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Sample Test Questions for Development Economics

Economic And Applied Entomology (Assiut University)

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Sample Test Questions for Development Economics

Below are a set of sample test questions taken from previous exams in Development
Economics. The answers are indicated by the *. Please note that it is possible that
questions may have the * in the wrong place. You should think through all of these.

Also, these are only sample questions. They are put here because students often think
it is helpful to see past exams. The fact that these are here does not represent a
commitment that questions on your exam will be like these or on the same subject
matter. This is especially so because the subject matter and organization of the course
has recently been adjusted. In addition, as the material covered between exams
changes semester to semester, the questions here are not broken into specific exams.

1. A supply side vicious circle of poverty suggests that poor nations remain poor
because
a. saving remains low b. investment remains low c. there is a lack of effective
government d. all of the above e.* a and b above

2. The International Comparisons Project, which used purchasing power parity rates
rather than market exchange rates, has found that the real standard of living in many
less developed countries (LDCs) is even lower than indicated by their dollar per-
capita income.
a. true b.* false

3. As incomes rise there tends to be a shift of labor from the services sector to the
industrial sector.
a. true b.* false

4. Which of the following is not typically an element in the structural change that
accompanies development?
a.* increase in the share of agriculture in GDP (gross domestic product) b. increase in
manufacturing as a share of GDP c. increase in urbanization d. All of the above
changes accompany development

5. The essence of Engel's law is that as family incomes rise

a. the savings rate increases b.* the proportion of income spent on food declines c.
expenditure on food declines d. proportion of income spent on luxuries declines

6. Economic growth measures the

a. growth of productivity b. increase in nominal income c.* increase in output d. none
of the above

7. Non-traded goods do not enter measured GDP because

a. they are intermediate goods b.* they are not traded in the market c. there is no
value-added in the production of such goods d. their value is not captured by the
exchange rate method of conversion to a common unit

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8. The concept of opportunity cost is based upon the principle of

a. need b. consumption c.* scarcity d. profit

9. Which of the following is an INCORRECT statement about a budget constraint

a. Points on a budget constraint represent combinations of the goods that exactly use
up income b. Points within the budget constraint represent combinations of the goods
that do not use up all the income. c.* If points A and B lie on the budget constraint, we
can deduce that people will be indifferent between the two d. If the price of one good
decreases, all else the same, the budget constraint will swivel or rotate outward

10. When the manufacturer of power looms expands, there are forward linkage effects
due to
a. lost employment in the hand-loom sector b. increased incomes of workers that
manufacture looms c.* increased output of woven cloth made by the power looms d.
increased demand for electric motors

11. Economic growth is necessary and sufficient to eradicate most of absolute poverty.

a. true b.* false

12. Income level or GDP is criticized as an indicator of development mainly because

it takes no account of the distribution of income.
a.* true b. false

13. A certain amount of goods and services is necessary for a minimum standard of
living. This is called
a.* basic needs b. absolute poverty c. an international standard of living d. the concept
of development

14. With perfect income equality the Gini coefficient in a country would be
a. infinity b. 1 c. .5 d.* 0

15. Rawls argued that the income distribution should be determined

a. by a free vote of all groups on a society b. by whatever the poor decide is an
acceptable minimum level c.* by what all society agrees to behind a `veil of
ignorance' d. as entirely equal income shares for all groups

16. All but one of the following are methods to represent overall income inequality:
a. variance b. Gini coefficient c. ratio of the top income decile to the lowest income
decile d. Lorenz curve e.* GDP per capita

17. The concept of choice would become irrelevant if

a. we were dealing with a very simple, one-person economy b. poverty were
eliminated c.* scarcity was eliminated d. capital was eliminated

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18. Examine the following diagram:

The Gini coefficient is

a.* A/(A+B) b. B/(B+A) c. A/B d. (A+B)/A

19. According to Simon Kuznets, the relationship between GNP per capita and
inequality in the distribution of income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no
relationship d.* first increasing and then decreasing

20. The physical quality of life index (PQLI) is an aggregation of widely available
indicators of basic human needs. Which of the following is not a component of the
PQLI:
a. life expectancy b.* per capita income c. infant mortality d. literacy

21. If Lorenz curves cross, we say there is less inequality in the case where
a. the poorer get a larger percentage of income b. the poorer get a smaller percentage
of income c. the richer are less rich d.* we cannot say

22. If the development process is characterized by what we have called "modern

sector enlargement", the relationship between GNP per capita and inequality in the
distribution of income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no
relationship d.* first increasing and then decreasing

23. If the development process is characterized by what we have called "modern

sector enlargement", the relationship between GNP per capita and poverty in the
distribution of income can be expressed as
a.* a strictly decreasing relationship b. a strictly increasing relationship c. no
relationship d. first increasing and then decreasing

24. Whereas the headcount measure tells us the number of poor and the poverty gap
measure tells us about the average depth of poverty among the poor, the Foster-Greer-
Thorbecke measure (also called P-alpha) tells us about the number, the average depth
of poverty and
a. average income b. inequality in the population c.* inequality among the poor d.
variance of average income

25. The concept of Purchasing Power Parity

a. is based upon the cost of hamburgers around the world b.* is based upon the cost of

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the same market basket of goods in different countries c. is based upon the market
exchange rate d. is based upon the nominal exchange rate

26. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is
2.5, the headcount measure tells us what percentage of the population is in poverty
a. 40 b. 3 c. 2 d.* 60

27. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is
2.5, the average income shortfall measure tells us the average depth of poverty among
the poor is
a.* 5/6 b. 5/2 c. 2 d. 0

28. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is

(1, 1, 2, 3, 5), and the poverty line in both countries is 2.5, by the headcount measure
which country has more poverty?
a. C b. D c.* poverty is the same in C and D d. we cannot tell from the information
given

29. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is

(1, 1, 2, 3, 5), and the poverty line in both countries is 2.5, by the average income
shortfall measure which country has more poverty?
a. C b.* D c. poverty is the same in C and D d. we cannot tell from the information
given

30. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is

(1, 1, 2, 3, 5), and the poverty line in both countries is 2.5, by the Lorenz curve which
country has more inequlity?
a. C b. D c. inequality is the same in C and D d.* we cannot tell from the information
given.

