Chapter Twenty-one: Chapter Quiz -- Transition Economies

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  1. Which of the following statements is not true?
    • Socialist economies ration goods and services based on incomes and price controls.
      Capitalist economies leave production decisions up to individual firms.
      Capitalist economies primarily ration goods and services based on government decisions regarding transfer payments and taxes.
      Socialist governments decide what to produce by creating elaborate production plans.

  2. Inflation is generally high in the early years of transition because
    • money demand surges, increasing the velocity of money.
      export markets collapse, leading domestic citizens to purchase the export goods themselves.
      price liberalization removes price ceilings on many key goods and services.
      all of the above.

  3. The main reason that socialism collapsed is
    • a lack of extensive growth.
      the arms race during the Cold War.
      persistent droughts and famines, reducing agricultural production.
      the absence of intensive growth via the process of creative destruction.

  4. Pressure exists for transition governments to print money because
    • tax revenues decline rapidly.
      government expenditures fall slowly due to political and social forces that dictate that many SOEs remain in operation.
      a new tax system based on taxing income from individual workers takes time to create and enforce.
      all of the above.

  5. Transition economies often experience severe currency devaluation because
    • consumer demand for newly available imports increases the demand for foreign exchange.
      capital flight reduces the money supply and the supply of foreign exchange.
      a reduction in exports reduces the demand for foreign exchange.
      all of the above

  6. Which of these is not an advantage to a transition economy that adopts a fixed exchange rate system?
    • inflation expectations are reduced to lower levels than they would be under an alternative exchange rate system.
      the government can typically devalue the currency later on without serious consequences.
      foreign transactions are easier to conduct with a known exchange rate.
      inflation can be reduced more quickly relative to other systems as people begin to believe that the government can maintain the fixed exchange rate.

  7. Russia's transition has been less successful than Poland's because
    • Russia's market system has been infiltrated by crime and corruption.
      the Russian government has few revenue resources because most people do not pay taxes.
      Russian people have no history of operating a successful market economy.
      All of the above.

  8. Eastern European transition economies have generally done better than the Former Soviet Republics.
    • True

  9. Economic growth in socialist economies was dismal immediately following World War II.
    • True

  10. Transition economies must go through a short period of hyperinflation in order to ultimately stabilize prices.
    • True

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