Question 1

In order to achieve a high rating on the Economic Freedom of the World index, a country must

Accepted Answer

A)   provide for the even-handed protection of private property and rely primarily on open markets and voluntary exchange to coordinate economic activity.
B)   use central planning to direct investment and resolve the three basic economic problems of what, how, and for whom goods will be produced.
C)   protect domestic businesses from foreign rivals who generally provide shoddy products.
D)   protect domestic workers from businesses that are unwilling to pay high wages and provide quality working conditions.E) None of the above
F) A) and D)

Question 2

Researchers have found that countries that were settled by Europeans who were primarily interested in resource extraction were

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 3

Other things constant, countries that invest more will grow

Accepted Answer

A)   more rapidly.
B)   less rapidly.
C)   at the same rate.
D)   at exactly 2% per year.E) A) and B)
F) A) and C)

Question 4

One-third of the world's population live in China and India. How did the growth rate of these two countries compare with the growth of high income industrial countries during 1980-2014?

Accepted Answer

A)   Per capita GDP increased less rapidly in China and India than in the high income industrial countries.
B)   Per capita GDP increased more rapidly in China and India than in the high income industrial countries.
C)   China grew more rapidly than the high income industrial countries, but India grew less rapidly.
D)   India grew more rapidly than the high income industrial countries, but China grew less.E) B) and D)
F) C) and D)

Question 5

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country

Accepted Answer

A)   encourage market exchange.
B)   reward innovation.
C)   protect people and their property.
D)   all of the above.E) B) and C)
F) None of the above

Question 6

Realization of gains from trade, entrepreneurial discovery, and investment are largely dependent on

Accepted Answer

A)   competitive elections and political democracy.
B)   the presence of institutions and policies consistent with economic freedom.
C)   the use of tariffs and quotas to protect domestic businesses from competition with foreigners.
D)   the use of government planning to direct investments into worthwhile projects.E) All of the above
F) A) and D)

Question 7

According to the Economic Freedom of the World data, the United States

Accepted Answer

A)   is the world's third freest economy, behind only Hong Kong and Singapore.
B)   has experienced an increase in economic freedom during the past decade and it once again ranks among the world's ten freest economies.
C)   has experienced a sharp decline in economic freedom since 1990, and it no longer ranks among the world's top 50 freest economies.
D)   has experienced a decline in economic freedom in recent years and it now ranks behind several high-income industrial countries including Switzerland, New Zealand, and Canada.E) A) and B)
F) None of the above

Question 8

Regarding economic growth, which of the following is true?

Accepted Answer

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.E) A) and D)
F) B) and C)

Question 9

Democracy tends to best promote economic freedom when there is

Accepted Answer

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.E) A) and D)
F) A) and C)

Question 10

What has happened to per capita income and the degree of income inequality of the world during the past three decades?

Accepted Answer

A)   The rich countries have gotten richer and the poor countries poorer.
B)   Per capita income has increased in both rich and poor countries, but the worldwide distribution of Income has become less equal.
C)   Per capita income has declined in both rich and poor countries, and the worldwide distribution of income has become more equal.
D)   Per capita income has increased in both rich and poor countries, and the worldwide distribution of income has become more equal.E) A) and D)
F) A) and C)

Question 11

How do growth rates vary across countries? Are the rich countries getting richer while the poor are getting poorer?

Accepted Answer

Growth rates vary widely across countrie...

Question 12

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

Accepted Answer

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.E) A) and D)
F) C) and D)

Question 13

In order to achieve a high economic freedom rating, a country must

Accepted Answer

A)   provide secure protection of privately owned property and evenhanded enforcement of contracts.
B)   refrain from creating barriers that limit domestic and international trade.
C)   rely more fully on markets rather than governments to allocate goods and resources.
D)   all of the above.E) None of the above
F) A) and B)

Question 14

Countries with more economic freedom tend to invest a ____ share of their GDP and the productivity of that investment is ____ than for countries that are less free. (Fill in the blanks)

Accepted Answer

A)   larger; higher
B)   larger; lower
C)   smaller; higher
D)   smaller; lowerE) None of the above
F) B) and C)

