Question

Answer with True or False:

1. Classification criteria for economic system include decision-making systems, mechanisms for information and coordination, incentive structures, property rights, and mechanisms for public choices.

2. All economic systems can be classified as market capitalism or centrally planned socialism.

3. Generally speaking, transition economies emerging from the former Soviet Union have done least well with transition, while those of Central and Eastern Europe have done the best.

4. Capitalism relies primarily on material incentives, while planned socialism and market socialism rely on both material and moral incentives.

5. Capitalism relies on a democratic process for public choice, whereas planned socialism relies on a dictatorial process.

6. In additions to the economic system itself, environmental factors and polices also affect economic outcomes.

7. Performance criteria used to evaluate economic outcomes include economic growth, income distribution (equity), economic efficiency, economic stability, and viability.

8. Growth of per capital GDP is most often used as a measure of economic growth, and inflation and unemployment rates are most often used as measures of economic stability.

9. It is generally understood that capitalist economies are less efficient than are planned socialist economies.

10. Although future growth estimates for transition economies vary widely, they are all positive and of a reasonable magnitude.

11. There is no evidence that capitalist economies are more viable than are planned socialist economies.

12. During the twentieth century, there were examples of transition from capital-ism to planned socialism, from planned socialism to market socialism, and from planned socialism to capitalism.

13. Economic transition from planned socialism to market capitalism requires a change in legal institutions, as well as in financial and economic institutions.

14. Capitalism is based on the foundation of private property ownership, econom-ic freedom, and the primacy of markets as the mechanism of economic coor-dination.

15. In their writings, Marx, Engels, and Lenin dealt with the fundamental question of how scarce resources were to be allocated during the socialist phase.

16. The Austrian economists Mises and Hayek argued that rational economic decisions regarding resource allocation would be impossible because of the absence of market-determined prices.

17. The concept of material balances formulated by Soviet economists in the 1920s focused on the need to determine and balance aggregate demand and supplies of basic industrial commodities without the use of markets.

18. The theory of planning stresses the formulation of a plan, but incentives often prevent the implementation of the plan.

19. Theoretically, one would expect more rapid economic growth, greater stabil-ity, greater efficiency, and a more equal distribution of income in planned rel-ative to market capitalism.

20. Market socialism is a system that combines social ownership of capital with market allocation.

21. The most famous theoretical model of market socialism is the trial and error model proposed by Osker Lange.

22. Critics of the Lange model point out problems with managerial incentives and proposed behavior on the part of managers.

23. A labor-managed or participatory economy is based on the use of producer cooperatives.

24. In the 1994 book, The Road to Serfdom, F. A. Hayek argued that socialism (state ownership) and democracy were incompatible.

25. In comparison to the Anglo-Saxon model of capitalism, the European model calls for more state intervention in economic affairs.

26. The Asian model of capitalism concentrates on high rates of capital formation, often supported by the state.

27. Although the Four Tigers of Asia experienced more than three decades of very high economic growth, economists do not all agree that the “Asian Miracle” will continue.

28. Studies indicate that the share of the private sector in U.S. economic activity has fallen steadily since 1939.

29. Unlike the case in Europe, in the U.S. more investment is financed by the issue of stocks and bonds than through bank financing.

30. Studies indicate that the U.S. economy has becomes less competitive over time.

31. A larger percentage of U.S. than European workers belong to labor unions, and U.S unions have their own political party, in contrast to Europeanunions.

32. One of the major intellectual changes in the last decades of the … country is a rethinking of the role of the state in economic life.

33. In many ways, the European Union functions like the 50 states of the United State.

34. The U.S. labor market is much less regulated than are European labor mar-kets.

35. In Europe nationalization and privatization 10 to cycle with changes in gov-ernment.

36. French indicative planning cost businesses to follow the national plan in order to meet the objectives of the State.

37. Although the U.S. suffered increases in the unemployment and inflation rates between the 1960 - 1970 period, Germany and France lower the rate between the two periods.

38. The "Swedish model" of providing maximum income security was a major Factor in causing Sweden's GDP per capita to increase relative to that of other European countries and the U.S. after the 1960s and 1970s.

39. Although Japan, I won, and Hong Kong followed the Asian model, Singapore and South Korea did not.

40. After World War II, Japan's high rate of economic growth was largely the re-sult of high rates of investment financed by high rates of national Savings.

41. Like the economic growth of Japan earlier, the high growth rate of the four ti-gers will lead by high exports.

42. The World Bank classified Hong Kong, Singapore, and South Korea has the world's most outward-orientated economies over the 1963 to 1985 period.

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48. Today, the U.S., with 5 percent of world population, produces 22 percent of world GDP; while Eastern Europe and the former Soviet Union, with 7 percent of world population, produce 6 percent of world GDP.

49. The economic planning agency in the USSR was Gosbank.

50. In practice, the planning process in the Soviet Union was so effective that the optimal plan was always chosen from among the set of consistent plans.

51. In the Soviet model of centralized socialism, a principal-agent problem was created by the information asymmetry that existed between enterprise man-agers and their superiors.

