Question 1

Which of the following countries had the highest growth rate of per capita GDP over the past 27 years?

Accepted Answer

China has had the highest growth rate of per capita GDP over the past 27 years, with an average annual growth rate of 8.5%. Madagascar and Haiti are two of the poorest countries in the world and have not seen significant economic growth in recent years, while the United States has had a more moderate average annual growth rate of 2.2%.

Question 2

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country

Accepted Answer

Institutions and policies that protect people and their property and enforce contracts even-handedly are essential for attracting investment and productive activities. Discouraging market exchange and abolishing private property rights would have the opposite effect. Therefore, choice letter B is the best answer.

Question 3

The sound economic institutions and policies needed for economic growth and prosperity

Accepted Answer

Economic institutions and policies are shaped by political decisions and the political process. The way a society is governed and the distribution of power within that society determines what kind of economic policies will be implemented. Therefore, economic institutions and policies do not emerge automatically or independently of political decision-making.

Question 4

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

Accepted Answer

LDCs can learn from and adopt successful practices and technologies from developed nations, which can lead to rapid economic growth when combined with policies and institutions that promote economic freedom and voluntary exchange.

Question 5

The adoption of modern technologies and business methods have the possibility to improve economic performance in a nation with low per capita income and low growth, but only if

Accepted Answer

The adoption of modern technologies and business methods can improve economic performance, but only if the institution is sound enough to attract capital and entrepreneurial activity. This is because the influx of capital and entrepreneurial activity drives innovation and growth, leading to economic development. Therefore, it is crucial for institutions to be strengthened to take advantage of these technological advances. The sufficiency of natural resources, the rapid education of workers, and the presence of skilled planners are important factors, but they do not determine the success of modern technology adoption and business methods as much as institutional soundness.

Question 6

Which of the following provides the best explanation of why low-income countries generally remain poor?

Accepted Answer

Low-income countries often have institutional arrangements and policies that discourage productive activity and reduce the potential gains from specialization and exchange. These policies can include high taxes and excessive regulations, as well as corruption and an unstable legal system. These factors make it difficult for businesses to succeed and for individuals to increase their income, which hinders overall economic growth.

Question 7

A less-developed nation will be able to benefit substantially by adopting the technologies and the business practices that have been successful in other nations, but only if

Accepted Answer

The adoption of successful technologies and business practices requires capital and expertise, which can be obtained through foreign investment. Therefore, a less-developed nation must improve its institutions to attract investors, who can bring the necessary capital and expertise. Without these improvements, the nation may not be able to fully utilize the new technologies and practices.

Question 8

The purchasing power parity method of comparing income across countries is based on

Accepted Answer

The purchasing power parity method compares income across countries based on the cost of purchasing a specific bundle of goods and services in each country. This method accounts for differences in the cost of living and provides a more accurate representation of the standard of living in each country compared to using exchange rates or government size as a percentage of GDP.

Question 9

Which of the following is true regarding the growth record of LDCs over the past 25 years?

Accepted Answer

The growth record of LDCs over the past 25 years is varied, with some countries experiencing high growth rates and others experiencing low growth rates. Therefore, option C is the correct choice. Option A is not true because not all LDCs have been growing rapidly. Option B is not true because not all LDCs have experienced negative growth rates. Option D is not true because option C is correct.

Question 10

Democracy tends to best promote freedom when there is

Accepted Answer

Constitutional protection of private property rights ensures that individuals have the freedom to own and control their own property, which is a fundamental aspect of personal freedom. Unrestrained executive and legislative majority power and a large and centralized government sector can lead to the suppression of individual freedoms. Therefore, B is the best choice for promoting freedom in a democratic society.

Question 11

Economic theory and history indicate that open elections and democratically elected governments

Accepted Answer

The answer of Economic theory and history indicate that open...

Question 12

When a low-income nation improves its institutions, so that growth results, one reason the growth may be more rapid than would result from a similar improvement in a developed nation that brings the same amount of added capital per worker to each nation, is that

Accepted Answer

The reason that growth may be more rapid in a low-income nation that improves its institutions is due to diminishing returns to scale. With richer nations starting with more capital per unit labor, the added capital produces smaller increments to production in the higher-income nations. This means that the same amount of added capital per worker will result in a larger increase in output for the low-income nation, making their growth more rapid.

