Creating an environment for growth and prosperity

Creating an environment for growth and prosperity refers to the actions and policies taken by individuals, businesses, and governments to promote economic development and improve the well-being of citizens. This can include measures such as investing in infrastructure, providing education and training opportunities, and implementing policies to encourage innovation and entrepreneurship.

It also involves creating an environment that is conducive to business and investment, such as by reducing regulation and bureaucracy and providing a stable and transparent legal system. Additionally, creating an environment for growth and prosperity also includes addressing social and environmental issues, such as ensuring access to healthcare and addressing climate change. Overall, the goal is to create a sustainable and inclusive economy that benefits all members of society.

1.Which of the following had the least-free economies during 1995-2017?

Democratic Republic of the Congo, Myanmar, and Venezuela

Sweden, Norway, and Denmark

China, Russia, and India

France, Germany, and Mexico

2.(I) Governments that respect property rights and freedom of exchange while following monetary (and fiscal) policies consistent with relative price stability establish the foundation for economic growth. (II) Governments have often diminished the economic prospects of a nation by levying high taxes, instituting price controls, and following inflationary monetary policies.

Both I and II are true

I is false; II is true

Both I and II are false

I is true; II is false

3.Compared to countries with less economic freedom, countries with more economic freedom, on average, tend to have:

both higher per capita income levels and more rapid economic growth

lower per capita income levels, but more rapid rates of economic growth

both lower income levels and slower rates of economic growth

higher per capita income levels, but slower rates of economic growth

4.How many of the Top 25 countries with the highest average economic freedom ratings during 1995-2017 had a per capita GDP of less than $20,000 in 2017?

zero

all 25

5.Which of the following is most important for the achievement of long-term economic growth and a high level of per capita income?

Policies and institutions that encourage productive activities

Foreign aid

Institutions and policies that control the growth of population

Abundant natural resources

6.The Economic Freedom of the World index provides a measure of the extent to which various countries:

use transfer payments and subsidies to achieve an egalitarian distribution of income

rely on markets rather than political decision-making to allocate resources

use political allocation to promote economic nationalism

rely on democratic political decision-making to allocate resources

7.Which of the following is true?

Economies that are highly free tend to grow less rapidly than those with less economic freedom

Economic freedom ratings indicate the consistency of a nation’s institutions and policies with respect to personal choice, freedom of exchange, and protection of private property

In recent years, the United States has been the world’s freest economy

Economic freedom is present if a country is a political democracy

8.Economic freedom reflects the concept of:

altruism

self-sacrifice

self-ownership

rational ignorance

9.The replacement of analog cameras by digital cameras in the marketplace is an example of:

moral hazard

creative destruction

a negative externality

adverse selection

10.Which of the following is true with respect to high levels of per capita income?

Nations are poor primarily because they do not have access to modern technology

Human and physical capital investments are largely irrelevant to the achievement of high income levels

An institutional environment that provides a strong incentive for people to engage in productive activities is the key to the achievement of high income levels

Nations achieve high income levels primarily because of their natural resource endowments

11.Suppose a firm invests in the acquisition of modern machines and tools. This is likely to result in a(n):

decrease in the revenue earned by the firm

increase in the productivity of the employees of the firm

decrease in the stock of physical capital

decrease in the human capital of the employees of the firm

12.When considering the impact of institutions and policies on economic performance, it is most important to focus on:

short-term growth and income rather than on long-term growth because short-term growth primarily reflects the ups and downs of the business cycle

long-term growth and income rather than on short-term growth, as short-term growth often reflects mostly the ups and downs of the business cycle

short-term growth and income rather than on long-term growth, as short-term growth accurately captures the effects of recent policy changes adopted by the government

long-term growth and income rather than on short-term growth, because sound monetary policies are largely ineffective in the short run

13.Which of the following is true of economic freedom?

It is complex, multidimensional, and difficult to measure

It is present when the government allocates the resources available in an economy

It reflects the self-sacrificing behavior of the individuals in a society

It is primarily observed in closed economies

14.Which one of the following countries headed the list of the most persistently free economies during 1995-2017?

United States

Hong Kong

Venezuela

China

15.Well-defined and enforced private ownership rights provide entrepreneurs with a strong incentive to:

use the most technologically advanced production methods even if they increase per-unit production costs

produce public goods even if it is unprofitable to do so

refrain from the use of mass production processes because they lead to firms that are too large to manage efficiently

innovate and develop new products that consumers value highly relative to cost

16.In order to achieve a high rating on the Economic Freedom of the World index, a country must:

protect domestic businesses from foreign rivals that generally provide shoddy products

use central planning to direct investment and resolve the three basic economic problems of what, how, and for whom goods will be produced

protect domestic workers from businesses that are unwilling to pay high wages and provide quality working conditions

provide for the even-handed protection of private property and rely primarily on open markets and voluntary exchange to coordinate economic activity

17.Which of the following is true of per capita GDP?

