Term
Economic growth that produces steady increases in per capita GDP
A. began when some nations acquired sufficient military power to dominate other nations.
B. did not begin to occur in the world until two or three centuries ago.
C. has never yet occurred outside of countries with democratic systems of government.
D. occurs naturally when government policies do not prevent it. |
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Definition
| B. Karl Marx maintained that the "primitive accumulation," the build-up of capital and power that launched economic growth, occurred by force and violence. The historical record of the European countries that pioneered economic growth is far from an unblemished one. Imperialist nations often used military power in ways that destroyed the wealth of other countries to promote the interests of their own merchants. But these policies were often as foolish as they were cruel, and did not create large gains for the countries that pursued them. The honest efforts of their own people were a major source of the "primitive accumulation." It is unfortunately not the case that economic growth requires political democracy. The democratic political process often produces short-sighted economic policies that seriously retard economic growth, largely for the reasons discussed in chapter 11. But government withdrawal from the economic arena does not guarantee economic growth, either. |
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Term
| The “rule of law”, perhaps the most important institution for steady economic growth, does not exist in a country A. in which the government fails to require licenses for economic projects that will either benefit or harm others. B. in which the rules of the game do not enable people to launch projects with reasonable confidence that they will be able to enjoy the results of their successful efforts. C. that does not have democratic elections. D. where all of the above conditions are not satisfied. |
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Definition
| B. Secure property rights are a central feature of the rule of law. In a society where people must worry about having their property stolen or confiscated, they will hide resources more often than they will put them to open and valuable uses. A government that makes arbitrary decisions, decisions based on nothing more than the will or interests of officials, definitely violates the rule of law. |
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Term
Nations can acquire the capital that is necessary for their economic growth by
A. persuading foreigners to invest in their country.
B. persuading their citizens to save significant portions of their income.
C. providing all their people with a solid education.
D. any of the above means. |
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Definition
| D. Foreign investment can make up for some of the inability or unwillingness of low-income people to reduce their consumption in order to accumulate savings and add to the nation's stock of capital. Education adds to the vitally important stock of “human capital.” |
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Term
Foreign aid that is offered by one government to another or by international agencies is often not the best way to increase the capital stock of poor nations, why? Because:
A. foreigners are usually don’t know the domestic situation.
B. no one gains from assistance that is given rather than earned.
C. the aid only benefits the donors and will therefore be given only with conditions attached.
D. the aid is frequently distributed by political rather than economic criteria. |
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Definition
| D. Foreigners who aren't well-informed either won't invest or will find someone within the country who can direct their investments. Few people are going to invest any considerable amount in projects without knowing something about their prospects. Governments and international agencies are more likely to invest without knowing what they are getting into, because the investors are not risking their own resources. The attachment of conditions may be a good thing for the poor country if it prevents government or private elites within the poor country from misallocating the capital in ways that benefit the elites without greatly promoting economic growth. The claim that people can gain only from what they earn but not from what they are given may provide a useful cautionary note but is certainly not true in all cases, but should be considered. |
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Term
Per capita gross domestic product in different countries provides some indication of average wealth levels in these countries but per capita GDP can be seriously misleading
A. by not taking account of production that does not pass through the market.
B. by taking inadequate account of the "bads" that almost inevitably increase along with the "goods" of gross domestic product.
C. by using for comparison purposes rates of exchange among foreign currencies that do not accurately represent the relative purchasing power of these countries.
D. for all the reasons listed above. |
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Definition
| D. Less production goes through the market in poor countries; the production of more GDP makes many people worse off as well as many better off; and exchange rates will often wildly misrepresent relative purchasing power. |
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Term
The key question, according to the textbook, for those who want to understand the vast differences in wealth among the nations of the world today is:
A. How can population growth be controlled?
B. How can rich countries be prevented from draining off the wealth of poor countries?
C. What has caused the rapid economic growth of the past two or three centuries in some countries and not others.
D. Why don’t they use an economist to guide their economic system? |
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Definition
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Term
Those who attribute the differences in wealth today between very rich and very poor nations
to “colonial exploitation” must explain why
A. some of the wealthiest countries never had colonies and some of the poorest were never colonized.
B. the colonizing powers usually governed in the interests of the colonized people.
C. the colonial powers were forced after World War II to return their stolen property.
D. the European powers gave up their colonizing ambitions prior to the era of economic growth |
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Definition
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Term
Your authors emphasize that economic growth numbers, in terms of gross domestic product (GDP) or other aggregate measures, could be somewhat misleading because:
