88%
52) Roughly what was the Democratic Republic of Congo’s per capita GDP in 2011?
A) $110
B) $1,100
C) $11,000
D) $110,000
53) Drawing conclusions from international comparisons of GDP are difficult to assess because
A) GDP is understated in poorer countries because much of the work that people do is not
provided in markets.
B) GDP cannot be adequately evaluated as a measure of people’s welfare or well-being.
C) without adjusting for purchasing power parity, GDP comparisons might very well be
meaningless.
D) all the above reasons hold true.
54) The Economic Freedom Index includes which of the following measures of economic
freedom within a nation?
A) Levels of economic regulation
B) Freedom of pricing
C) Stability of monetary policy
D) Taxation levels
E) All of the above.
55) According to the Economic Freedom Index,
A) countries with the lowest economic freedom enjoyed the highest per capita GDP.
B) countries with the highest economic freedom enjoyed the lowest per capita GDP.
C) countries with the highest economic freedom enjoyed the highest per capita GDP.
D) there is no relationship between economic freedom and per capita GDP.
56) Fill in the blanks: While the Economic Freedom Index demonstrates a strong ________
correlation between economic freedom and per capita GDP, the economic way of thinking
provides the ________.
A) negative; explanation
B) positive; explanation
C) negative; data
D) positive; data
57) Per capita GDP is simply GDP divided by
A) the population.
B) the price level.
C) the inflation rate.
D) the consumer price index.
E) none of the above.
58) GDP divided by the population gives us
A) the price level.
B) the GDP deflator.
C) per capita GDP.
D) real GDP.
E) none of the above.
59) Other things constant, if the population decreases and GDP remains unchanged,
A) real GDP necessarily decreases.
B) per capita GDP necessarily increases.
C) per capita GDP necessarily decreases.
D) real GDP necessarily increases.
60) Can economic theory prove national restrictions on international trade will reduce global
welfare?
A) No, but it can demonstrate that they will reduce the welfare of the nations that impose the
restrictions.
B) No, but it can demonstrate that they reduce efficiency.
C) No, but it can predict which groups will be made worse off or better off.
D) Yes, if welfare is defined as economic welfare.
61) What does the term “conditionality” mean in respect to the policies of the International
Monetary Fund (IMF)?
A) The IMF will grant loans to any country that seeks them.
B) The IMF will cut off loans to a country unless it meets certain specified policy goals
regarding budget deficits, inflation, and other macroeconomic concerns.
C) The IMF will work with a country only if country destroys its own fiat money and instead
adopts the euro.
D) The IMF will assist any foreign country that supports the military policies of the U.S. and
Great Britain.
62) According to your textbook, critics of “globalization” often fail to understand that
A) money makes the world go round.
B) voluntary trade is mutually beneficial.
C) economics applies only to capitalist economic systems.
D) greed is better than love.
63) According to your textbook, globalization tends to increase the productivity of nations
through
A) improvements in the labor skills of their citizens.
B) increasing technological knowledge.
C) improving the coordination of individual economic plans.
D) doing all of the above.
64) According to your textbook, globalization
A) does not necessarily destroy local identity.
B) makes economic systems work perfectly.
C) eventually turns all economic losses into profits.
D) makes “outsourcing” impossible to achieve.
65) In the economic way of thinking, “outsourcing” is another application of
A) the entrepreneurial attempt to buy low, and sell high.
B) voluntary exchange.
C) the coordination of plans across different regions.
D) the discovery of people’s comparative advantage.
E) all of the above.