If population remains the same, an increase in GDP will decrease per capita GDP

If GDP remains the same, an increase in population will increase per capita GDP

Growth of per capita real GDP indicates that the general level of prices is rising more rapidly than output

Growth of per capita real GDP generally leads to an improvement in the standard of living of the populace

18.Suppose four hypothetical countries, Country A, Country B, Country C, and Country D, have the same initial income of $20,000. However, the annual growth rate of each country is different. Country A grows at an annual rate of 5 percent, Country B grows at an annual rate of 6 percent, Country C grows at an annual rate of 7 percent, and Country D grows at an annual rate of 4 percent. Over a 20-year period, the country whose growth will be the highest is:

Country C

Country B

Country D

Country A

19.An increase in per capita income generally indicates:

a low level of education

a high infant mortality rate

lesser availability of goods and services

a better quality of life

20.The productive capacity of a worker can be improved by:

expanding the use of resources that increase the opportunity cost of production

reducing the profitability of firms

allocating resources in such a way that the marginal cost of production increases

investing in the education and knowledge of workers

21.Which of the following is true of investment in physical and human capital?

Investment in physical and human capital reduces the incentive of the firm to introduce new products that are highly valued relative to costs

When more resources are used to produce machines, factories, and schools, the general level of prices will increase in the future

Investment in physical and human capital decreases the marginal productivity of workers

When more resources are used to produce machines, factories, and schools, fewer resources are available to produce current-consumption goods

22.Well-defined and enforced private ownership rights:

force producers to confront the opportunity cost of the resources they used to produce goods

make it possible for producers to use resources without the consent of their owners

reduce the incentive of entrepreneurs to discover and produce new products that are highly valued relative to cost

benefit the wealthy at the expense of the poor

23.Institutions that encourage productive activities and discourage counterproductive ones will tend to promote:

economic fluctuations

rent-seeking

high rates of unemployment

economic growth

24.Freedom to trade with people and businesses in other countries:

reduces a country’s consumption possibilities

makes it possible for a country to use more of its resources to produce goods and services it can supply at a low cost

increases the cost of financial capital

reduces private investment and causes the foreign exchange value of the domestic currency to appreciate

25.The rule of 70:

measures the return on investment over a certain period of time

makes it easy to calculate how many years it will take for income to double at various rates of growth

makes it easy to calculate how many years it will take for private investment to triple at various interest rates

helps people understand the trade-off between unemployment and inflation

26.In 2017, the life expectancy of persons living in the most economically free quartile of countries was:

about five years more than the life expectancy of people living in the least economically free quartile of countries

about two years more than the life expectancy of people living in the least economically free quartile of countries

about 14 years more than the life expectancy of people living in the least economically free quartile of countries

about two years less than the life expectancy of people living in the least economically free quartile of countries

27.When the inflation rate is high and variable, the unpredictable changes in the price level will lead to a reduction in:

the rate of unemployment

the risks associated with investments

the opportunity cost of large-scale capital investments

gains from trade

28.The empirical evidence indicates that compared to economies that are less free, countries with institutions and policies more consistent with economic freedom:

have both higher per capita incomes and longer life expectancy

have lower per capita incomes, but life expectancy is longer

have both lower per capita incomes and a shorter life expectancy

have higher per capita incomes, but life expectancy is shorter

29.Economic freedom is present when:

firms are free to restrict the entry of rivals into a market so they can earn economic profit in the long run

individuals are free to consume, produce, and trade with others as long as their actions do not harm others

individuals and businesses are free to choose for themselves as long as their actions have been approved by democratically elected government officials

individuals are free to choose and compete with others, even if their actions impose physical harm on others

30.Strict regulations that make it difficult to lay off an employee:

will reduce the marginal cost of production for firms

will increase the marginal productivity of labor

will increase the demand for labor

will reduce the incentive of employers to hire employees

31.Which of the following would be most likely to increase a country’s Economic Freedom of the World (EFW) rating?

