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

Question 1

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

A)elect political officials democratically.
B)protect property rights, enforce contracts even-handedly, and rely extensively on markets to allocate goods and services.
C)provide citizens with housing, health care, and other basic goods free of charge.
D)use the taxing power of the state to redistribute income from the rich to the poor and thereby promote income equality.

Answer 1

protect property rights, enforce contracts even-handedly, and rely extensively on markets to allocate goods and services.

Question 2

The GDP figures fail to count labor services and other household production. Once this omission is taken into account,

A)the income differences between the high and low income countries are small.
B)the differences in living standards between the high and low income countries are small.
C)the income differences between the high and low income countries are still huge.
D)the life expectancy in the high and low income countries is approximately the same.

Answer 2

the income differences between the high and low income countries are still huge.

Question 3

The purchasing power parity method of comparing income levels across countries

A)calculates the cost of purchasing a common bundle of goods in each country and then uses this price index to convert each country's income to a common currency.
B)uses the exchange rate to convert the income level of each country to a common currency.
C)uses the prime interest rate in each country to convert the income level of each country to a common currency.
D)calculates the ratio of imports relative to exports in each country and then uses this ratio to convert each country's income to a common currency.

Answer 3

calculates the cost of purchasing a common bundle of goods in each country and then uses this price index to convert each country's income to a common currency.

Question 4

Which of the following 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 so they may be more accurately compared?

A)the consumer price parity (CPP) method
B)the purchasing power parity (PPP) method
C)the GDP deflator exchange (GDPDE) method
D)the inflation conversion factor (ICF) method

Question 5

Compared to those in low-income countries, the residents of countries with high per person incomes nearly always

A)live longer.
B)have a lower illiteracy rate.
C)have a lower infant mortality rate.
D)all of the above.

Question 6

Countries that have a higher degree of economic freedom tend to

A)invest a larger share of their output, but the productivity of that investment is lower than for economies that are less free.
B)invest a smaller share of their output, but the productivity of that investment is higher than for economies that are less free.
C)invest a larger share of their output and the productivity of that investment is higher than for the economies that are less free.
D)invest a smaller share of their output and the productivity of that investment is lower than for economies that are less free.

Question 7

Countries that have adopted liberal reforms and substantially increased their economic freedom rating in recent years

A)experienced falling income levels per capita during 1995-2009.
B)grew slowly during 1995-2009.
C)achieved impressive growth rates of real GDP per person during 1995-2009.
D)have grown less rapidly than high income industrial economies.

Question 8

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

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

Question 9

Which of the following about economic growth is true?

A)The fastest growing economies in the world are mostly less developed countries.
B)The fastest growing economies in the world (those with annual real growth rates of 3.5 percent or more) are mostly high-income industrial countries.
C)The slowest growing countries in the world, many of which are experiencing declines in per capita GDP, are less developed countries.
D)Both a and c are true.

Question 10

During 1980-2009, the countries achieving the most rapid growth of real GDP were nearly all

A)high-income developed economies.
B)low-income less developed economies at the beginning of the period.
C)South American economies.
D)European economies.
E)African economies.

Question 11

During 1980 through 2010,

A)the per capita income of high-income industrial countries declined.
B)the fastest growing economies in the world were LDCs.
C)almost all LDCs grew more rapidly than the high-income industrial economies.
D)most of the countries with rapid growth rates during the last two decades were located in South America.

Question 12

The purchasing power parity (PPP) method

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.

Question 13

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

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.

Question 14

Which of the following countries have the highest per person income levels?

A)Argentina, Brazil, and Mexico
B)China and India
C)France and Germany
D)Ireland, Norway, and the United States

Question 15

Which of the following about economic freedom is true?

A)Low income countries that have adopted institutions and policies consistent with economic freedom have grown rapidly.
B)Low-income countries that have adopted institutions and policies consistent with economic freedom have failed to grow more rapidly than economies that are relatively unfree.
C)Economic freedom appears to improve the performance of developed economies, but not those that are less developed.
D)Economic freedom appears to improve the performance of less developed economies, but not those that already have a high degree of development.

Question 16

Income per person in the United States is approximately ____ that of Sierra Leone, Malawi, and Niger, three of the world's poorest countries.

A)the same as
B)double
C)ten times
D)fifty times

Question 17

When making income comparisons across countries, economists generally prefer to use

A)the exchange rate conversion method.
B)the consumer price index ratio method.
C)the purchasing power parity method.
D)the interest rate differential conversion method.