31. The empirical evidence indicates that today's developing countries are undergoing
a demographic transition very similar to what the developed countries experienced in
the past.
a. true b.* false

32. The dependency ratio is the ratio of

a. children to adults in the population b. unemployed to employed workers in the labor
force c. foreign aid to total GNP d.* non-working age group population to working
age population

33. Malthus argued that the poor would always remain poor because
a.* population growth tends to outrun growth of food production b. they do not save
enough c. there are not enough resources to educate them d. all of the above

34. Compared to the developed countries, the LDCs have

a. higher birth rates and lower death rates b.* higher birth rates and higher death rates
c. lower birth rates and lower death rates d. lower birth rates and higher death rates

35. Children have costs and benefits to parents, and

a. fathers and mothers share these equally b. the impact on family income is always

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negative, so children can be viewed as consumer durables c.* there is a trade off to
parents between quantity and quality of children d. the income elasticity of demand
for children is strongly negative e. none of the above

36. Both the Ricardian growth model and the Lewis model share the assumption that
population growth will outpace food production in the long run.
a. true b.* false

37. The Lewis model of the dual economy makes the following assumption(s)
a. The rural wage initially remains constant b. Industry makes a profit by employing
cheap labor c. Rural wage will rise when industry expands sufficiently d.* all of the
above e. none of the above

38. Industry faces an elastic supply curve of labor because the marginal product of
labor in agriculture is
a. lower than its marginal product in industry b. less than the average product in
agriculture c.* very low or zero d. constant at all levels of agricultural output

39. Underemployment is a situation where

a. people who are willing to work are unable to find jobs b. many people in the labor
force hold two or more jobs c.* people are working full-time and hard, yet have a low
marginal product d. people work in a free labor market with a very low wage

40. The Malthusian theory of population growth, as formulated by Malthus, proved

a. entirely correct for human behavior b.* overly pessimistic about future productivity
increases c. that food output will decline with population growth d. none of the above

41. The endogenous growth model confirms the neoclassical model's implications
about convergence.
a. true b.* false

42. An LDC has an ICOR of 5 and a savings rate s =

15%. If current GDP is $1000, what will be GDP next
year?
a. $1150 b. $850 c. $1200 d.* $1030
43. The hypothesis of the 'advantage of backwardness'
a. explains how LDCs may catch-up in productivity b. implies that already known
technology can be transferred relatively cheaply from the advanced countries to the
LDCs c. is incorrect; there are no advantages to backwardness d.* a and b above

44. 'L' shaped isoquants do not imply

a. that inputs are used in fixed proportions b. incremental capital-output ratio is
constant c.* increasing returns to scale d. no substitution between inputs

45. Which is a measure of absolute poverty?

a. Headcount. b. average income shortfall. c. Sen index. d.* all of the above.

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46. The Lorenz criterion

a. allows us to rank all countries by the degree of inequality. b. allows us to rank all
countries by the degree of poverty. c. is a measure of the wealth of a country. d.* is an
incomplete measure of inequality.

47. Consider the following distribution of incomes in country x and country y:

country x (2, 3, 4) country y (6, 9, 12)
a. inequality is higher in x than in y. b. inequality is higher in y than in x. c.*
inequality is the same in x and y. d. the information given is not sufficient to compare
inequality in x and y.

48. Consider the following distribution of incomes in country x and country y:

country x (2, 3, 4) country y (6, 9, 12)
a. absolute poverty is higher in x than in y. b. absolute poverty is higher in y than in x.
c. absolute poverty is the same in x and y. d.* the information given is not sufficient to
compare absolute poverty in x and y.

49. Consider an economy with low per capita income. Assume i) whenever per capita
income rises above subsistence level, population grows and ii) whenever it falls below
subsistence level, population shrinks. Given, i) and ii),
a.* a poverty trap exists. b. a critical minimum effort increasing per capita income by
1.5% per annum is necessary for development to take place. c. the economy is ready
for Rostow's take-off stage. d. none of the above.

50. Which of the following would not be considered as an example of

industrialization
a.* Increase in literacy b. Replacement of human with mechanical skills c. Improved
economic organization d. Improved extraction and working of raw materials

51. The production possibility frontier can be considered a measure of

a. Real G.N.P. b. Nominal G.N.P. c.* Potential G.N.P. d. None of the above

52. Most lists of basic human needs include all the following items except
a.* basic transportation, such as bicycles. b. minimal levels of nutrition c. minimal
provision of shelter d. provision of basic health care

53. Rising per-capita GNP may fail to increase incomes for most citizens because:
a. Gains from growth may be used for expensive glory projects that provide few
concrete benefits to the people. b. gains from growth may be heavily reinvested, so
consumption gains are postponed c. Those who are already relatively well-off may get
all or most of the benefits d.* all of the above

54. The idea which suggests that poverty is self-perpetuating because poor nations are
unable to save and invest enough to accumulate the capital stock that would help them
grow is
a. the dependency theory. b.* the vicious-circle-of-poverty hypothesis. c. neo-
colonialism. d. the under-consumptionist hypothesis.

55. If the vicious-cycle-of-poverty hypothesis were true at all levels of per capita
income, then

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a. all economies would develop at the same rate. b.* no nation could ever achieve
economic development. c. no nation would ever fail to reach the highest level of
economic development. d. poverty would not be self-perpetuating.

56. The absolute poverty line:

a. should be adjusted from time to time as real income grows b. shows the average
income of the lowest 10 percent of the population c. varies with the Gini coefficient
d.* none of the above.

57. The Gini coefficient provides a measure of:

a. the level of poverty b.* the level of relative inequality c. disguised unemployment
d. the rate of growth

58. To draw a Lorenz curve showing the distribution of income by household, one
should first rank all households according to
a. household size. b. age of head of household. c. wage level. d.* income per capita.

59. One study found that the Gini coefficient for Egypt .403 . was virtually the same
as that for Australia .404. From this information one can conclude that Egypt and
Australia
a. had virtually the same number of households in absolute poverty. b. had virtually
the same percentage of households in absolute poverty. c. had virtually the same
Human Development Index level. d.* none of the above.

60. According to the inverted U hypothesis of Kuznets, as economies develop

a. average household incomes first fall and later rise. b. industry's share of GNP first
rises and later falls. c.* income inequality first rises and later falls. d. the population
growth rate first rises and later falls.

61. If 's' is the savings rate and 'v' the capital-output ratio, then 'g' the rate of growth in
the Harrod Domar model is represented by
a. v/s. b. sv. c. sv. d.* s/v.

62. Balanced growth theories of Ragnar Nurkse advocate

a. a steady rate of growth of GNP b. parity between capital stock and labor c.*
simultaneous development of all sectors of the economy d. all of the above.

63. Critical minimum effort refers to

a. the minimum labor input required to raise the MPl b. the ideal ratio in which to
combine labor with capital c.* the big push advocated to raise an economy from
continued stagnation d. none of the above.

67. In constant 1968 lira, real GNP in Turkey increased from L206.1 billion in 1980 to
L214.7 billion in 1981. Investment in 1980 totaled L43 billion. What was the value of
the ICOR?
a.* 5. b. 0.176. c. L8.6 billion. d. It cannot be determined from these data.