High marginal tax rates

High barriers to entry into a market

High trade restrictions

Reliance on open markets to allocate goods and resources

32.Technological advancement refers to the:

improvement of the existing methods of production to increase the use of input per unit of output

improvement of the existing methods of production to increase the additional cost of using an extra unit of input

introduction of new techniques of production that increase the cost of production per unit of output

introduction of new methods of production that increase output per unit of input

33.Suppose the CEO of Widget Inc. is trying to decide whether a new product produced by the company is worth continuing. The sales of the new product have been insufficient to cover the production cost. If profit maximization is the goal, the CEO should:

employ more skillful workers to reduce the production cost

discontinue production of the new product because it is generating losses for Widget Inc

adopt methods of mass production to increase the total fixed cost of the company

hire more high-paid, top-level management in order to increase variable costs

34.Suppose the time taken for a country to double its income level is 35 years. According to the rule of 70, the average annual growth rate of the country is:

6 percent

2 percent

3 percent

5 percent

35.The empirical evidence indicates that compared to economies that are less free, countries with institutions and policies more consistent with economic freedom:

both grow more rapidly and achieve a cleaner environment

grow less rapidly, but their environmental quality is higher

both grow less rapidly and their environmental quality is lower

grow more rapidly, but their environmental quality is lower

36.Trade between two countries leads to:

lower output and higher costs of production

higher unemployment and lower inflation rates

higher market interest rates and lower investments

larger output and higher income levels

37.When a country experiences economic growth, there will be:

an upward movement along the country’s production possibilities curve

an inward shift of the country’s production possibilities curve

a downward movement along the country’s production possibilities curve

an outward shift of the country’s production possibilities curve

38.Compared to countries with more economic freedom, countries with less economic freedom generally have:

higher levels of per capita GDP

higher poverty rates

higher rates of economic growth

more investment as a share of GDP

39.Governments promote economic growth when they:

provide access to money of stable value

impose trade restrictions that protect domestic businesses from foreign competition

encourage the growth of monopolies

increase the market interest rate

40.Which of the following is a major source of economic growth?

A balanced budget

Entrepreneurial discovery of improved products and lower-cost production methods

An increase in a budget surplus

An increase in the money supply

41.Which of the following government policy alternatives would be most likely to promote economic growth and to achieve a high per capita income?

Imposition of price controls

High marginal tax rates

Avoidance of tariffs and quotas in order to achieve trade openness

Widespread use of licensing requirements to operate a business or compete in an occupation

42.Which of the following policies restricts international trade?

A reduction in government spending

A reduction in income tax rates

The removal of tariffs

The imposition of quotas

43.Which of the following is a result of monetary instability?

A reduction in the risks accompanying capital investments

An increase in the level of employment

A reduction in the size of budget deficits

A reduction in social cooperation

44.Identify the correct statement about innovative ideas.

Innovative ideas always provide a greater value to consumers than producers

Ideas that increase the opportunity cost of production generate economic profits

Innovative ideas always provide a greater value to producers than consumers

Ideas that increase the value of resources generate economic profits

45.Identify the correct statement about creative destruction.

It refers to the replacement of low-cost production processes by high-cost production processes

It refers to the replacement of old products by improved products

It reduces the profits of firms producing new products

It increases the average cost of producing new products

46.Which of the following is true?

Without foreign aid, poor countries are unable to break the cycle of poverty, low savings and investment, and economic stagnation

Economic growth is primarily the result of gains from trade, discovery of better ways of doing things, and capital investment

Almost all countries with an abundance of natural resources have been able to achieve rapid growth and high levels of per capita income

The United States is rich because it has democratic political institutions

47.(I) Virtually without exceptions, the Top 25 countries with the highest average economic freedom ratings during 1995-2017 had a high (more than $20,000) per capita income in 2017. (II) Virtually without exceptions, all of the Bottom 25 countries with the lowest average economic freedom ratings during 1995-2017 had a low (less than $20,000) per capita income in 2017.

Both I and II are true

I is false; II is true

Both I and II are false

I is true; II is false

48.Suppose a country’s average annual growth rate is 7 percent. According to the Rule of 70, the number of years it would take for the country’s income level to double is:

7 years

10 years

12 years

15 years

49.When property is owned privately, people:

will be unlikely to undertake risky investments

who operate business firms have little incentive to keep costs low

have little or no incentive to engage in productive economic activities

are permitted to keep what they earn

50.Identify the correct statement about the market process.

The market process promotes both the discovery of better ways of doing things and the termination of projects that reduce the value of resources

The market process of the profit-and-loss system directs resources toward high-cost projects

The market process fails to provide entrepreneurs with incentives to undertake projects involving risks

The market process of the profit-and-loss system directs resources toward those ideas that decrease the value of resources

Creating an environment for growth and prosperity

Creating an environment for growth and prosperity

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