A. The structural composition of two countries with similar GDP statistics could be significantly different.
B. Aggregate measures often do not account for non-market activity.
C. Aggregate measures don’t include black market production.
D. All of the above. |
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Definition
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Term
There is some truth in all the answers below. Pick the most fundamental one using the economic way of thinking: Sustained economic growth emerged in history when some nations of the world managed to create conditions where
A. individuals could seek their greatest desires.
B. monarchs were steadily displaced in favor of democratic governments.
C. natural resources could be effectively exploited.
D. people could specialize extensively and exchange relatively freely. |
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Definition
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Term
The essential precondition for economic growth, according to the textbook, is
A. an ambitious population.
B. political and economic equality.
C. the rule of law.
D. the so-called Protestant ethic. |
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Definition
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Term
Which of the following is not mentioned as a determinant of economic growth in the textbook?
A. People
B. Resources
C. Institutions
D. All of the above are mentioned as sources of economic growth! |
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Definition
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Term
The accumulation of capital has made important contributions to economic growth by
A. facilitating extensive specialization.
B. multiplying the power of labor.
C. spreading technical innovations embodied in capital goods.
D. accomplishing all of the above. |
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Definition
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Term
In discussing the role of foreign investment in poor countries, which of the following claims
does the textbook not make?
A. Foreign investors frequently obtain special privileges by sharing their profits with governing elites.
B. Foreign investment is less than it would be if foreign investors did not fear political instability.
C. The profits from foreign investment drain the wealth of poor countries to the advantage of investors in wealthy countries.
D. The rate of return on foreign investment in economically backward countries can be very high because of the potential for very rapid economic growth in these countries. |
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Definition
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Term
The text suggests that foreign aid in the form of government-to-government assistance tends to create
A. faster rates of economic growth in the recipient nations.
B. increasing inequality of incomes in the recipient nations.
C. interference by the donor governments in the political affairs of the recipient nations.
D. slower rates of economic growth in the recipient nations. |
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Definition
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Term
It is possible for gifts of capital actually to reduce the rate of economic growth in the countries that receive the gifts
A. if the donated capital draws domestic resources into unprofitable projects.
B. if the donated capital props up governments whose policies are retarding economic growth.
C. for both of the reasons listed above.
D. only if the donors insist on determining how the capital will be employed. |
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Definition
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Term
Private foreign investment will often promote economic growth in poor countries more effectively than aid from other governments or international agencies because
A. private investors are more frequently interested in the real welfare of the people in whose countries they invest.
B. private investors are not allowed to take large profits out of the countries in which they invest.
C. private investors are usually fairly diligent about seeing to it that the funds they supply are used in projects that actually increase economic growth.
D. of all the reasons listed above. |
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Definition
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Term
If the governments of poor countries genuinely want faster economic growth, they are making a serious mistake if they
A. don’t allow banks to be privately owned.
B. neglect the education of girls.
C. don’t disseminate birth control information.
D. put resources into the development of agriculture. |
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Definition
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Term
Economists who stress the development of “human capital” as the key to economic growth in poor countries tend to believe that
A. increasing the rate of personal saving is the most important factor.
B. it is ideas more than things that are scarce in poor countries.
C. population growth promotes rather than retards economic growth.
D. some cultures enjoy economic growth and others are not. |
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Definition
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Term
While correlation does not imply causation, the authors argue that the Economic Freedom Index
suggests that there are few examples of nations that
A. enjoy strong per capita incomes with low levels of economic and political freedom.
B. enjoy a great deal of economic and political freedom, but fail to enjoy high per capita income.
C. can restrict economic and political freedom, but still enjoy high levels of per capita income.
D. All of the above. |
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Definition
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Term
An economic system is
A. independent of the social system or political system of the society.
B. a social system that produces and distributes goods through exploitation.
C. a social system that produces and distributes only material goods.
D. a set of institutions - rules, practices, etc - within which people try to coordinate production and consumption plans. |
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Definition
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Term
The immense superiority of some economic systems over others depends exclusively upon
A. different endowments of natural resources.
B. ratios of population to available land.
C. the historical determination of rich nations to achieve self-sufficiency.
D. none of the above. |
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Definition
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Term
The evolution of commercial societies that enable them to function well
A. can only be created through some kind of private or government plan.
B. cannot evolve except in societies that first agree on long-term goals.
C. have generally been the unintended consequences of people following their own plans.
D. have usually though not always been created through careful regulations of industry. |
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Definition
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Term
"The rule of law," which the text says is a vital precondition for the successful evolution of a commercial society, exists when
A. judges have the last word on any dispute.
B. the rules of the game are clear and are impartially enforced.
C. there is a law to cover every conceivable situation.
D. there is no crime in the society. |
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Definition
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Term
The feature of the rule of law that the text emphasizes is
A. a constitution that assures democratic government.
B. majority rule.
C. progressive taxation.
D. reasonably secure property rights and substantial freedom to exchange those rights. |
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Definition
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Term
Fill in the blank: Rules that encourage ___________ tend to promote long term economic growth.