68. All but one of the following elements is a characteristic of the demographic
transition. Which one is the exception?
a. Initially high birth rate and death rate. b. Initially low rate of natural increase. c.*

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Rapid increase in the birth rate during the early stages of development. d. A sharp fall
in the death rate followed with a lag by a decline in the birth rate.

69. The supply curve of labor to industry is horizontal if there is surplus labor in
agriculture. The condition occurs as long as:
a. the marginal product of labor in agriculture is less than the average product of labor.
b. the marginal product of labor in agriculture is less than the marginal product of
labor in industry. c. there are diminishing returns to labor in agriculture. d.* the
marginal product of labor in agriculture is zero.

70. Which of the following statements is consistent with Hirschman'ss theory of

unbalanced growth?
a. A country should focus on industry, because agriculture is not a dynamic sector. b.
To initiate the industrialization process a country requires a "big push." c. When
certain industries are developed first, linkage effects will induce the development of
new industries. d.* All of the above.

71. Which of the following is a direct implication of the view that childbearing is an
economic decision?
a. People will not have additional children unless they can earn a profit from doing so.
b. Social factors have no effect on childbearing decisions. c. Compulsory education
will increase fertility by raising each child's prospective earnings. d.* Fertility should
fall with improved opportunities for women to work in jobs outside the home.

72. The primary focus of development strategy during the 1950's was on
a. Reduction in unemployment, b.* Increase in G.N.P., c. Increase in foreign trade, d.
Increase in literacy

73. The extraction of iron ore has increased on account of increased demand for steel.
The above is an example of
a. Forward linkages, b.* Backward linkages, c. Backward and forward linkages, d.
None of the above

74. According to W.W.Rostow, which of the following does not belong to the
"precondition for take off":
a. Increased agricultural productivity, b. Political stability, c. Development of social
overhead capital, d.* Growth of the durable consumer goods industry

75. If a situation exists where it is not profitable for any single producer to expand
production because of market limitation, then the best strategy for the country to
adopt would be
a.* Balanced growth strategy, b. Unbalanced growth strategy, c. Employment growth
strategy, d. None of the above

76. An unbalanced growth strategy may be desirable if

a. Indivisibilities are important, b. Expansion costs are important, c.* Both of the
above, d. None of the above

77. Which of the following is not true about agriculture's role in economic
development

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a. Provides labor for non-agricultural sector, b. Provides a market for non-agricultural

commodities, c. Source of industrial raw materials, d.* None of the above

78. Which of the following is not a weakness of the import substitution strategy of
growth
a.* Reduces production of modern sector, b. Leads to an inappropriate domestic K/L
ratio, c. Leads to a balance of payments problem, d. Reduces exports of agricultural
goods

79. According to the Harrod-Domar model, an increase in growth rates depends on

a. Increase in capital-output ratio b.* Decrease in capital-output ratio, c. Increase in
marginal propensity to consume, d. None of the above

80.In the Harrod-Domar model, it is assumed that the elasticity of substitution

between capital and labor is
a. Infinite, b. One, c. Between zero and one, d.* Zero

81. In the theory of demographic transition, the rate of growth of population is likely
to increase in
a. Period I, b.* Period II (c) Period III (d) Period I & II

82. According to Malthus, the fixed factor of production is

a. Labor, b. Capital, c.* Land, d. Entrepreneurship

83. According to Malthus, examples of preventive checks are

a. Abortion, b.* Deferred marriage, c. Famine, d. Both a and b

84. In a perfectly competitive economy, if the demand curve for labor is infinitely
elastic then all of the national income will accrue to
a.* Workers, b. Capitalists, c. Landlords, d. None of the above

85. According to A. Sen, famines are most likely to occur on account of

a. Fall in production of agricultural goods, b.* Breakdown in distribution of
agricultural goods, c. Adverse weather conditions, d. Fall in money supply

86-90. Suppose there are 5 workers in an economy and initially all the workers work
in the traditional sector at a wage equal to 1 (call this initial period, period 0). In each
subsequent period, one worker migrates from the traditional sector to the modern
sector where wages are equal to 4. Assuming that the number of workers remains
constant, then period 5 all the workers are in the modern sector.

86. In period 5 the gini coefficient of inequality is

a. 1, b. 0.5, c.* 0, d. None of the above

87. As migration takes place the gini coefficient of inequality

a.* At first rises,then falls, b. At first falls,then rises, c. Falls continuously, d. Rises
continuously

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88. As migration takes place the income share of the poorest 50%
a. At first rises,then falls, b.* At first falls,then rises, c. Falls continuously, d. Rises
continuously

89. As migration takes place the per capita income of the workers
a. At first rises,then falls, b. At first falls,then rises, c. Falls continuously, d.* Rises
continuously

90. The income share of the poorest 20% is likely to be at a minimum in which period

a. Period 2, b. Period 3, c.* Period 4, d. Period 5

91. Suppose we hypothesize that wages are set at a subsistence level. Then what
observation will strengthen our hypothesis
a. There is no involuntary unemployment, b.* Wages do not fall as labor productivity
changes, c. Wages fall in the slack agricultural seasons, d. None of the above

92. In a fixed rent tenancy, risk is

a.* Borne by the tenant, b. Borne by the landlord, c. Shared between landlord and
tenant, d. None of the above

93. Which of the following is not a justification for sharecropping

a. It acts as a screening device, b. It shares risks between landlord and tenant, c. It
reduces cost of supervision for the landlord, d. None of the above

94. Rural interest rates are likely to be

a.* Higher than in the organized credit market, b. Same as in the organized credit
market, c. Lower than in the organized credit market, d. None of the above

95. In the Harris-Todaro model, in equilibrium, the expected urban wage rate will be
_________ the rural wage rate
a. Greater than, b.* Equal to, c. Less than, d. None of the above

96. Suppose migrants are risks averse, then in the Harris-Todaro model, in
equilibrium, the expected urban wages will be _________ the rural wage rate
a.* Greater than, b. Equal to, c. Less than, d. None of the above

97. Which of the following is not an example of financial repression

a. Forced sales of government debt to the banking system, b. Interest rate controls on
loan and deposit rates, c. Very high rates of monetary growth, d.* Creation of a large
public sector

98. According to the Ricardian model, the reason for lower priced services in the
LDC's is
a. Labor -productivity in commodities is the same in rich and poor countries, b.*
Labor-productivity in commodities is lower in poor countries, c. Labor-productivity in
services is lower in poor countries, d. None of the above

99. Which of the following statements is not true about import restriction
a. Import restrictions attract resources to protected industry, b. Import restrictions

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involve a deadweight loss, c. Import restrictions raise prices for buyers to a product,
d.* Import restriction shift welfare from producers to consumers

100. In a non-Harris-Todaro world, if it is observed that poverty is highly correlated

with unemployment then which choice of techniques is likely to reduce poverty
a.* Labor intensive techniques, b. Capital intensive techniques, c. Profit maximizing
techniques, d. None of the above

101. If the birth rate is 6% and the death rate is 2%, the natural rate of population
increase is
a. 0 .3% b. 3.0% c.* 4.0% d. 8.0%

102. Historically, low rate of population growth were maintained because of

a. low fertility rates. b.* high mortality rates. c. migration out of developing countries.
d. government restrictions on the number of children families can have.

