Part II Review

Private ownership of property 

• a. provides owners with an incentive to maintain and conserve resources. 
• b. will cause owners to ignore the wishes of others. 
• c. leads to the overuse of resources. 
• d. permits owners to do anything they want with their property. 

Legal entitlement to scientific discoveries, inventions, innovations and intellectual property 

• a. encourages technological advancements. 
• b. reduces the incentive to invest in research and development. 
• c. protects production on the basis of tradition, social customs and habits. 
• d. results in an equal distribution of income and profits. 

Competition is present when 

• a. subsidies assure that inefficient firms remain active in the market. 
• b. freedom of entry and rival firms are present in a market. 
• c. the market is characterized by rising prices and declining product quality. 
• d. there is little incentive to introduce new products and discover better ways of doing things. 

Government-owned housing, as opposed to privately-owned housing, is generally 

• a. better maintained and more attractive. 
• b. run down and poorly maintained. 
• c. easier to purchase or rent. 
• d. more durable and constructed to last longer. 

Doomsday forecasts projecting that a consumable resource will soon be depleted, fail to account for

• a. Government regulation of the resource.
• b. Public pressure to conserve usage of the resource.
• c. The role of prices in conservation; as the supply of the resource decreases, the price increases and people will turn to alternative resources.
• d. Supply and demand; as supply of a resource decreases, the demand will also decrease. 

The policies of Fannie Mae and Freddie Mac during 1995-2008 encouraged mortgage originators to 

• a. extend only 30-year, fixed-rate mortgages. 
• b. require higher down payments on home mortgages they extended. 
• c. loosen lending standards and extend more loans to low income and sub-prime borrowers. 
• d. scrutinize carefully the credit-worthiness of borrowers. 

Money is valuable because it 

• a. is backed by gold and silver. 
• b. is backed by U.S. Treasury bonds. 
• c. is issued by credit card companies such as American Express, MasterCard, and Visa. 
• d. reduces transactions costs

Which of the following will discourage investment? 

• a. well-defined property rights 
• b. high and variable rates of inflation 
• c. a low and steady rate of inflation 
• d. low tax rates 

The experience of the 1930s indicates that substantial tax increases during a severe recession will result in 

•  a. an increase in the incentive to earn. 
• b. an increase in tax revenues that will lead to a balanced budget. 
• c. smaller budget deficits, which will speed an economic recovery. 
• d. a reduction in output and employment. 

How do high tariffs and other restraints on international trade affect a nation's prosperity? 

• a. They increase employment and thereby promote the growth of real GDP. 
• b. They prevent the nation from fully realizing the potential gains from specialization, exchange, and competition. 
• c. They protect domestic producers and thereby promote economic growth. 
• d. Both a and c are correct.