Question 1

In 2008, the U.S. government took an 80 percent stake in AIG to stop that financial institution from collapsing, the theory being that if AIG did collapse, it would have very serious consequences for the entire financial system. What type of economy is this an example of?

Accepted Answer

In mixed economies, governments tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interests. For example, in 2008 the U.S. government took an 80 percent stake in AIG to stop that financial institution from collapsing, the theory being that if AIG did collapse, it would have very serious consequences for the entire financial system.

Question 2

Which of the following is a safeguard that representative democracies use to ensure that their elected officials are held responsible for their actions?

Accepted Answer

To guarantee that elected representatives are being held accountable for their actions by the electorate, an ideal representative democracy incorporates safeguards that are enshrined in constitutional law. These safeguards include an individual's right to freedom of expression, opinion, and organization; a free media; regular elections in which all eligible citizens are allowed to vote; universal adult suffrage; limited terms for elected representatives; a fair court system that is separate for the political system; a nonpolitical state bureaucracy; a nonpolitical police force and armed service; and relatively free access to state information.

Question 3

Totalitarianism

Accepted Answer

Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties.

Question 4

Antitrust laws in the United States are designed to

Accepted Answer

Given the dangers inherent in monopoly, the role of government in a market economy is to encourage vigorous free and fair competition between private producers. Governments do this by outlawing restrictive business practices designed to monopolize a market (antitrust laws serve this function in the United States).

Question 5

People's right to protest on issues of accountability in public expenditure would be possible in a ________ political setup.

Accepted Answer

In a representative democracy, citizens periodically elect individuals to represent them. These elected representatives then form a government, whose function is to make decisions on behalf of the electorate. In a representative democracy, elected representatives who fail to perform this job adequately will be voted out of office at the next election. To guarantee that elected representatives can be held accountable for their actions by the electorate, an ideal representative democracy has a number of safeguards that are typically enshrined in constitutional law.

Question 6

In a ________, if demand for a product exceeds supply, prices will rise, signaling to producers to produce more.

Accepted Answer

In a market economy, if demand for a product exceeds supply, prices will rise, signaling producers to produce more. If supply exceeds demand, prices will fall, signaling producers to produce less. In this system consumers are sovereign.

Question 7

Which system of government generally permits some individual economic freedom but restricts individual political freedom, frequently on the grounds that it would lead to the rise of communism?

Accepted Answer

Right-wing totalitarianism generally permits some individual economic freedom but restricts individual political freedom, frequently on the grounds that it would lead to the rise of communism. A common feature of many right-wing dictatorships is an overt hostility to socialist or communist ideas.

Question 8

In a ________ economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning.

Accepted Answer

In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning.

Question 9

The tenet of ________ is that the welfare of society is best served by letting people pursue their own economic self-interest.

Accepted Answer

A tenet of individualism is that the welfare of society is best served by letting people pursue their own economic self-interest, as opposed to some collective body (such as government) dictating what is in society's best interest.

Question 10

________ refers to a state where political power is monopolized by a party, group, or individual that governs according to religious principles.

Accepted Answer

Theocratic totalitarianism is found in states where political power is monopolized by a party, group, or individual that governs according to religious principles. The most common form of theocratic totalitarianism is based on Islam and is exemplified by states such as Iran and Saudi Arabia.

Question 11

In a pure market economy,

Accepted Answer

In the archetypal pure market economy, all productive activities are privately owned, as opposed to being owned by the state. The goods and services that a country produces are not planned by anyone.

Question 12

In several Western democracies, the poor performance of state-owned enterprises, because of protection from competition and guaranteed government financial support, led to

Accepted Answer

In many countries, state-owned companies performed poorly. As a consequence, a number of Western democracies voted many social democratic parties out of office in the late 1970s and early 1980s. They were succeeded by political parties, such as Britain's Conservative Party and Germany's Christian Democratic Party, that were more committed to free market economics. These parties sold state-owned enterprises to private investors (a process referred to as privatization).

Question 13

An economy in which the interaction of supply and demand determines the quantity in which goods and services are produced is called a

Accepted Answer

In the archetypal pure market economy, all productive activities are privately owned, as opposed to being owned by the state. Production is determined by the interaction of supply and demand and signaled to producers through the price system.

Question 14

Which of the following is a reason that command economies tend to stagnate?

Accepted Answer

While the objective of a command economy is to mobilize economic resources for the public good, the opposite usually occurs. In a command economy, state-owned enterprises have little incentive to control costs and be efficient, because they cannot go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and innovation are absent from command economies. Instead of growing and becoming more prosperous, such economies tend to stagnate.

Question 15

In a(n) ________ economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold.

Accepted Answer

In a pure command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold.

Question 16

Which of the following statements about individualism is true?

Accepted Answer

The central message of individualism is that individual economic and political freedoms are the ground rules on which a society should be based. This puts individualism in conflict with collectivism. Collectivism asserts the primacy of the collective over the individual; individualism asserts the opposite.

Question 17

The abolition of ________ in a command economy means there is no incentive for individuals to look for better ways to serve consumer needs.

Accepted Answer

In a command economy, state-owned enterprises have little incentive to control costs and be efficient, because they cannot go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and innovation are absent from command economies.

Question 18

Which of the following is a feature of a democracy?

Accepted Answer

The United States, for example, is a constitutional republic that operates as a representative democracy. In a representative democracy, citizens periodically elect individuals to represent them. These elected representatives then form a government whose function is to make decisions on behalf of the electorate. In a representative democracy, elected representatives who fail to perform this job adequately will be voted out of office at the next election.

Question 19

Which of the following philosophies can be traced back to the ancient Greek philosopher Aristotle?

Accepted Answer

Like collectivism, individualism can be traced to an ancient Greek philosopher, in this case Plato's disciple Aristotle (384-322 B.C.). In contrast to Plato, Aristotle argued that individual diversity and private ownership are desirable.

Question 20

The local grocery in a small southern city is the only option for the residents, so it has a monopoly on the grocery business there. When the population of the city grows and demand for groceries increases, what is the grocery store most likely to do?

Accepted Answer

A supply restriction occurs when a single firm monopolizes a market. In such circumstances, rather than increase output in response to increased demand, a monopolist might restrict output and let prices rise. This allows the monopolist to take a greater profit margin on each unit it sells.

Quiz 2: National Differences in Political, Economic, and Legal Systems