103. The main domestic source of savings in LDCs is

a. government savings through budget surplus b. corporate retained earnings c.*
savings by households d. savings by public sector enterprises

104. During years of financial repression in LDCs, the real interest rate was often
negative due to:
a. explicit policy by the government b. low interest rates instituted by government to
encourage capital investment c. government policy to combat inflation d.* an
inadvertent result of inflation occurring after nominal interest rates had been fixed.

105. The LDCs want foreign capital in the form of

a. loans when they want to retain control of domestic industry b. equity when they
want to share risks with foreign investors c. long-term loans for long-term
infrastructure projects d.* all of the above

106. If the marginal product of capital is twice that of labor and the price of capital is
three times that of labor, then,
a. capital will be substituted for labor b.* labor will be substituted for capital c. the
price of capital will fall, and price of labor will rise d. twice as much capital as labor
will be employed

107. Investment in capital implies

a. future sacrifice for present gain b. buying financial assets such as stocks or bonds c.
no sacrifice because it leads to growth d.* a present sacrifice for expected future gain

108. Autarky refers to a country

a. with an authoritarian government b.* which is self sufficient, and is a closed
economy c. which has free trade with the rest of the world d. none of the above

109. A public works projects pay $5 a day to poor rural laborers who would otherwise
earn only $2 per day from casual labor. The opportunity cost, or shadow wage rate, of
labor is:
a.* $2 b. $3 c. $5 d. $7

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110. Peasant farmers in LDCs are generally observed to

a. respond appropriately to changes in price incentives b. use available resources
efficiently c.* Both a and b d. Neither a nor b

111. In the household production model, agents choose their hours and type of work
so as to maximize:
a. production b. income c. leisure d.* utility e. short-run consumption

Poverty, Malnutrition, and

Income Inequality
_____________________________________________________________________
___
Multiple-Choice Questions
1. The Human Development Report 2003, which assumes that poverty is
multidimensional, calculates a human poverty index based on which of the following
measures of deprivation:
I probability at birth of not surviving to age 40.
II adult illiteracy rate.
III negative economic growth.
IV lack of a decent standard of living.
a. I and II only
b. III and IV only

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c. I, II and III only

d. I, II and IV.

2. According to Human Development Report 2003, about_______ countries were

poorer in 2003 than in 1990.
a. 50.
b. 100.
c. 1000.
d. 5.

3. _____________is below the income that secures the bare essentials of food,
clothing, and shelter.
a. Income inequality.
b. Absolute poverty.
c. Sen’s poverty index.
d. Purchasing-power poverty.

4. Sen's welfare theory relies on

a. individuals' accomplishments.
b. individuals' capabilities.
c. individuals' wealth.
d. individuals' education.

5. Indices of income distribution measure

a. absolute poverty.
b. economic growth.
c. relative poverty.
d. standard of living.

6. Income inequalities are often shown on a

a. production possibility curve.
b. marginal inequality curve.
c. Sen curve.
d. Lorenz curve.

7. A value of 1 in Gini index represents

a. low inequality.
b. maximum inequality.
c. 10/10, 000% inequality.
d. 1% inequality.

8. The elasticity of propoor growth is

a. the percentage increase in the consumption growth of the poor divided by
percentage increase in the consumption growth of the nonpoor.
b. the percentage increase in the poor times percentage increase in the nonpoor.
c. the percentage increase in the poverty of the poor divided by percentage increase in
the poverty of the nonpoor.

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d. the percentage increase in the poor people in the urban divided by percentage
increase
in the nonpoor in the urban.

9. In 2003, the UN Development Program estimated that a 1-percent LDC per capita
consumption growth, with income inequality unchanging, would reduce the poverty
percentage by _________ percent yearly.
a. 0.
b. 2.
c. 6.
d. 0.5.

10. The elasticity of the poverty gap with regard to the Gini index is (where H is the
poverty percentage and G is the growth)
a.
b.
c.
d.

11. Which of the following statements are true about income inequality in developed
and developing countries.
I 27 percent of the developing countries have low inequality.
II The majority of developed (high-income) countries have high income inequality.
III The income shares of the poor are lower and their variance higher in DCs than in
LDCs.
a. I only
b. II only
c. I and II only
d. I, II and III

12. The Lorenz curve shows

a. patterns of poverty between developed and developing countries.
b. the change in GDP per capita over time.
c. the poorest’s income shares fall in the early stages of growth.
d. income concentration relative to a 45-degree line.

13. “Peer borrowing groups of five or so people with joint liability approve loans to
other members as a substitute for the bank's screening process”.
The above statement applies to
a. Indonesia's Badan Kredit Kecamatan (BKK).
b. the Association for Development of Microenterprise.
c. Bangladesh’s Grameen Bank.
d. the Enterprise Credit Program in Kolkata.

14. Sala-i-Martin interpolates income distribution by

a. quintiles.
b. percentiles.
c. simulation.
d. relative ratio measures.

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Rural Poverty and

Agricultural
Transformation
_____________________________________________________________________
___

Multiple-Choice Questions
1. Which of the following is not true about most farmers in LDCs?
a. The staple crop is the chief source of food.
b. Labor is underutilized except for planting and harvesting seasons.
c. On the traditional farm, output is always greater than consumption.
d. Cultivators farm only as much land as their families can work without hired labor.

2. Which of the following is not true about the specialized farm?

a. Such a farm is the most advanced agricultural phase in a market economy.
b. Such a farm usually emphasizes cultivating one crop.
c. Such a farm is labor intensive.
d. Such a farm uses advanced technology, and takes advantage of economies of scale.

3. Which of the following is not a consequence of growing agricultural

commercialization?
a. An increase in the number of landless laborers.
b. An increase in rural poverty.

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c. Women gain in decision making power.

d. Workers’ nutrition is reduced.

4. Which scholar argues the following: “Plantations have no significant advantage

over peasants [for] crops for which centralized processing and marketing are not
necessary. Cocoa and coconuts are typical examples of a lack of large-scale
economies. Peasants can grow and process these crops in small lots with no large
capital requirement beyond small indigenous tools and facilities.”
a. Yujiro Hayami.
b. Raanan Weitz.
c. Hans Singer.
d. Tim Dyson.

