Question 1

Growth compatible institutions:

Accepted Answer

Growth compatible institutions have incentives built into them that lead people to put forth effort towards productivity and innovation, which in turn leads to economic growth. Encouraging activities that inhibit growth in others or creating impediments for others can lead to a stagnant economy and hinder growth. Spending a lot of time in leisure pursuits can also lead to a decrease in productivity and hinder growth. Therefore, choice A is the best option.

Question 2

Over the last three decades, the Chinese government has adopted a series of market-oriented reforms that have shifted control of many parts of the Chinese economy from government officials to private individuals.These reforms have most likely stimulated China's growth for which of the following reasons?

Accepted Answer

By providing individuals with a greater incentive to be efficient, market-oriented reforms have likely stimulated China's growth. When individuals are given the opportunity to own and operate businesses, they have a greater stake in the success of those businesses, and are thus more likely to work harder and more efficiently than they would if they were simply government employees. This increased efficiency can lead to increased productivity, which in turn can contribute to economic growth.

Question 3

In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S.economic growth by as much as half a percentage point per year.In terms of factors leading to growth, the low math scores indicate that the U.S.may be at a growing disadvantage in terms of:

Accepted Answer

Low math scores indicate a lack of human capital, which is the knowledge and skills of the workforce.

Question 4

The Indian government is known for creating obstacles to foreign investment with tariffs, investment caps and tons of red tape.What effect does "red tape" have on growth?

Accepted Answer

Red tape creates administrative burden and long waiting periods, which discourage entrepreneurship and foreign investment.

Question 5

If legally owning a business can spur growth, why don't all business owners legalize their businesses?

Accepted Answer

Legalizing a business comes with various regulations and requirements, which can be time-consuming and costly. Some business owners may not have the resources or desire to navigate these regulations and instead choose to operate informally.

Question 6

When the government of India lowered tariff barriers and removed the need for approvals for routine industrial expansion, what source of growth did this reform change directly?

Accepted Answer

These reforms directly changed growth-compatible institutions by making the regulatory environment more conducive to business expansion and efficiency, thus fostering economic growth.

Question 7

Many economists now de-emphasize capital accumulation as a source of growth because:

Accepted Answer

Many economists now recognize that capital accumulation alone does not necessarily lead to economic growth. Other factors such as education, technological progress, and institutional changes are also important determinants of growth. Therefore, capital accumulation should be considered in conjunction with these other factors, rather than as the sole driver of economic growth.

Question 8

All of the following are important sources of growth except:

Accepted Answer

Decreasing returns to scale actually hinder growth as they indicate that adding more inputs will not result in proportional increase in output. The other three options are important sources of growth.

Question 9

Which of the following would tend to inhibit growth?

Accepted Answer

Requiring government approval for all economic activity can lead to bureaucratic red tape and slow down the growth of businesses.

Question 10

Suppose that consumers decide to save less and spend more.What effect would this have in the market for loanable funds?

Accepted Answer

When consumers decide to save less and spend more, the demand for loanable funds increases. This leads to an increase in interest rates as lenders try to maximize their returns. However, the supply of loanable funds decreases as there is less savings available for lending. This results in a decrease in the quantity of funds lent. Therefore, the correct choice is C.

Question 11

Which of the following is an example of the development of human capital?

Accepted Answer

Conducting on-the-job training is an example of the development of human capital as it involves improving the skills, knowledge, and abilities of individual workers through formal or informal training programs. A and D are examples of technological and financial developments, respectively, while B is more related to the macroeconomic environment rather than the development of human capital.

Question 12

One reason why the Soviet Union grew slowly in the 20th century compared to the United States and Western Europe was that it:

Accepted Answer

The Soviet Union did not provide incentives for individuals to produce what consumers valued, leading to inefficiencies and a lack of innovation in the economy. Additionally, the government had a centralized planning system that did not allocate resources efficiently or respond to market demands. These factors contributed to slower economic growth compared to the United States and Western Europe.

Question 13

The legal system is an example of:

Accepted Answer

Social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society's social interactions. The legal system is one of these institutions, as it provides a framework for resolving disputes and enforcing laws. The other options do not accurately describe the legal system.

Question 14

Some economists argue that well-functioning capital markets that allow funds to move from those who have but do not need funds to those who need but do not have funds, are essential for rapid economic growth.Well-functioning capital markets are an example of:

Accepted Answer

Well-functioning capital markets are one of the growth-compatible institutions that are necessary for rapid economic growth. Physical capital refers to the physical assets like machinery or infrastructure, human capital refers to the knowledge and skills of individuals, and entrepreneurship refers to the qualities of creating and managing new ventures. While these factors can contribute to economic growth, a well-functioning capital market is essential for the efficient allocation of funds which can drive growth.

Question 15

A resource the United States lacked in the 20th century and had to import was:

Accepted Answer

The answer of A resource the United States lacked in...

Question 16

Steven Landsburg has suggested that Scrooge, a character invented by Charles Dickens, was not really so bad.What could Landsburg be suggesting would happen in the market for loanable funds if all the misers of the world sold their assets and gave the money to the poor?

Accepted Answer

If all the misers sold their assets and gave the money to the poor, the supply of loanable funds would decrease, causing the supply curve to shift left. With less money available to lend, interest rates would rise and investment would fall, reflecting a decrease in funding available for investment projects. Therefore, Landsburg's suggestion would cause supply to shift left and investment to fall, making choice A the correct answer.

Question 17

In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S.economic growth by as much as half a percentage point per year.This "drag will become increasingly apparent…as other countries dismantle regulatory obstacles and alter tax laws that put them at a disadvantage." In terms of sources of growth, the quotation suggests that some other countries are currently at a disadvantage because of:

Accepted Answer

The quotation suggests that other countries are at a disadvantage due to "regulatory obstacles and alter tax laws," which are related to the institutions that support economic growth, indicating growth-compatible institutions as the source of disadvantage.

Question 18

Haiti has a lower literacy rate (the percentage of those over 15 who can read and write) compared to other Latin American and Caribbean countries.Where does this low literacy rate fit into the factors that explain the wealth of nations?

Accepted Answer

The low literacy rate indicates that Haiti is lacking in human capital, which is an important factor in explaining the wealth of nations. Without educated and skilled workers, a country may struggle to develop and innovate, hindering its economic growth and prosperity.

Question 19

Suppose that a business discovers an opportunity that requires funds to exploit.What effect would this have in the market for loanable funds?

Accepted Answer

When a business discovers an opportunity that requires funds to exploit, there is an increase in the demand for loanable funds since the business needs capital to finance the opportunity. As a result, this increase in demand will drive up the interest rates. An increase in interest rates will result in a higher quantity of funds being lent since the higher rates make it more attractive for savers to lend their money. Therefore, Choice A is the correct answer.

Question 20

Factory buildings are an example of:

Accepted Answer

Factory buildings are physical assets that are used in the production process, making them an example of physical capital. Social capital refers to the networks and relationships that facilitate cooperation and coordination among individuals and groups. Human capital refers to the knowledge, skills, and abilities of individuals that contribute to economic growth and productivity. Entrepreneurial capital refers to the resources and skills needed to develop and start a new business venture.

Quiz 27: The Classical Long-Run Policy Model: Growth and Supply-Side Policies