Question 13

Political institutions are more likely to allow and encourage the emergence of good economic institutions and policies when

Accepted Answer

Constitutional constraints that protect property rights, voluntary exchange, and decentralization of government are essential for creating a stable and conducive environment for good economic institutions and policies to emerge. When such constraints are in place, political actors are less able to manipulate the system for their own benefit or impose harmful policies on the economy. Additionally, such constraints provide certainty to investors and entrepreneurs, which encourages investment and innovation.

Question 14

Which of the following countries has the highest per capita income?

Accepted Answer

Ireland has a per capita income of around $80,000, making it one of the wealthiest countries in the world. Malawi and Niger have much lower per capita incomes, while Mexico falls somewhere in the middle.

Question 15

To compare income across countries in a common currency, economists generally prefer to use the

Accepted Answer

The purchasing power parity (PPP) method is the best choice for comparing income across countries in a common currency because it accounts for differences in the cost of living and adjusts the exchange rate accordingly. This results in a more accurate reflection of the purchasing power of a currency in relation to others. The other methods listed do not take into account these differences in cost of living and are therefore less reliable for international income comparisons.

Question 16

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country

Accepted Answer

All of the above are necessary for a country to attract investment and promote productive activities. Encouraging market exchange creates opportunities for businesses to sell products and services, which can attract investment. Rewarding innovation incentivizes individuals to create new products and services, which can lead to economic growth. Protecting people and their property creates a safe and stable environment for investment and business activities to occur.

Question 17

Democracy tends to best promote economic freedom when there is

Accepted Answer

All of the above options - checks on power, protection of private property rights, and political decentralization - promote economic freedom in a democracy. Checks on power ensure that no one branch of government has too much control, which can prevent corruption and protect individual rights. Protection of private property rights encourages investment, entrepreneurship, and innovation. Political decentralization allows for greater competition and experimentation among different levels of government, which can lead to more effective and efficient policies. Therefore, all three options are necessary for promoting economic freedom in a democratic system.

Question 18

A country that organizes economic activity in a manner consistent with personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others is said to have a high degree of

Accepted Answer

The description provided in the question aligns with the concept of economic freedom, which emphasizes the importance of voluntary exchange and market coordination, as well as the protection of property rights. Option A (central planning) and B (government regulation) are inconsistent with this description, as they involve greater state involvement in economic activity. Option C (collective choice) may be seen as compatible with this description in some respects, but its emphasis on democratic decision-making may conflict with the primacy of individual choice emphasized in economic freedom.

Question 19

In a majority-rules democracy, economic thinking suggests that we should expect to see institutions and policies that

Accepted Answer

The answer of In a majority-rules democracy, economic thinking suggests...

Question 20

Authoritarian political regimes

Accepted Answer

While authoritarian political regimes do not guarantee sound economic institutions, there have been examples such as Chile and South Korea where authoritarian rule did lead to the development of sound economic policies and institutions. It is important to note, however, that this does not justify or outweigh the negative impacts of authoritarianism on human rights and political freedoms.

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

Which of the following countries had the highest growth rate of per capita GDP over the past 27 years?

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country

The sound economic institutions and policies needed for economic growth and prosperity

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

The adoption of modern technologies and business methods have the possibility to improve economic performance in a nation with low per capita income and low growth, but only if

Which of the following provides the best explanation of why low-income countries generally remain poor?

A less-developed nation will be able to benefit substantially by adopting the technologies and the business practices that have been successful in other nations, but only if

The purchasing power parity method of comparing income across countries is based on

Which of the following is true regarding the growth record of LDCs over the past 25 years?

Democracy tends to best promote freedom when there is

Economic theory and history indicate that open elections and democratically elected governments

When a low-income nation improves its institutions, so that growth results, one reason the growth may be more rapid than would result from a similar improvement in a developed nation that brings the same amount of added capital per worker to each nation, is that

Political institutions are more likely to allow and encourage the emergence of good economic institutions and policies when

Which of the following countries has the highest per capita income?

To compare income across countries in a common currency, economists generally prefer to use the

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country

Democracy tends to best promote economic freedom when there is

A country that organizes economic activity in a manner consistent with personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others is said to have a high degree of

In a majority-rules democracy, economic thinking suggests that we should expect to see institutions and policies that

Authoritarian political regimes