5. Which of the following statement about rural and agricultural development is true?
a. Rural development is the same as agricultural development.
b. The agrarian community requires a full range of services such as schools,
merchants,
banks, and so on.
c. Household nonfarm income is uncorrelated to farm productivity and household
incomes in Kenya.
d. China's rural population receives little income from nonfarm income.

6. Which of the following is not a major factor raising LDC agricultural labor
productivity?
a. new biological-chemical-mechanical inputs in production.
b. new technical and organizational knowledge from greater specialization.
c. expanded markets for agricultural output.
d. massive government intervention.

7. Which of the following is not among the most advanced global food chain cluster
with headquarters in the US.
a. Cargill/Monsanto.
b. ConAgra.
c. Novartis/ADM.
d. Procter & Gamble.

8. Which index "combines measures of calorie availability (in relation to

requirement), the growth of per capita daily energy supply, food production, food
staples self-sufficiency, and variability of food production and consumption"?
a. food sufficiency index.
b. food security index.
c. food self-intake index.
d. food growth index.

9. Which of the following is NOT a cause of food insecurity, according to Nic

Maunder, a specialist on Ethiopia?
a. War and bad governance.
b. Corruption and mismanagement.
c. Poor roads.
d. Aid from developed nations.

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10. Which of the following colonial policy contribute further to today's agricultural
underdevelopment in Africa?
I Colonial governments compelled farmers to grow selected crops.
II Colonialism often changed traditional land tenure systems from
individual control to communal.
III Colonialists failed to train African agricultural scientists and
managers.
IV Research and development concentrated on food production and small
farmers and herders.
a. I and II only.
b. I and III only.
c. III and IV only.
d. II and III only.

11. A set of alternative commodity bundles that a person can command in a society
using the totality of rights and opportunities that he possesses is known as
a. production possibilities.
b. entitlement.
c. income distribution.
d. egalitarianism.

12. Amartya K. Sen emphasizes that having enough to eat depends on

a. society's system of entitlement.
b. an egalitarian income distribution.
c. low poverty rates.
d. society's high Gini concentration.

13. In a food demand growth equation, D = Φ + E, is the income elasticity of

demand for food, E is the per capita income growth, and Φ is
a. poverty rates.
b. food security index.
c. change in the quantity of food demanded per capita.
d. population growth.

14. Which of the following is a form of urban bias?

I Government may set price floors on food and price ceilings for industrial goods.
II Tax incentives and subsidies to infant-industry.
III Tariff and quota protection for industry.
IV Spending more for education, training, housing, health
and transport in urban areas than in rural areas.
a. I,II, III only.
b. I, II and IV only.
c. II, III and IV only.
d. I, II, III and IV.

15. Most of Latin America has been characterized by________, large land-grant
estates owned by the few, and _________, small poor holdings that rarely provide
adequate employment for a family.
a. minitudinous, latitudinous.

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b. latifundios, minifundios.
c. feudum, nocere.
d. grameen, repetto.

16. According to Binswanger, Deininger, and Feder, land concentration contributes to

________ income and _______ inequality which are major sources of LDC rural
conflict.
a. low, high.
b. constant, high.
c. progressive, regressive.
d. high, low.

Population and Development

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_____________________________________________________________________
___

 Multiple-Choice Questions
1. A period of rapid population growth between a preindustrial, stable population
characterized by high birth and death rates and a later, modern, stable population
marked by low fertility and mortality is known as
a. demographic transition.
b. population maturity.
c. demobilizing population.
d. birth-death transformation.

2. The _______________ is the ratio of the non-working population (under 15 years

old and over 64 years old) to the working-age population.
a. labor force participation rate.
b. per capita population ratio.
c. population transition.
d. dependency ratio.

3. Throughout most of humankind’s existence, population grew at a rate of

_________ per year.
a. 10%.
b. 0.002%.
c. 2%.
d. 0.5%.

4. A stationary population is when population growth is

a. increasing at an increasing rate.
b. decreasing.
c. zero.
d. 100%.

5. Which of the following is not a possible cost of high fertility rates and rapid
population growth?
a. increasing returns to natural resources, with a direct impact on average food
consumption.
b. increased urbanization and congestion.
c. a higher labor force growth rate and higher unemployment.
d. a working population that must support a larger number of dependents.

6. The Essay on the Principle of Population was written by

a. The World Bank.
b. Thomas Robert Malthus.
c. Julian Simon.
d. Abraham Lincoln.

7. About __________of the world's population lives in LDCs.

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a. 80%.
b. 50%.
c. 25%.
d. 35%.

8. Simon's model is consistent with

a. population self-sufficiency and constant economic growth.
b. low fertility and mortality.
c. a laissez-faire population policy.
d. a constant returns to scale production function.

9. Malthus's theory was that population

a. increased proportionally to economic growth.
b. increased geometrically, outstripping food supply, which grew arithmetically
c. increased stagnantly with food supply and economic development.
d. increased disproportionately, surpassing agricultural production.

10. The development of high-yielding varieties (HYVs) of wheat and rice is known
as
a. the agribusiness revolution.
b. farming system theory.
c. the Green Revolution.
d. agri-R&D.

11. In 2000, China and India constituted about__________ of the world's population.
a. 40%.
b. 10%.
c. 80%.
d. 0.10%.

12. The total fertility rate (TFR) is

a. the total number of children born in a country in a given year divided by labor
force.
b. the number of children born to the average woman during her reproductive years.
c. the number of births in a country divided by total population in a given year.
d. the number of women age 15-45 in a country divided by total population.

13. Organized family-planning programs and the demand for birth control resulting
from urbanization, modernization, economic development, and increased education
have contributed to
a. a decline in fertility.
b. the demographic transition from stage 3 to stage 2.
c. increases in the ratio of labor to capital.
d. an increase in the dependency ratio.

14. Which of the following is NOT true about children in a peasant society?
a. Boys as young as 8 years old tend or herd animals, weed, pick, and sell produce.

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b. Children place more economic demands on a peasant family than an urban family.
c. Major financial security is usually provided by sons.
d. The cost of education, entertainment, and travel is low.

15. Julian Simon

a. supported the Club of Rome's Limits to Growth for estimating technical change.
b. assumed that population growth causes technological progress.
c. used the second law of thermodynamics to assume that technological progress is
costless.
d. assumed the classical view of technological change.

16. Which of the following is not an example of a global public good?

a. high-yielding varieties (HYVs) of grains.
b. polio and small-pox vaccinations.
c. the campaign against river blindness.
d. the drilling of oil in the Arctic.

17. Prototypes of international agricultural research centers are the

I International Center for the Improvement of Maize and Wheat (CIMMYT).
II International Rice Research Institute (IRRI).
III Synthetic Rubber Research Institute (SRRI).
IV Center for International Agricultural Production Control (CIAPC).
a. I only.
b. I and II only.
c. III and IV only.
d. IV only.

