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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. What does Friedman use as an example of a use of government where individuals cannot consume individual amounts?
(a) Postal service.
(b) National defense.
(c) Healthcare.
(d) Education.

2. What does Friedman believe is an appropriate rate of increase for the Federal Reserve?
(a) 1%-3%.
(b) None. That is not a goal of the Federal Reserve.
(c) 3%-5%.
(d) 5%-7%.

3. For Friedman, where is the best place for power to be held?
(a) In the economic system.
(b) At the federal level.
(c) In the local community.
(d) In the states.

4. Friedman believes that all of the following are appropriate for fiscal policy except ______.
(a) Fluctuating in spending based on the political climate.
(b) Avoiding erratic changes in spending.
(c) Spending based on community priorities.
(d) Planning for stable tax rates.

5. According to Friedman, what is lost when foreign exchange is controlled by the government?
(a) Educational freedom.
(b) Political freedom.
(c) Economic freedom.
(d) Religious freedom.

Short Answer Questions

1. Which of the following, for Friedman, is the most important factor for the Federal Reserve?

2. What term refers to the circumstance under which the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them?

3. A major point for Friedman is that politics and economics are not ______.

4. One role of government argued by the New Deal was to ______.

5. In Friedman's opinion, what should individuals be allowed to do?

Short Essay Questions

1. What is the multiplier effect?

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

3. According to Friedman, what is the difference between schooling and education? What does the government do?

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

5. Explain Friedman's voucher proposal.

6. Explain "floating exchange rates."

7. What does Friedman think of the remark, "Ask not what your country can do for you, ask what you can do for your country"?

8. Explain the price system as described by Friedman.

9. What was the definition of liberalism prior to 1900?

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

(see the answer keys)

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