A. specialization and exchange
B. a judicious application of price controls
C. the political inclination to adopt policies that concentrate benefits and disperse costs
D. surplus outputs in most markets
E. all of the above |
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Definition
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Term
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Definition
| a generally accepted medium of exchange. |
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Term
| What is the primary goal of a commercial bank? |
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Definition
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Term
| Legal reserve requirements |
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Definition
| constrain the amount of reserves banks can lend to the public. |
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Term
| How might the Federal Reserve increase the nation’s money supply? |
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Definition
Reduce the discount rate of interest.
-Purchase government bonds from the public.
-Lower the required reserve ration. |
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Term
| Which organization is responsible for issuing and controlling the supply of money? |
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Definition
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Term
The earliest paper money was bank notes, which were pieces of paper issued by banks, ornately printed to frustrate counterfeiters, and
A. acceptable by government in the payment of taxes.
B. backed by government guarantees.
C. backed by gold.
D. widely used in international trade. |
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Definition
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Term
| notes function effectively as money in the United States today because |
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Definition
| practically everyone is willing to accept them in their market exchange activities. |
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Term
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Definition
It is something (typically pieces of paper today) that a government declares to be used as money.
There is no guarantee that people will actually trust, accept and use it as a general medium of exchange. |
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Term
| Which of the following is part of the M1 money supply? |
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Definition
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Term
| Which of the following is part of the M2 money supply? |
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Definition
| Savings account deposits. |
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Term
| A more common phrase for “demand deposit” is |
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Definition
| checking account deposit. |
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Term
| Suppose your local bank has $1 million in total deposits, and the required reserve ratio is 10% . Then |
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Definition
bank must hold $100,000 in its vault or on deposit at a regional Federal Reserve bank.
The bank can lend out $900,000 in search of profit opportunities. |
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Term
| A commercial bank, such as Wells Fargo, actually increases the nation’s money supply by |
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Definition
| making loans to the public. |
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Term
Anything that ___________ tends to increase the nation’s money supply.
A. decreases excess reserves
B. increases required reserves
C. increases excess reserves
D. decreases the volume of gold held in Fort Knox. |
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Definition
| increases excess reserves |
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Term
Anything that ___________ tends to decrease the nation’s money supply.
A. decreases excess reserves
B. decreases required reserves
C. increases excess reserves
D. decreases the volume of gold held in Fort Knox. |
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Definition
| decreases excess reserves |
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Term
12. The Fed can increase the excess reserves of commercial banks by
A. lowering legal reserve requirements.
B. lowering the discount rate.
C. purchasing government bonds.
D. any or all of the above means. |
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Definition
| D. any or all of the above means. |
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Term
Because of the money multiplier, a dollar of new excess reserves supplied to the banking system enables the system to create
A. chaos.
B. less than a dollar of new money.
C. exactly one dollar of new money.
D. more than a dollar of new money. |
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Definition
| D. more than a dollar of new money. |
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Term
The rate of interest that Federal Reserve charges member banks is called the
A. discount rate.
B. federal funds rate.
C. prime rate.
D. treasury rate. |
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Definition
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Term
The main technique used by the Fed to alter the excess reserves of commercial banks in order to manipulate the supply of money is
A. the use of threats and coercion.
B. changes in the discount rate.
C. changes in the legal reserve requirements.
D. purchases or sales of government bonds. |
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Definition
| B. changes in the discount rate. |
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Term
Suppose the Fed wants to increase the money supply. It should therefore
A. buy bonds.
B. raise the discount rate.
C. raise legal reserve requirements. |
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Definition
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Term
Fill in the blanks: When excess reserves increase, there is a strong tendency for the money supply to _______ and interest rates to _______.
A. fall; rise
B. rise; fall
C. fall; fall
D. rise; rise |
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Definition
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Term
Fill in the blanks: When excess reserves decrease, there is a strong tendency for the money supply to _______ and interest rates to _______.
