答案和详解如下：

LOS a: Discuss the preconditions for economic growth

1.Which of the following most completely identifies the institutions in an economy that are necessary for markets to be effective?

A)   Property rights and monetary exchange.

B)   Property rights and a supporting legal system.

C)   Monetary exchange and a central banking system.

D)   A legal system and a central banking system.

The correct answer was A)

For markets to be effective, property rights and monetary exchange are required. If property rights are properly established and enforced, people will be assured that government will not confiscate their savings and investments. Monetary exchange provides for the efficient exchange of goods and services.

2.Which of the following is least likely to be considered as one of the three social institutions that are critical to the development of an incentive system?

A)   Markets.

B)   Property rights.

C)   Monetary exchange.

D)   A specific form of political organization.

The correct answer was D)

The three social institutions that are critical to the development of incentives are markets, property rights, and monetary exchange. Collectively, these three social institutions create incentives for people to specialize and trade, save and invest, and discover new technologies. A specific form of political organization is not necessary for economic growth as communist and authoritarian countries have experienced economic growth.

3.Which of the following is the most basic precondition to economic growth?

A)   Markets.

B)   An incentive system.

C)   Property rights.

D)   Monetary exchange.

The correct answer was B)

A suitable incentive system is the most basic precondition that must exist in order for a society to realize economic growth. The three social institutions that are critical to the development of incentives are markets, property rights, and monetary exchange. Collectively, these three social institutions create incentives for people to specialize and trade, save and invest, and discover new technologies.

4.Brent Bates, CFA, is a portfolio manager for a large money management firm located in New York. Analysts at the firm, led by Bates, have been following the development of the economic situation in Mexico after the signing of NAFTA in 1994, which lifted certain restrictions on investment in Mexico commerce by foreign firms. After a period of adjustment, the firm believed the Mexican market presented opportunity for attractive investment returns. The firm has recently purchased a controlling interest in a commercial bank based in Mexico City. One of the first measures to be taken by the firm is to diversify the bank’s portfolio through investments in Central and South America. The firm believes that Bates’ expertise in the analysis of the Mexican economy will be beneficial is pursuing other Latin American investment opportunities.

Bates has identified two potential investments, both of which he believes will be in alignment with his firm’s investment criteria, and is ready to present his recommendations to the firm’s managing directors. One of Bates’ recommended investment opportunities is a company located in Country A, the largest country in South America, while the other is headquartered in Country B, a smaller Central American nation. Knowing that the firm’s partners have limited knowledge of the nuances of the Latin American economies, Bates decides to take a “macro” approach to his presentation by providing broad economic information about the current situations in the two countries.

Bates begins with the company located in Country A, which is one of the largest manufacturers of women’s shoes in South America. The country’s economy has battled extremely high rates of inflation in the past. Over the past decade, tough policies enacted by its government appear to have controlled inflation while at the same time allowed measurable growth in real GDP. In the past ten years, Country A’s real GDP per labor hour has increased from $8.00 per labor hour to $8.64 in this time period. Over the same time period, investment in new capital increased from $18.00 per labor hour to $18.90 per labor hour.

The company located in Country B has been operating in a much different economic climate than the first company. After a history of low productivity and a predominantly rural-based economy, the government of Country B has attempted to stimulate national productivity through a series of policies designed to promote more industrial commerce. Country B has established a multi-part system of incentives to encourage economic growth. Formerly state-run enterprises are increasingly being transferred into private ownership. The government of Country B has encouraged more foreign investment through less restrictive investment regulations. Also, interest rates are being carefully managed through accommodating fiscal and monetary policies to encourage growth.

According to the classical growth theory, Country A’s recent growth in real GDP:

A)   is directly attributable to a decreased opportunity cost for women to enter the workplace.

B)   can be explained by technological advances which are driven by increased competition from imports from the Asian region.

C)   is a result of the recent decrease in interest rates, which intensified incentives to discover new production methods that increase profitability.

D)   will lead to an explosion in population growth that will eventually erase any gains in GDP per labor hour.

The correct answer was D)

A key component of the classical growth theory is that growth in GDP is always temporary. When real GDP per capita rises above a subsistence level, the population will grow, driving GDP per capita back down to its original level.

5.In general, which of the following factors is credited with being the largest contributor to a country’s sustained economic growth?

A)   Discovery of new technologies.

B)   Investment in human capital.

C)   Increased domestic rate of saving.

D)   Investment in new capital.

The correct answer was A)

The discovery of new technologies has contributed more to sustained economic growth than either saving and investment in new capital or increased investment in human capital.