52. In the USSR, prices were changed frequently to equate supply and demand.

53. Economist Steve Hancke has found that for every 10 percent increase in eco-nomic freedom, GDP per capita rises between 7 and 14 percent.

54. Whereas prices played little, if any role in the allocation of most inputs in the Soviet Union, wage differentials were the primary mechanism of allocating la-bor.

55. The two major institutions of Soviet agriculture after 1928 were the kolkhoz and the sovkhoz.

56. China is the world’s most populous country, with about 1.3 billion citizens.

57. Although the Chinese economy resembled the administrative-command economy of the USSR prior to 1970, it now resembles market socialism.

58. The Great Leap Forward and the Cultural Revolution both caused interruption of economic growth in China.

59. The contract responsibility system introduced in China in the late 1970s effec-tively brought collectivization to an end.

60. During the past twenty years, privatization has been extended to small and medium-scale industry in China, but large-scale enterprises remain under state ownership.

61. China was able to finance about 40% of its capital formation in the 1990s with foreign direct investment.

62. Since 1980, China’s rate of economic growth has been among the height in the world.

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65. Frederic Pryor found that economic fluctuations in planned socialist were sig-nificantly less pronounced than in capitalist economies.

66. Among the factors leading to the decline of the planned socialist economies are lack of technological progress, diminishing returns to capital, inefficiency, problems with incentives, and the complexity of planning.

67. Liberalization is the reduction of state controls and the introduction of mar-kets.

68. Privatization has received major emphasis both in Eastern transition econo-mies and in Western market economies.

69. The “J curve” has been the dominant pattern of economic performance in transition economies.

70. Economists believe that differences in initial conditions, policy measures, and environmental factors are important determinants of differences in economic performance among transition economies.

71. Other things being equal, transition economies with initial conditions more similar to market economies have had higher rates of economic growth dur-ing the transition.

72. Other things being equal, economic growth of transition economies is directly related to the degree of liberalization.

73. Poland used the “gradualist approach” to economic transition.

74. The Washington consensus was the basis for the big push approach to eco-nomic transition.

78. The role of government in the economy varied widely in capitalist coun-tries, but not in socialist countries.

79. Mass privatization began during the 1980s.

80. The first stage of privatization is to identify properties to privatize.

81. The last stage of privatization history structure Enterprises.

82. In practice, privatization has proven easier to achieve in small-scale list then in largest enterprises.

83. The two major approaches in privatization have been direct sales and the use of vouchers.

84. By 2000, Ukraine had a larger percentage of output produced in the pri-vate sector when did Hungary.

85. Restructuring means the changing of decision-making arrange in privat-ized Enterprises and organizations.

86. The absence of macroeconomic institutions and frameworks caused little, any, difficulty for the transition economies.

87. During the transition process, direct state control of the economy through and economic plan has to be replaced by a macroeconomic system of indirect influence.

88. The policy environment of transition economies is much more simple than that of established capitalist market economies

89. Poorly develop are poorly functioning banking and financial systems con-tributed to the collapse of investment in the early stages of economic transi-tion in Russia and Eastern Europe

90. Typically, savings increased sharply in the early stages of transition.

91. Macroeconomic balance requires that the sum of investment and private savings equals to the sum of the government balance and the foreign bal-ance.

92. In all of the transition economies, the government balance increased be-tween 1990 and 2002.

93. The typical pattern of inflation transition economy has been an increase in the early stages of transition, followed by a reduction in more recent years.

94. In nearly all transition economies, there have been large reductions in the Gini coefficient for income inequality.

95. Between 1991 and 1996, ten transition countries became candidate members of the European Union, and all ten became members of the WTO and GATT.

96. Well a convertible currency is the goal of all transition economies, it isn't necessary in order for a country to engage in free trade with the rest of the world.

97. Aid to transition economies from the IMF has been primarily for domestic stabilization, where has aid from the World Bank has been primarily for long-term economic.

98. As a group, transition economies have fared poorly in attracting foreign direct investment.

99. Although private sector employment as a percentage of total employment varies widely among transition economies in the early stages of transition, the stage there has been very little variation in the relative private sector employment.

100. In Russia, economic train station has been accompanied by falling death rates and rising birth rates.

Answer 1

4. Capitalism relies primarily on material incentives, while planned socialism and market socialism rely on both material and moral incentives. True. A capitalist economy is a free market economy which depends totally on market outcomes.

5. Capitalism relies on a democratic process for public choice, whereas planned socialism relies on a dictatorial process. False. Capitalism relies on dictatorial methods while socialism on a democratic process.

6. In additions to the economic system itself, environmental factors and policies also affect economic outcomes. True. Degradation of environmental resources leads to decrease in the supply of them and hence, cost of production is increasing leading to lesser production.

7. Performance criteria used to evaluate economic outcomes include economic growth, income distribution (equity), economic efficiency, economic stability, and viability. True

8. The growth of per capita GDP is most often used as a measure of economic growth, and inflation and unemployment rates are most often used as measures of economic stability. True.

9. It is generally understood that capitalist economies are less efficient than are planned socialist economies. False. Capitalist economies are most efficient both in production as well as allocation.