Question 1

Which of the following best describes the difference between proximate and fundamental causes of prosperity?

Accepted Answer

Proximate causes explain why some countries have higher levels of physical capital, human capital, and technology, while fundamental causes explain the root reasons behind these differences.

Question 2

According to the geography hypothesis, what is the primary reason for differences in prosperity across countries?

Accepted Answer

Differences in geography, climate, and ecology are responsible for variations in prosperity.

Question 3

Which of the following is NOT considered a proximate cause of prosperity?

Accepted Answer

Institutions

Question 4

The 'reversal of fortune' observed in former colonies is best explained by which hypothesis?

Accepted Answer

Institutions hypothesis

Question 5

Suppose Country A and Country B have similar levels of physical and human capital, but Country A has inclusive economic institutions while Country B has extractive institutions. Which country is more likely to experience sustained economic growth, and why?

Accepted Answer

Country A, because inclusive institutions encourage investment and innovation.

Question 6

Which of the following is a feature of inclusive economic institutions?

Accepted Answer

They protect property rights and allow free entry into new lines of business.

Question 7

Consider the following scenario: In a country with extractive economic institutions, the return-to-entrepreneurship curve shifts to the left and the opportunity cost line shifts upward. What is the likely impact on the number of entrepreneurs?

Accepted Answer

The number of entrepreneurs will decrease.

Question 8

Which equation best represents GDP per capita as a function of proximate causes?

Accepted Answer

$$GDP\ per\ capita = f(Physical\ capital,\ Human\ capital,\ Technology)$$

Question 9

Why might foreign aid fail to alleviate poverty in countries with extractive institutions?

Accepted Answer

Because aid is often captured by corrupt officials and does not address the fundamental causes of poverty.

Question 10

Which of the following statements about the relationship between democratization and economic growth is supported by research?

Accepted Answer

Countries that democratize tend to grow faster and increase their GDP per capita by about 20% relative to those that do not democratize.

Question 11

If a country’s economic institutions do NOT protect property rights, do NOT enforce private contracts, and restrict entry into new businesses, what type of institutions does it have?

Accepted Answer

Extractive economic institutions

Question 12

Which of the following is a plausible reason why rulers might prefer extractive economic institutions despite their negative impact on economic growth?

Accepted Answer

Extractive institutions help rulers maintain political power by preventing creative destruction.

Question 13

Which hypothesis claims that differences in values, beliefs, and attitudes are responsible for differences in prosperity?

Accepted Answer

Culture hypothesis

Question 14

In the natural experiment comparing North and South Korea, which factor best explains the large difference in GDP per capita between the two countries?

Accepted Answer

Differences in economic institutions

Question 15

Suppose a country has high urbanization and population density rates in 1500 but low GDP per capita today. What does this suggest about the role of institutions in economic development?

Accepted Answer

Extractive institutions were likely adopted, leading to lower prosperity today.

Question 16

Which of the following is NOT a feature of attractive economic institutions?

Accepted Answer

They allow free entry into new lines of business and occupations.

Question 17

If the opportunity cost of entrepreneurship increases, what happens to the equilibrium number of entrepreneurs in the market?

Accepted Answer

It decreases.

Question 18

Which of the following best describes the concept of 'creative destruction' in economic growth?

Accepted Answer

Technological change disrupts existing regimes and reduces political power, fostering economic growth.

Question 19

Which of the following statements about foreign aid is supported by most economists?

Accepted Answer

Foreign aid has generally failed to alleviate poverty because it does not address fundamental causes.

Question 20

Which of the following is a fundamental cause of prosperity according to the study materials?

Accepted Answer

Institutions

Why Isn’t the Whole World Developed? — Proximate and Fundamental Causes of Prosperity

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