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3 economics questions

 Exam 2 – Potential Exam Questions  


Exam 2 will be based only on the questions listed below.


Institutions and Growth

  1. What are the most important functions of institutions? (Slide 44)
  • Those based on the rule of law
  • Decisions based on rule of law; no corruption or favoritism.
  • Contracts are enforced and legal systems help settle commercial disputes in predictable and rational manner.
  • Property rights are clearly defined and secure.
  • Favorable environment for private enterprise.
  • Regulations ensure well-functioning markets and avoid restraint of competition.
  • Those that manage conflict and change.
  • Those providing broad access to economic and political opportunities and provide political stability.


  1. What are two main types of systems of institutions? (Slide 28)
  • Extractive, Exploitive institutions: Plantation Mineral extraction
  • Inclusive, participatory institutions
  1. Why does one of the two lead to slow growth or stagnation? (Slide 32)

Vicious Cycle:

1     Extreme inequality of wealth

2      corrupt government institutions that

limit political and economic

participation to the elites

3 This worsens income distribution (then go back to 1)




  1. Study the figure at the end of this graph. What does it tell us?
  2. Study the figure at the end of this graph. What does it tell us?


Globalization and Living Standards

  1. List the definitions of globalization in the narrow economic sense used in this class.
  2. What is the ideal measure of globalization?
  • Flow or stock relative to a benchmark
  • Volume of imports, volume of exports
  • Capital inflows, capital outflows
  • Stock of foreign direct investment
  • Flow or stock relative to a benchmark
  • Imports/GDP
  • Exports/GDP
  • (Exports + Imports)/GDP
  • Stock of fdi/total stock of capital


  1. What are common, less ideal measures of globalization?
  • Prices and wages
  • Narrowing of price differences
  • Narrowing of interest rate or wage differences


  1. Explain why the application of tariffs to Chinese imports will not improve the U.S.’s trade deficit.

The application of tariffs to the Chinese imports will not improve the U.S’s trade deficit because in the short run, it is difficult for the domestic firms of the United States to match the low prices of Chinese imports. This will also increase domestic production to satisfy the domestic producers using Chinese imports as intermediate good and domestic consumers using Chines imports as final good. Thus, the application of tariffs will not reduce trade deficit, it might rather increase trade deficit of the United States because of increase in the prices of imports.

Climate Change

  1. Why are CO2 emissions more difficult to address than a classic externality?

1.CO2 emission have no short-term damaging effects at ground level.

Often not even restricted by local governments or nations.

2.The effects accumulate in the atmosphere and are born by nonparticipants elsewhere in the globe or in a different generation.

  1. Explain in detail why the discount rate plays an important role in shaping the optimal climate change policy?

Discount rates help in measuring the present value of something that may happen in future. In real life the carbon that is emitted in the present days will have it’s effect on the environment over the next 50 or 70 years but we cannot measure the future effect in the present days.

So this discount rate was developed to frame policies that will help us sacrifice something today to get the benefit over the next coming years. To measure the effects of climate change and how it can be avoided we need to bring in the discount rate to measure it’s effect today so that it can be effectively controlled by making such appropriate policies.

Economics questions
  1. Evaluate the following statement: climate change is harmful to U.S. agriculture.

            Changes in the climate or environment affects the US agriculture in numerous ways. Climate change results in rise or fall in temperature, light or heavy rainfall, Presence of more pests in the atmosphere and also leading to lessening the properties of soil etc. All this could lead to poor yields and thus it may eventually lead to food shortages.

Any crop requires a particular amount of water and temperature to grow but if due to climate change such factors are not present then the crop will not grow as it was supposed to grow. Thus, climate change does have a large impact on the agriculture of US. And it certain measures are not taken to control the climate change then it could lead to permanent damage of crops in that particular area as there would be no such environment present for the crops to grow.

Last Updated on February 11, 2019

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