18. Economists in India, Pakistan, the Philippines, and Mexico argue that foodgrain
growth would not have kept up with population growth in the last four decades
without
I the improved packages of high-yielding seed varieties.
II fertilizers, pesticides and irrigation.
III improved transportation.
IV better extension service.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.

19. The goal of integrated pest management (IPT) is to

a. reduce yield losses by pests while minimizing the negative effects of pest control.
b. have year-round plantings of a single crop.

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c. undertake monoculture pest planning.

d. encompass biological control through fertilizers.

Employment, Migration, and

Urbanization
_____________________________________________________________________
___
Multiple-Choice Questions
1. A production function
a. shows the dependency output of the working population.
b. depicts the relationship between input and output.
c. states the relationship between products and income distribution.
d. is a function of natural resources in a country.

2. Entrepreneurship is the
a. technique to manage raw materials efficiently.
b. residual of a production function.
c. resource coordinating other productive resources.
d. blueprint on how to manage the labor force.

3. In a production function Y = F(L,K,N,E,T), Y is

a. national product.
b. capital.
c. natural resources.
d. prevailing technology.

4. Which of the following is not a capital good?

a. plant and equipment.
b. buildings.
c. inventories.

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d. consumer goods.
5. Labor skills are a major component of
a. fertility.
b. population quality.
c. mortality.
d. morbidity.

6. The openly unemployed in LDCs are usually from all of the following except:
a. persons 15 to 24 years old.
b. the educated.
c. residents of urban areas.
d. from the poorest 1/5 of the population.

7. The unemployment rate is the

a. employed plus unemployed divided by labor force.
b. total employment divided by population.
c. labor force divided by population.
d. unemployed divided by employed.

8. Which of the following is not TRUE about unemployment in LDCs?

a. The unemployment rate for youths is twice that of people over 24.
b. Unemployment in rural areas is twice that of urban
areas.
c. World-wide there are fewer unemployed females than males, but the rate is higher
for
women.
d. The unemployed are relatively well educated.

9. The invisibly underemployed

a. are workers who are compelled to work short hours.
b. result from an inadequate use of workers' capacities.
c. are part-time workers who voluntarily work short hours.
d. none of the above is correct.

10. During the Great Depression workers in DCs who took inferior jobs as a result of
being laid off were known as
a. disguised unemployed.
b. cyclical unemployed.
c. seasonally unemployed.
d. voluntarily unemployed.

11. The theoretical basis for zero marginal productivity of labor was the concept of
a. marginal rate of substitution.
b. labor force literacy.
c. substitution of leisure and work among labor.
d. limited technical substitutability of factors.

12. Disguised unemployment is

a. when marginal revenue productivity of labor is zero.

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b. the same as seasonal unemployment of LDC agricultural.

c. the rigid factor proportions in LDC agriculture and industry.
d. due to capital formation and the level of technology remaining constant.

13. Which of the following is not TRUE about rural-urban migration?

a. Migration to the cities is a larger contributor than natural population growth to
urban
labor growth in sub-Saharan Africa.
b. In Latin America natural population increase is the major source of urban growth.
c. From 1975 to 2000, the number of cities in LDCs with populations over 1 million
increased from 20 to 50.
d. The urban share of total LDC population grew from 27 percent in 1975 and 35
percent
in 1992 to 40 percent in 2003.

14. According to Harris and Todaro, creating urban jobs by expanding industrial
output
a. is insufficient for solving the urban unemployment problem.
b. will generate capital-intensive technologies.
c. will generate more government revenue through urban wages.
d. induces government to increase minimum wages.

15. The Keynesian remedy for unemployment is to

a. decrease aggregate demand.
b. reduce tax rates or lower interest rates.
c. decrease government spending.
d. decrease private consumption and investment.

16. The simplest explanation based on Lewis’s model for rural-urban migration is
a. that people migrate when urban wages exceed rural wages.
b. a higher expected income in urban areas.
c. better infrastructure in urban areas.
d. the availability of labor-intensive jobs in urban areas.

17. Policies to reduce factor price distortion include

I. Encouraging small-scale industry.
II Decreasing subsidies to capital investors.
III Reducing social security programs and payroll taxation.
IV Setting market-clearing exchange rates.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.

18. Based on Nafziger and Auvinen’s study, high unemployment rates

I represent a vast underutilization of human resources.
II are a potential source of social unrest and political discontent.

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III are uncorrelated with poverty and inequality in LDCs.

IV are associated with middle age, rural, uneducated males.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II and IV only.

Education, Health, and

Human Capital

_____________________________________________________________________
___

Multiple-Choice Questions
1. In 2000, the Economist estimated that only ______ of some 360 million internet
users are in Africa.
a. 60 million.
b. 10 million.
c. 3 million.
d. 0.1 million.

2. In a competitive economy, a worker earns an income equivalent to

a. the amount of brain drain.
b. marginal utility.
c. marginal product.
d. the substitutability of labor to capital.

3. The marginal product model assumes that

a. individuals pay the full cost of their education.
b. government subsidizes schooling.
c. educated persons migrate more.
d. capital and unskilled labor are complements.

4. Gunnar Myrdal argues that a major barrier to high labor productivity is

a. due to a lack of education.
b. a class system in which the elite are contemptuous of manual work.
c. upper- and middle-class Westerners.
d. the lack of bargaining power by cheap labor.

5. Of the 57 million people dying worldwide in 2002, ________ were from stroke and
heart disease and _______from cancer, disproportionately from DCs.
a. 17 million, 7 million.

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b. 7 million, 0.7 million.

c. 3 million, 1 million.
d. 0.5 million, 5 million.

6. Which of the following is NOT true about child mortality?

a. About 18 percent of the world’s deaths are among children less than five years old.
b. More than 98 percent of child deaths were in LDCs.
c. World-wide child mortality rates increased from 1990 to 2002.
d. 19 of the 20 countries with the highest child mortality were in Africa.

7. The disease burden could be measured by calculating _________, combining years

lost through premature death and from living with disability.
a. mortality-adjusted lifelong.
b. premature-living age.
c. life mortality-fertility ratio.
d. disability-adjusted life years.

8. Which of the following is TRUE about HIV/AIDS?

I Women comprised 58 percent of HIV-positive adults in the sub-Sahara.
II AIDS infection rates in Africa are highest among urban high-income, skilled men
and their partners.
III In 2001, 40 million people with HIV/AIDS lived in sub-Saharan Africa.
IV Since 1981, 120 million people have died of AIDS.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

9. Which of the following is not TRUE about education in LDCs?

a. Public expenditure per student for higher education is about ten times as high as for
primary education.
b. The expansion of primary education redistributes benefits from the rich to the poor.
c. Economists unanimously agree that LDCs should put greater priority on primary
education.
d. Boys are sent to school far more often than girls.

