Question

1.Which of the following policies would be associated with an extractive institution?

A.flat 5% tax rate applies to all income of all individuals.
B.Laws allow all adult citizens to vote.
C.The fees for obtaining a business license to start a new business are reduced.
D.Strict limits are imposed on the importing of automobiles.

2.Why is a “real” measure used as the basis for a nation's economic growth rate?

Adjusting for the size of the population allows a focus on the average person's situation.
“Real” measures focus on capital, which is the most important factor in growth.
“Real” adjustments give insights into the gap between the most and least prosperous people in a country.
This is an adjustment for the cost of living, so the measure captures growth of output rather than price.

3.Laws that make it easier for citizens to start new business would help to create:

physical capital.
inclusive institutions.
exclusive institutions.
human capital.

Answer 1

1. Ans:.Strict limits are imposed on the importing of automobiles.

The above move will impede citizens from making financial and ownership decisions of their own choice and hence would would be associated with an extractive institution.

2. Ans: This is an adjustment for the cost of living, so the measure captures growth of output rather than price

Real GDP Growth rate helps us filter out the effects of inflation/ cost of living from GDP calculation and hence helps us arrive at the real growth in output rather than merely accounting for price rise (which is what happens when we use nominal figures)

3. Laws that make it easier for citizens to start new business would help to create inclusive institutions because this will enable citizens to make work and business decisions of their own and implement them without much interference from the government.