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This test consists of 5 multiple choice questions, 5 short answer questions, and 10 short essay questions.

Multiple Choice Questions

1. Friedman's theory on government intervention is that government is needed to be what regarding disputes?
(a) Groundskeeper.
(b) Umpire.
(c) Fan.
(d) Announcer.

2. What term refers to the Federal Reserve's ability to produce more money than is deposited?
(a) Overdraft protection.
(b) Reserve ability production.
(c) Percent fulfillment banking.
(d) Fractional reserve banking.

3. A common misunderstanding of economic freedom, according to Friedman, is that it emphasizes ______.
(a) Wealth.
(b) Materialism.
(c) Prosperity.
(d) Socialism.

4. Instead of government spending, what does Friedman advocate the government use to stabilize the economy?
(a) Taxes.
(b) Health care.
(c) Unemployment.
(d) Welfare.

5. Friedman defines a country as a collection of ______.
(a) Leaders.
(b) Citizens.
(c) Individuals.
(d) Ideals.

Short Answer Questions

1. Friedman points out one idea that is often forgotten is that political and economic institutions have been ______.

2. Which of the following does Friedman dispute?

3. What does Friedman believe is an appropriate rate of increase for the Federal Reserve?

4. How are decisions, for Friedman, made where unanimity is a costly way of making decisions?

5. What does Friedman use as an example of a use of government where individuals cannot consume individual amounts?

Short Essay Questions

1. What is Friedman's recommendation to the Federal Reserve System?

2. What are Friedman's recommendations in order for stocks to become self-regulating?

3. What is meant when Friedman states "Government as rule-maker and umpire"?

4. Explain "floating exchange rates."

5. What is the relationship Friedman describes between economic freedom and political freedom?

6. Explain the paternalistic argument that Friedman describes for government involvement in education.

7. Explain how international currency rates have changed since 1900.

8. What examples does Friedman give of when the Federal Reserve System mismanaged the money supply?

9. Friedman explains that the economic activities of large numbers of individuals can be coordinated. In what two ways?

10. According to Friedman what is the role of government?

(see the answer keys)

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