10. Simon S. Kuznets argues that the major stock of an economically advanced
country is not its physical capital but
a. natural resources.
b. body of knowledge.
c. land.
d. quantity of labor

11. Labor productivity is higher in DCs such as Japan and Germany than in LDCs
due to
a. higher formal education and training.
b. better health and physical condition of the labor force.
c. Both a and b are correct.
d. None of the above is correct.

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12. The emigration of highly-skilled people from the developing countries is known
as
a. the brain drain.
b. human capital deterioration.
c. productivity.
d. labor degradation.

13. Which of the following is not true?

a. Development generally improves the health system, while better health increases
productivity, social cohesion, and economic welfare.
b. Life expectancy is probably the best single indicator of national health levels.
c. Life expectancy in Africa increased steadily from 1994 to 2003 due to better
health care.
d. There are growing inequalities in investment in health worldwide.

14. By 2010, the U.S. Census Bureau expects life expectancy in the two southern
African countries of Botswana and South Africa to be
a. 30 to 40 years, about the same as in 1995.
b. 30 to 40 years, a fall of more than 10 years from 1995.
c. 50 to 60 years, about the same as in 1995.
d. 50 to 60 years, an increase from 1995.
e. 70 years, an increase from 1995.

Capital Formation, Investment

Choice, Information
Technology,
and Technical Progress

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_____________________________________________________________________
__

Multiple-Choice Questions
1. Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States
are
a. G-7 countries.
b. countries with highest productivity growth in the world since 1960.
c. countries with decreasing TFP growth since 1990s.
d. countries with the lowest information technology equipment and software index
prices.

2. Which of the following is not TRUE?

a. In 1990, the world had 98 mainline phones and 2 mobile phones per 1,000 people;
in 2001, 169 mainline and 153 mobile per 1,000.
b. Mobile phones do not require the massive infrastructure investment that mainline
telephones require.
c. In 2001, the world information technology expenditures were about 1/20 of 1% of
world gross investment.
d. In 2001, internet users per 1,000 people in middle income countries were greater
than high income countries.

3. James Pickett, D. J. C. Forsyth, and N. S. McBain, on the basis of field research in

Africa, concluded that business people often want to use the most advanced design
without knowing that it may not be the most profitable. They attribute this attitude to
a. maximum capital absorption.
b. factor-price distortions.
c. engineering mentality.
d. intermediate technology.

4. Which of the following is TRUE in LDCs?

a. Labor is often underemployed, having a low alternative cost.
b. It is cheaper to hire labor in LDC because its productivity is relatively higher than
in DCs.
c. Adapting existing Western technology to LDC conditions requires little creativity.
d. Labor is usually considered the scarce factor.

5. Assume B is social benefits, C is social costs, r is the social discount rate, t is time,
and T is the life of the investment project. The net present value (V) of the stream of
benefits and costs is
a.
b.
c.
d.
6. The efficiency wage is the
a. wage costs per unit of output.
b. wage rate that prevails in LDCs.
c. wage rate divided by the productivity of labor.
d. marginal product of labor divided by wage.

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7. Suppose a project results in a net stream of $200 per year for 4 years, but nothing
thereafter. Assume that the discount rate is 5 percent. The discounted value of the
total income stream over the 4-year period is
a. 800.
b. 40,000.
c. more than zero but less than 800.
d. less than zero.

8. Vaccinating people for measles, rubella, polio, and cholera to substantially increase
net social benefits by improving the health and productivity of the population is an
example of
a. economies of scale.
b. external economies.
c. negative externality.
d. net present value.

9. Which of the following is not a natural public monopolies?

a. mobile phone.
b. electricity.
c. water supply.
d. postal service.

10. An example of external diseconomies is

a. scholarship for technical education.
b. R&D in robotics.
c. a new drug to cure AIDS.
d. environmental pollution.

11. A case where internal economies of scale bring about a continuously falling
average cost curve that makes having more than one firm in an industry inefficient is
illustrative of
a. a natural monopoly.
b. an LDC’s limit of one firm to an industry.
c. an individual firm facing a horizontal (perfectly elastic) demand curve in LDCs.
d. the existence of oligopoly.

12. Market prices adjusted to consider differences between social cost-benefit and
private cost-benefit calculations are
a. price distortions.
b. consumer surplus.
c. shadow prices.
d. exchange rates.

13. In the long run, expanding educational and training facilities, transportation and
communication, and other infrastructure in LDCs should increase
a. productivity paradox.

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b. absorptive capacity.
c. the residual.
d. uncertainty.

14. In the 1980s, economists studying the sources of growth observed no positive
relationship between information and communications technology (ICT) investments
and productivity. This is known as
a. Solow residual.
b. productivity paradox.
c. technological followership.
d. Stiglitz discrepancies.

15. “You can see the computer age everywhere but in the productivity statistics” is
attributed to which economist?
a. Dale Jorgenson.
b. Joseph Stiglitz.
c. Robert Solow.
d. Theodore W. Schultz.

16. Lack of absorptive capacity in developing countries results from

a. inadequate government bureaucracy.
b. small size of infrastructure.
c. too few innovative entrepreneurs.
d. unsuitable technology.
e. All of the above are correct.

Entrepreneurship, Organization,

and Innovation
_____________________________________________________________________
___
 To Schumpeter the entrepreneur is an innovator, one who carries out new
combinations. These innovations are the source of private profit and economic
growth. However, LDCs need not unduly emphasize developing new
combinations, since some technology can be borrowed or adapted from abroad.
 Coase identifies the entrepreneur, who organizes within the firm, and the price
mechanism as the two major coordinating instruments within the economy.

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 The entrepreneur differs from the manager of a firm, who runs the business on
established lines. The entrepreneur can fill gaps, complete inputs, and make up for
market deficiencies.
 Since they assume that most skills needed for an enterprise can be purchased
in the market, Western economists frequently limit the entrepreneurial function to
perceiving market opportunities and gaining command over resources.
 However, LDC entrepreneurs may have to provide some basic skills
themselves, such as marketing, purchasing, dealing with government, human
relations, supplier relations, customer relations, financial management, production
management, and technological management, which are all skills in short supply
in the market.
 Although the family enterprise has the advantage of quick, unified decision
making, its disadvantages include a conservative approach to taking risks,
reluctance to hire professional managers, and paternalism in labor relationships.
 McClelland contends that a society with a generally high need for
achievement produces energetic entrepreneurs who bring about rapid economic
growth.
 Hagen argues that societies where children are raised democratically, so that
they are encouraged to take initiative and be self reliant, are more likely to
produce entrepreneurs.
 Industrial entrepreneurs in LDCs come from a wide variety of occupational
backgrounds, including trade, sales, and crafts.
 According to Weber, the spirit of the modern capitalist entrepreneur in
Western Europe in the sixteenth century was found disproportionally among
Puritans, whose religious asceticism manifested itself in worldly activity.
 Generally entrepreneurs come from a much higher socioeconomic background
than the general population. In addition they tend to be upwardly mobile.
 Although education can increase the entrepreneurial supply by making
available skills needed for business, it can decrease this supply by increasing a
person's job options.
 Cultural norms in LDCs defining how women should behave at work limit
female entrepreneurial activity.
 Organization and innovation are important for growth in socialist as well as
capitalist economies. It had been difficult for socialist countries, particularly the
Soviet Union, to motivate managers and technicians to innovate.
 Under China's post 1978 industrial reform, self employed individuals can
innovate, start a new enterprise, combine capital and personnel, and, albeit with
certain limits, expand the firm.
Fill-in Questions
Entrepreneurship ____________________________
Innovation ____________________________
marginal individuals ____________________________
monopoly advantage ____________________________
need for achievement ____________________________
state-owned enterprises (SOEs) ____________________________
stationary state ____________________________

