Question 1

Which of the following is true?

Accepted Answer

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. 
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.

Question 2

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to

Accepted Answer

A)  36 years. 
B)  44 years. 
C)  52 years. 
D)  64 years. 
A)  36 years. 
B)  44 years. 
C)  52 years. 
D)  64 years.

Question 3

Which of the following will be required for a low-income country to move up the income ladder and achieve high-income status?

Accepted Answer

A)  rapid growth of the money supply to increase inflation and prices 
B)  restrictions limiting the import of goods from other nations 
C)  high tax rates to support a large government sector 
D)  a high rate of sustained economic growth 
A)  rapid growth of the money supply to increase inflation and prices 
B)  restrictions limiting the import of goods from other nations 
C)  high tax rates to support a large government sector 
D)  a high rate of sustained economic growth

Question 4

Which of the following is true?

Accepted Answer

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. 
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.

Question 5

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?

Accepted Answer

The major sources of economic growth are

Question 6

A legal system that protects private property and enforces contracts in an even-handed manner helps promote economic growth because it

Accepted Answer

A)  makes it possible for individuals to generate large incomes and get ahead without cooperating with others. 
B)  provides people with a strong incentive to supply others with things that they value at an economical price. 
C)  encourages people to use resources now rather than conserving them for the future. 
D)  keeps the real wages of workers low and thereby makes it possible for business firms to supply goods and services economically. 
A)  makes it possible for individuals to generate large incomes and get ahead without cooperating with others. 
B)  provides people with a strong incentive to supply others with things that they value at an economical price. 
C)  encourages people to use resources now rather than conserving them for the future. 
D)  keeps the real wages of workers low and thereby makes it possible for business firms to supply goods and services economically.

Question 7

Which of the following is true of sub-Saharan Africa?

Accepted Answer

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. 
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.

Question 8

According to Angus Madison, a leading authority in the area, world per capita GDP

Accepted Answer

A)  increased by about 50 percent during the 800 years following year 1000, but it increased by nearly tenfold during the past 200 years. 
B)  increased by nearly tenfold during the 800 years between 1000 and 1813, but it increased by only 50 percent during the past 200 years. 
C)  has grown steadily during the past 1000 years. 
D)  Grew at an annual rate of more than 2 percent during 1000-1813, but the annual growth rate has declined as the population increased during the past 200 years. 
A)  increased by about 50 percent during the 800 years following year 1000, but it increased by nearly tenfold during the past 200 years. 
B)  increased by nearly tenfold during the 800 years between 1000 and 1813, but it increased by only 50 percent during the past 200 years. 
C)  has grown steadily during the past 1000 years. 
D)  Grew at an annual rate of more than 2 percent during 1000-1813, but the annual growth rate has declined as the population increased during the past 200 years.

Question 9

When a country's inflation rate varies substantially from year-to-year and is therefore difficult to predict, this will

Accepted Answer

A)  reduce the volume of trade and the gains derived from it. 
B)  reduce the risk accompanying investment. 
C)  encourage entrepreneurs to innovate and develop better products. 
D)  increase the level of foreign investment in the country. 
A)  reduce the volume of trade and the gains derived from it. 
B)  reduce the risk accompanying investment. 
C)  encourage entrepreneurs to innovate and develop better products. 
D)  increase the level of foreign investment in the country.

Question 10

Stable money and prices are a key source of economic growth because

Accepted Answer

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. 
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.

Question 11

Measured in 1990 dollars, the GDP per person of the world was $667 in 1813. By 2003, the world's income per person had risen to

Accepted Answer

A)  nearly $1200, almost twice the level of 1813. 
B)  $2,422, almost four times the level of 1813. 
C)  a little more than $3,600, approximately six times the level of 1813. 
D)  $6,516, nearly ten times the level of 1813. 
A)  nearly $1200, almost twice the level of 1813. 
B)  $2,422, almost four times the level of 1813. 
C)  a little more than $3,600, approximately six times the level of 1813. 
D)  $6,516, nearly ten times the level of 1813.

Question 12

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?

Accepted Answer

A)  productive activities 
B)  a high rate of investment 
C)  rent-seeking and unproductive activities 
D)  competitive markets 
A)  productive activities 
B)  a high rate of investment 
C)  rent-seeking and unproductive activities 
D)  competitive markets

Question 13

(I) With trade, individuals will be able to use more of their time and resources producing items they can supply economically and less time and resources producing goods that they can supply only at a high cost. (II) Reductions in trade barriers will expand the productive potential of the economy.

Accepted Answer

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. 
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.

Question 14

Which of the following factors would be most likely to encourage capital formation in a less-developed nation?

Accepted Answer

A)  high and variable rates of inflation 
B)  tariffs and quotas that restrict international trade 
C)  a legal system that provides for secure property rights and even-handed enforcement of contracts 
D)  high marginal tax rates 
A)  high and variable rates of inflation 
B)  tariffs and quotas that restrict international trade 
C)  a legal system that provides for secure property rights and even-handed enforcement of contracts 
D)  high marginal tax rates

Question 15

During the past 200 years, income per person has

Accepted Answer

A)  increased in the developed countries of Western Europe and North America, but declined in the rest of the world. 
B)  declined in the developed countries of Western Europe and North America, but increased in the rest of the world. 
C)  increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800. 
D)  Increased far less rapidly in both developed and less developed countries than during the centuries prior to 1800. 
A)  increased in the developed countries of Western Europe and North America, but declined in the rest of the world. 
B)  declined in the developed countries of Western Europe and North America, but increased in the rest of the world. 
C)  increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800. 
D)  Increased far less rapidly in both developed and less developed countries than during the centuries prior to 1800.