Question 18

Compared to high-income developed countries, the per person income levels of poorer less developed countries are somewhat understated because

A)the GDP figures omit the production within the household sector, which is generally larger in the high-income countries.
B)the GDP figures omit the production within the household sector, which is generally larger in the poorer countries.
C)the GDP figures omit net exports, which are generally larger in the high income countries.
D)the GDP figures omit net exports, which are generally larger in the poorer countries.

Question 19

Which of the following is true concerning the growth record of less developed countries (LDCs) during the last several decades?

A)The per capita GDP of several poverty stricken African countries was lower in 2009 than in 1980.
B)None of the LDCs have been able to match the per capita income growth rate of the United States.
C)During the last two decades, the fastest growing countries in the world (those with annual real growth rates of 3.5 percent or more) have been LDCs.
D)Both a and c are correct.
E)All of the above are correct.

Question 20

Which of the following economies have the highest degree of economic freedom?

A)Hong Kong and Singapore
B)Argentina and Brazil
C)Germany and Italy
D)Russia and Nigeria

Question 21

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

Question 22

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

Question 23

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

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.

Question 24

If a country is going to achieve a high economic freedom rating, it must

A)follow rule of law principles and create a stable monetary environment.
B)be a political democracy.
C)refrain from the imposition of barriers that limit voluntary exchange.
D)rely primarily on government expenditures and regulations (rather than markets) to allocate goods and resources.
E)both a and c are true.

Question 25

According to data on GDP growth between 1980 and 2010,

A)poor nations stagnated, while the rich nations continued to grow.
B)poor nations grew rapidly, while the rich nations stagnated.
C)most of the world's rapidly growing countries were located in Africa.
D)many poor nations grew more rapidly than wealthy nations, while others continued to stagnate.

Question 26

Which of the following will increase economic freedom?

A)freedom to enter and compete in markets
B)high tariff rates
C)high taxes
D)rapid and unpredictable inflation

Question 27

Which of the following will increase economic freedom?

A)institutions and policies supportive of voluntary exchange
B)high tariff rates
C)high taxes
D)rapid and unpredictable inflation
E)all of the above

Question 28

Which of the following will increase economic freedom?

A)subsidies and regulations that favor business
B)high tariff rates
C)high marginal tax rates
D)protection of persons and their property from aggression

Question 29

During 1980-2010, the per-capita incomes of less-developed countries (LDCs)

A)grew rapidly.
B)declined.
C)were virtually unchanged.
D)registered a mixed growth record; some grew rapidly while others stagnated.

Question 30

Which of the following about economic growth is true?

A)The rich countries are consistently getting richer, while the poor countries are getting poorer.
B)No LDC was able to achieve a more rapid growth rate than the United States during the 1980 through 2009 period.
C)The growth picture of LDCs is clearly one of diversity; some LDCs are growing rapidly, while others continue to stagnate.
D)The fastest growing countries in the world are all high-income industrial economies.

Question 31

Which of the following has contributed to China's economic growth since 1980?

A)the rapid growth of foreign aid from European countries
B)nationalization of many private industries
C)increased restrictions on international trade
D)increased privatization of the agricultural and small-business sectors

Question 32

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 1980-2009?

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.

Question 33

Which of the following is a key characteristic of economic freedom?

A)institutions and policies supportive of voluntary exchange
B)freedom to compete
C)protection of people and their property from aggressors
D)all of the above

Question 34

Which of the following is true regarding the growth record of less-developed countries (LDC's) during the past quarter of a century?

A)Some are among the fastest growing countries in the world.
B)Some are among the slowest growing countries in the world.
C)The most populous, less-developed countries have experienced declining per capita income levels.
D)All of the above are true.

Question 35

Which of the following will increase economic freedom?

A)an increase in tariff rates imposed on imported goods
B)an increase in government spending as a share of the economy
C)elimination of regulations that make it difficult to start a business
D)an increase in the rate of inflation and its variability

Question 36

The Economic Freedom of the World index is a measure of the consistency of a nation's institutions and policies with

A)political democracy.
B)economic freedom.
C)an Egalitarian distribution of income.
D)economic nationalism.

Question 37

Which of the following about economic growth is true?

A)The developed nations are growing rapidly and the less-developed nations are stagnating.
B)Most of the countries that have achieved the highest growth rates in the world during the last quarter of a century were classified as LDCs in 1980.
C)It is an oversimplification to divide the world into the growing, developed nations and the stagnating, less-developed nations.
D)Both b and c are true.
E)All of the above are true.

Question 38

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.

Question 39

During the past quarter of a century, which of the following has contributed to the economic growth of China?

A)agricultural reforms adopted in the late 1970s
B)low taxes and deregulation in the special economic zones that were established during the 1980s
C)the relaxation of restraints on foreign trade and joint ventures
D)all of the above

Question 40

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.