A. fall; rise
B. rise; fall
C. fall; fall
D. rise; rise |
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Definition
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Term
The term applied to the Fed’s day-to-day technique for controlling the money supply is
A. liquidity operations.
B. open market operations.
C. discounting operations.
D. interest rate operations. |
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Definition
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Term
Some critics of the Fed call for a return to the gold standard. What’s their primary argument?
A. Money is worthless when not backed by gold.
B. A gold standard would constrain the government’s ability to manipulate and over-expand the money supply.
C. Gold is already used as the nation’s general medium of exchange, and it’s about time the government recognizes it as such.
D. The bible demands it. |
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Definition
| B. A gold standard would constrain the government’s ability to manipulate and over-expand the money supply. |
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Term
| Gross Domestic Product (GDP) |
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Definition
-Sum of the purchases in a year of new final goods by consumers, investors, government, and foreigners
-The income earned in the course of a year by all the producers of new goods
-The sum of the successive value added by producers in the course of contributing to the year’s output of new goods
-Ignores all nonmarket forms of production, illegal productions, and economic value added. |
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Term
| Consider the following simplified sequence of exchanges. A logger sells an oak tree to a sawmill owner for $60. The sawmill mills it, and sells the boards to a woodworker for $80. The woodworker makes an oak bookcase out of the boards, and sells it to a retailer for $300. The retailer then sells you the bookcase for $500. As a result, GDP increases by: |
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Definition
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Term
| Inflation could not exist if all exchanges occurred through: |
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Definition
|
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Term
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Definition
| -A fall in the purchasing power of money; things cost more. NOT COST OF LIVING! |
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Term
|
Definition
| -An economy without the institution of money |
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Term
| The costs that inflation imposes upon a society are almost entirely the result of: |
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Definition
| -The fact that no one can ultimately gain from higher prices because everyone is a consumer. |
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Term
| Economists use GDP to determine: |
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Definition
| -The economic performance of a country over time. |
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Term
| The gross domestic product of a nation is the sum of annual expenditures: |
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Definition
| -On final goods and services by consumers, investors, government. |
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Term
| The gross domestic product of a nation can also be correctly described as: |
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Definition
-The total value added by all the stages of production.
-the sum of the wages, profits, rent, and interest paid for the use of productive resources.
-the value of the national income |
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Term
| Which amount is not included in gross domestic product? |
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Definition
A. Payments to a physician for treatment of a respiratory condition caused by air pollution.
B. The purchase price of a used car bought from a friend.
C. Wages of government employees.
D. Wages of people who clean up toxic chemical spills.
E. Wages of people who sell used cars.
Answer: B |
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Term
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Definition
| -A gross domestic product figure that has not been adjusted for inflation. Actually measured, thus in current dollars. |
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Term
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Definition
| -The value of all final goods produced in a year stated in unchanging prices; Nominal GDP adjusted for inflation. |
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Term
| What explains any divergence between nominal and real GDP? |
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Definition
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Term
| The most troubling consequence of recessions is: |
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Definition
| -The increased levels of unemployment associated with them. |
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Term
| If you knew that nominal GDP increased 10 percent over a certain period while real GDP increased by 6 percent, you would know that: |
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Definition
| -Inflation had occurred during this period |
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Term
| Problems with inflation, deflation, and disinflation? |
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Definition
-Yes, because they create additional uncertainty and coordination difficulties.
-Makes money calculation more difficult. |
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Term
| Recessions in the U.S. economy show up in economic data as periods of: |
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Definition
| -Slower growth or decline in real GDP |
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Term
| GDP accounts systematically ignore: |
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Definition
-Non-market production.
-Illegal and underground production
-Barter trades |
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Term
| The official data on employment and unemployment in the U.S. economy are derived from: |
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Definition
| -A monthly survey of a carefully constructed sample of households. |
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Term
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Definition
| -Something that is purchased by an ultimate user, purchased without the goal of reselling it |
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Term
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Definition
| -Any good that is purchased to be resold. |
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Term
| Gross National Product (GNP) |
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Definition
-The market value of final goods and services produced by permanent citizens of a country in a particular period of time.
-The GNP of the US would measure the total economic performance of US citizens regardless of where they happen to be producing. |
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Term
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Definition
| -Nominal GDP divided by Real GDP x 100 |
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Term
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Definition
| -A rise in the value or purchasing power of money; things cost less. Still a problem. |
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Term
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Definition
| -The slowing down of inflation |
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Term
|
Definition
| -Recession combined with inflation; a stagnated economy with inflation. |
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