Chapter 17 Quiz

Which of the following will increase economic freedom? A. Low rates of inflation and easy access to money that maintains its purchasing power. B. High tariff rates. C. Government spending that comprises a large share of the economy. D. Rapid and unpredictable inflation.

A. Low rates of inflation and easy access to money that maintains its purchasing power.

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.

A. grown less rapidly than their counterparts with smaller governments.

When considering the impact of institutions and policies on economic performance, it is most important to focus on A. long-term economic growth. B. short-term economic growth. C. business cycle fluctuations. D. the labor force participation rate of married women.

A. long-term economic growth.

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

A. provide for the even-handed protection of private property and rely primarily on open markets and voluntary exchange to coordinate economic activity.

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.

B. constitutional constraints prevent laws and regulations that weaken the rights of property owners, curtail voluntary exchange, and provide for decentralization of government.

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.

B. constitutional protection of private property rights.

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

B. the presence of institutions and policies consistent with economic freedom.

Which of the following is a key characteristic of economic freedom? A. Subsidies and regulations that favor business. B. Central planning. C. Reliance on open markets. D. Import quotas that protect domestic businesses from rivals.

C. Reliance on open markets.

Compared to countries with less economic freedom, countries with more economic freedom A. achieve higher per person income levels, but they also have higher poverty rates. B. grow more rapidly, but the income levels of the poor are largely unaffected by the higher growth rates of the freer economies. C. achieve both higher income levels per person and lower rates of poverty. D. grow less rapidly and experience higher poverty rates.

C. achieve both higher income levels per person and lower rates of poverty.

The empirical evidence indicates that compared to economies that are less free, countries with institutions and policies more consistent with economic freedom A. grow more rapidly, but experience higher poverty rates. B. achieve higher income levels per person but experience higher poverty rates. C. grow more rapidly and achieve larger poverty rate reductions. D. experience less rapid rates of economic growth and higher overall poverty rates.

C. grow more rapidly and achieve larger poverty rate reductions.

Which of the following provides the fuel for growth and achievement of high income levels? A. Gains from trade B. Entrepreneurial discovery C. Capital formation D. All of the above

D. All of the above

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.

D. All of the above are true.

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.

D. Sustained economic growth.

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.

D. price stability reduces the risks that accompany investment and other long-term commitments.