Question 41

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.

Question 42

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.

Question 43

Countries with more economic freedom have levels of economic growth that

A)are generally higher than those of nations with less economic freedom.
B)are similar to those of nations with less economic freedom since the level of investment, not economic freedom, determines the growth rate.
C)cannot continue at high levels because too little government planning is being done.
D)are generally lower than the growth rates of countries with less economic freedom.

Question 44

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.

Question 45

(I) Countries with more economic freedom during the past quarter of a century had a lower average per capita GDP. (II) Countries with more economic freedom during the past quarter of a century generally achieved higher rates of economic growth.

A)Both I and II are true.
B)Both I and II are false.
C)I is true; II is false.
D)I is false; II is true.

Question 46

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

Question 47

Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates.

A)lower; less rapid
B)lower; more rapid
C)higher; less rapid
D)higher; more rapid

Question 48

Countries with lower levels of economic freedom tend to have

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

Question 49

During 1980-2005, the developing countries that moved most rapidly toward economic freedom

A)achieved higher rates of economic growth, but the reductions in their poverty rates were smaller than those for countries that were less free.
B)grew less rapidly, but the reductions in the poverty rates were greater than those achieved in countries that were less free.
C)experienced both slower rates of economic growth and smaller reductions in poverty rates than countries that were less free.
D)experienced both more rapid rates of economic growth and larger reductions in poverty rates than countries that were less free.

Question 50

Government policies that heavily tax some activities while subsidizing others and that fix or control interest rates will result in

A)higher productivity of investment.
B)lower productivity of investment.
C)no change in the productivity of investment.
D)a greater level of investment.

Question 51

The per capita incomes of countries in the quartile with the most economic freedom during 1980-2010 were

A)slightly lower than those of the quartile of countries with the least economic freedom.
B)about the same as the quartile of countries with the least economic freedom.
C)about twice those of the countries with the least economic freedom.
D)about eight times those of the quartile of countries with the least economic freedom.

Question 52

(I) Other things constant, countries that invest more will grow more rapidly. (II) The private investment rate of the most economically free countries is nearly twice as much as that of the least free countries.

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 53

Which of the following about economic freedom is true?

A)In 1960, the per capita income levels of Hong Kong and Singapore were greater than those of the United States and Canada.
B)The economies of Hong Kong and Singapore have grown slowly in recent decades.
C)Economic freedom ratings indicate that both Hong Kong and Singapore rank among the world's freest economies.
D)Economic freedom ratings indicate that Nigeria and Venezuela rank among the world's freest economies.

Question 54

The income per person in the quartile of countries with the most economic freedom was approximately ____ times the figure for the least free group of countries.

A)2
B)4
C)5
D)8

Question 55

Countries with more economic freedom during 1980-2010 tended to

A)grow more rapidly, but the 2010 income levels of the freer economies were still lower than those that were less free.
B)achieve higher levels of income but the growth rates of the less free economies have been more rapid in recent years.
C)achieve both more rapid growth and higher income levels than those that were less free.
D)grow less rapidly and the 2010 income levels of the freer economies were lower than those that were less free.

Question 56

Other things constant, countries that invest more will grow

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

Question 57

On average, countries that have a larger degree of economic freedom tend to have

A)higher per capita income levels, but slower rates of economic growth, than countries with less economic freedom.
B)lower per capita income levels, but more rapid rates of economic growth, than countries with less economic freedom.
C)both higher per capita income levels and more rapid growth rates than countries with less economic freedom.
D)both lower income levels and slower growth rates than countries with less economic freedom.

Question 58

Private investment as a share of the economy tends to be higher in countries

A)with low levels of economic freedom.
B)with high levels of economic freedom.
C)with economic freedom ratings near zero.
D)that have experienced a sharp reduction in economic freedom during the most recent decade.

Question 59

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.)

A)larger; higher
B)larger; lower
C)smaller; higher
D)smaller; lower

Question 60

Dividing data into quartiles means that you are dividing data into

A)two groups.
B)three groups.
C)four groups.
D)twenty-five groups.

Question 61

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.

Question 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.

Question 63

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.

Question 64

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.

Question 65

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

Question 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.

Question 67

Which of the following countries have instituted liberal reforms and substantially improved their economic freedom rating since 1990?

A)Japan and Italy
B)Nigeria and Pakistan
C)Sierra Leone and Zimbabwe
D)Estonia and Hungary

Question 68

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

Question 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

Question 70

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.

Question 71

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

Question 72

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

Question 73

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.

Question 74

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.

Question 75

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.

Question 76

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

Question 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.

Question 78

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.

Question 79

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.

Question 80

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.