How can ―good institutions‖ foster growth? I. They provide incentives for entrepreneurs to create and innovate. II. They provide financial support for organizations to acquire human and physical capital. III. They establish property rights, functioning legal systems, and open markets.

Question

Quizplus · Accepted Answer

Good institutions can foster growth by providing incentives for entrepreneurs to create and innovate (I) and by establishing property rights, functioning legal systems, and open markets (III). Providing financial support for organizations to acquire human and physical capital (II) may also be helpful, but it is not one of the essential functions of good institutions in fostering growth. Therefore, options A and B are incorrect. Option C only identifies one of the three essential functions of good institutions in fostering growth, so it is also incorrect. Thus, the best answer is D, I and III only.

How Can ―Good Institutions‖ Foster Growth? I