Question 15

Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates. (Fill in the blanks)

Accepted Answer

A)   lower; less rapid
B)   lower; more rapid
C)   higher; less rapid
D)   higher; more rapidE) All of the above
F) C) and D)

Question 16

In the absence of an even-handed legal system, high transaction costs will eliminate many potential mutually advantageous trades and the accompanying gains from

Accepted Answer

A)   division of labor and specialization.
B)   expansion in the size of the market.
C)   economies of scale resulting from use of mass production methods.
D)   all of the above.E) All of the above
F) B) and C)

Question 17

Countries with lower levels of economic freedom tend to have

Accepted Answer

A)   lower levels of economic growth
B)   higher levels of per person income
C)   higher levels of investment
D)   all of the aboveE) A) and B)
F) A) and C)

Question 18

The purchasing power parity (PPP)  method

Accepted Answer

A)   calculates the cost of purchasing a specific bundle of goods and services in each country and uses this measure to convert the incomes of different countries to a common currency.
B)   calculates how much the general price level has increased within one specific country through time.
C)   calculates how much the average standard of living across all countries has changed through time.
D)   is used when one wants to compare dollar values from today with those from more than 100 years ago.E) A) and D)
F) All of the above

Question 19

Which of the following countries have liberalized their economies and substantially improved their economic freedom rating since 1990?

Accepted Answer

A)   Argentina and Brazil
B)   Zimbabwe and the Republic of Congo.
C)   Estonia and India
D)   Italy and FranceE) C) and D)
F) A) and B)

Question 20

High income countries with larger governments as a share of GDP have generally

Accepted Answer

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.E) A) and B)
F) A) and C)

Exam 17: Institutions, Policies, and Cross-Country Differences in Income and Growth

In order to achieve a high rating on the Economic Freedom of the World index, a country must

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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

Correct AnswerverifiedShow Answer

Other things constant, countries that invest more will grow

Correct AnswerverifiedShow Answer

Democracy tends to best promote economic freedom when there is

Correct AnswerverifiedShow Answer

Regarding economic growth, which of the following is true?

Correct AnswerverifiedShow Answer

Researchers have found that countries that were settled by Europeans who were primarily interested in resource extraction were

Correct AnswerverifiedShow Answer

The purchasing power parity (PPP) method

Correct AnswerverifiedShow Answer

One-third of the world's population live in China and India. How did the growth rate of these two countries compare with the growth of high income industrial countries during 1980-2014?

Correct AnswerverifiedShow Answer

In order to achieve a high economic freedom rating, a country must

Correct AnswerverifiedShow Answer

In the absence of an even-handed legal system, high transaction costs will eliminate many potential mutually advantageous trades and the accompanying gains from

Correct AnswerverifiedShow Answer

According to the Economic Freedom of the World data, the United States

Correct AnswerverifiedShow Answer

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country

Correct AnswerverifiedShow Answer

Countries with more economic freedom tend to invest a ____ share of their GDP and the productivity of that investment is ____ than for countries that are less free. (Fill in the blanks)

Correct AnswerverifiedShow Answer

Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates. (Fill in the blanks)

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Which of the following countries have liberalized their economies and substantially improved their economic freedom rating since 1990?

Correct AnswerverifiedShow Answer

Realization of gains from trade, entrepreneurial discovery, and investment are largely dependent on

Correct AnswerverifiedShow Answer

How do growth rates vary across countries? Are the rich countries getting richer while the poor are getting poorer?

Correct AnswerverifiedGrowth rates vary widely across countrie...View AnswerShow Answer

What has happened to per capita income and the degree of income inequality of the world during the past three decades?

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High income countries with larger governments as a share of GDP have generally

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Countries with lower levels of economic freedom tend to have

Correct AnswerverifiedShow Answer

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Countries with more economic freedom tend to invest a share of their GDP and the productivity of that investment is than for countries that are less free. (Fill in the blanks)

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Compared to those with less economic freedom, countries with more economic freedom generally have per capita GDP levels and growth rates. (Fill in the blanks)

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Growth rates vary widely across countrie...
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