Question 16

How do high tariffs and other restraints on international trade affect a nation's prosperity?

Accepted Answer

A)  They increase employment and thereby promote the growth of real GDP. 
B)  They prevent the nation from fully realizing the potential gains from specialization, exchange, and competition. 
C)  They protect domestic producers and thereby promote economic growth. 
D)  Both a and c are correct. 
A)  They increase employment and thereby promote the growth of real GDP. 
B)  They prevent the nation from fully realizing the potential gains from specialization, exchange, and competition. 
C)  They protect domestic producers and thereby promote economic growth. 
D)  Both a and c are correct.

Question 17

The major sources of economic growth are

Accepted Answer

A)  gains from trade, entrepreneurial discovery, and investment in physical and human capital. 
B)  price controls, heavy regulations, and high inflation. 
C)  tariffs to protect domestic industries from foreign competition and budget deficits. 
D)  a good climate, high levels of foreign aid, and abundant natural resources. 
A)  gains from trade, entrepreneurial discovery, and investment in physical and human capital. 
B)  price controls, heavy regulations, and high inflation. 
C)  tariffs to protect domestic industries from foreign competition and budget deficits. 
D)  a good climate, high levels of foreign aid, and abundant natural resources.

Question 18

Which of the following is true of foreign aid to sub-Saharan Africa?

Accepted Answer

A)  foreign aid has funded valuable medical resources for the treatment of Malaria and the human immunodeficiency virus. 
B)  Counterproductive institutions and policies have been a major contributing factor to the poor economic performance of the region. 
C)  During 1980-2005, foreign aid covered between 60 and 70 percent of government expenditures in many sub-Saharan African countries. 
D)  All of the above. 
A)  foreign aid has funded valuable medical resources for the treatment of Malaria and the human immunodeficiency virus. 
B)  Counterproductive institutions and policies have been a major contributing factor to the poor economic performance of the region. 
C)  During 1980-2005, foreign aid covered between 60 and 70 percent of government expenditures in many sub-Saharan African countries. 
D)  All of the above.

Question 19

The poor economic performance of countries located in tropical areas is due to

Accepted Answer

A)  their hot climate. 
B)  poor institutional quality in these countries. 
C)  a lack of natural resources. 
D)  not enough foreign aid. 
A)  their hot climate. 
B)  poor institutional quality in these countries. 
C)  a lack of natural resources. 
D)  not enough foreign aid.

Question 20

The replacement of older products by newer improved ones is called

Accepted Answer

A)  trickle-down economic growth. 
B)  creative destruction. 
C)  economies of scale. 
D)  planned obsolescence. 
A)  trickle-down economic growth. 
B)  creative destruction. 
C)  economies of scale. 
D)  planned obsolescence.

Exam 16: Creating an Environment for Growth and Prosperity

Which of the following is true?

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to

Which of the following will be required for a low-income country to move up the income ladder and achieve high-income status?

Which of the following is true?

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?

A legal system that protects private property and enforces contracts in an even-handed manner helps promote economic growth because it

Which of the following is true of sub-Saharan Africa?

According to Angus Madison, a leading authority in the area, world per capita GDP

When a country's inflation rate varies substantially from year-to-year and is therefore difficult to predict, this will

Stable money and prices are a key source of economic growth because

Measured in 1990 dollars, the GDP per person of the world was $667 in 1813. By 2003, the world's income per person had risen to

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?

(I) With trade, individuals will be able to use more of their time and resources producing items they can supply economically and less time and resources producing goods that they can supply only at a high cost. (II) Reductions in trade barriers will expand the productive potential of the economy.

Which of the following factors would be most likely to encourage capital formation in a less-developed nation?

During the past 200 years, income per person has

How do high tariffs and other restraints on international trade affect a nation's prosperity?

The major sources of economic growth are

Which of the following is true of foreign aid to sub-Saharan Africa?

The poor economic performance of countries located in tropical areas is due to

The replacement of older products by newer improved ones is called

The Economic Approach

A : Some Tools of the Economist

B : Some Tools of the Economist

A : Supply, Demand, and the Market Process

B : Supply, Demand, and the Market Process

A : Supply and Demand: Applications and Extensions

B : Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

A : Taking the Nations Economic Pulse

B : Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

A : an Introduction to Basic Macroeconomic Markets

B : an Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, Incentives, and Secondary Effects

A : Money and the Banking System

B : Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

A : Costs and the Supply of Goods

B : Costs and the Supply of Goods

A : Price Takers and the Competitive Process

B : Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A : Price-Searcher Markets With High Entry Barriers

B : Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Special Topic 1 : Government Spending and Taxation

Special Topic 2 : The Economics of Social Security

Special Topic 3 : The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity

Special Topic 4 : Great Debates in Economics: Keynes Versus Hayek

Special Topic 5 : The Crisis of 2008: Causes and Lessons for the Future

Special Topic 6 : Lessons from the Great Depression

Special Topic 7 : Lessons from Japan and Canada

Special Topic 8 : The Federal Budget and the National Debt

Special Topic 9 : The Economics of Healthcare

Special Topic 10 : Education: Problems and Performance

Special Topic 11 : Earnings Differences Between Men and Women

Special Topic 12 : Do Labor Unions Increase the Wages of Workers?

Special Topic 13 : The Question of Resource Exhaustion

Special Topic 14 : Difficult Environmental Cases and the Role of Government

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