Multiple-Choice Questions
1. Which of the following is not an assumption of Schumpeter’s stationary state?

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a. Perfect competition.
b. An economy below full employment.
c. No savings or technical change.
d. No entrepreneurial function is required.

2. The entrepreneur can be viewed as the

I coordinator of other production resources.
II decision maker under uncertainty.
III innovator.
IV gap filler and input completer.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.

3. Technical advance involves

a. the development of pure science, invention, innovation, financing the innovation,
and the innovation's acceptance.
b. introducing new products, modifying production functions, creating credit, and
making
profits.
c. innovation, investment, credit creation, and economic growth.
d. patent management, resource gains, mature innovation , and speculative gains.

4. Hagen’s On the Theory of Social Change uses psychology, sociology, and

anthropology to explain how a traditional agricultural society
a. learns to accept its fate.
b. attains continuing technical progress.
c. produces an accommodating personality with a high need for achievement.
d. has a social structure where high status is attained.

5. According to William Baumol, under oligopolistic competition among large, high-

tech business firms, innovation has
a. created stationary economies of scale.
b. maintained the relationship between firms and their clients.
c. replaced price as the important competitive weapon.
d. limited the expansion of firms.

6. The Protestant Ethic and the Spirit of Capitalism was written by

a. Adam Smith.
b. Max Weber.
c. Joseph Schumpeter.
d. William Baumol.

7. Capitalism is an economic system

a. based on government intervention in the means of production.

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b. that originated in the United States in the 19th century.

c. where private owners of capital make decisions based on profit.
d. that dominated developing economies in the 19th century.

8. According to Weber’s thesis

a. Protestants disapproved of accumulating wealth.
b. Protestants failed to restrict extravagance and conspicuous consumption.
c. Roman Catholicism expressed its asceticism in a secular vocation.
d. capitalism was most advanced in Protestant countries.

9. Monopoly advantage is usually the result of greater opportunities such as

I access to more economic information than competitors.
II superior access to training and education.
III a lower discount of future earnings.
IV larger firm size.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.

10. Which of the following was a socialist country?

I Holland.
II Soviet Union.
III China.
IV India
a. I and II only.
b. II and III only.
c. III and IV only.
d. I and IV only.

11. Which of the following is TRUE about gender and business world?
a. There are more women than men in U.S. business because of the aspirations of U.S.
girls.
b. There are relatively few women in U.S. business partly because of female
socialization.
c. LDC businesswomen have a better chance than men of getting credit from bankers
and
suppliers.
d. Businesswomen in India are viewed as naturally stronger, less emotional, more
socially adept, and more rational than businessmen.

12. Which of the following is an example of a Schumpeterian innovation?

a. An existing internet provider provides competition to two other providers in
Dayton,
Ohio.
b. The production and marketing of the Model T Ford in the 19-teens.
c. The invention of the Stanley steamer.
d. An American buying a stock in the Philippines’ stock market.

13. Joseph Schumpeter is the exceptional economist who links the entrepreneur to

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a. oligopolistic capitalism.
b. resource management.
c. innovation.
d. land and labor.

Natural Resources and the

Environment: Toward
Sustainable Development
_____________________________________________________________________
___

 Land is immobile and potentially renewable. Natural resources are mobile, but
most are nonrenewable.Environmental resources are resources provided by nature
that are indivisible.
 Dutch disease is the adverse competitive effect that local currency
appreciation due to a booming export sector has on other exports and import
substitutes.
 Sustainable development refers to maintaining the productivity of natural,
produced, and human assets from generation to generation.
 Panayotou contends that environmental degradation originates from market
distortions, defective economic policies, and inadequate property rights
definitions, meaning that environmental problems are basically economic
problems.
 The efficient level of pollution emission is where marginal damages are equal
to marginal abatement costs.

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 Contingent valuation is the use of questionnaires from sample surveys to elicit

the willingness of respondents to pay for an environmental good.
 About 14 percent of the world population lives on arid or semiarid land
 Economic underdevelopment in the tropics is partly a matter of geography.
 Tropical countries generally will not provide global public goods, such as the
atmosphere or biosphere, in sufficient quantity, since many benefits spill over to
other countries.
 Developed and transitional countries produce a disproportional share of the
world's carbon dioxide emissions that contribute to global warming.
 Market-based "green taxes" are more efficient than physical targets in
reducing carbon emissions.
 The Club of Rome's study, The Limits to Growth, concluded that the global
economic system will collapse during the twenty first century.
 Daly's impossibility theorem argues that there are not enough resources in the
world to support the whole world at U.S. style consumption levels.
 Our continuous use of natural resources increases entropy, a measure of the
unavailable energy in a thermodynamic system.
 The World Bank subtracts resource depletion and environmental degradation
from gross savings to get changes in wealth.
 The Genuine Progress Index (GPI) is a comprehensive indicator of well-being
that subtracts depletion of nonrenewable resources, long-term environmental
economic damage, ozone depletion, loss of wetlands, and loss of farmlands from
GDP.
 Lifeboat ethics, used as an argument for denying economic assistance to
LDCs, is based on a number of flawed premises.

Fill-in Questions
adjusted net savings
____________________________
arid land
____________________________
balance of trade
____________________________
biodiversity
____________________________
cartel
____________________________
Coase's theorem
____________________________
common property resources
____________________________
contingent valuation
____________________________
Dutch disease
____________________________
Entropy
____________________________
environmental resources
____________________________

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external diseconomies
____________________________
externalities
____________________________
free riding
____________________________
Genuine Progress Indicator (GPI)
____________________________
global public goods
____________________________
global warming
____________________________
greenhouse gases
____________________________
green markets
____________________________
green taxes
____________________________
impossibility theorem (Daly)
____________________________
international tradable emission permits
____________________________
lifeboat ethic
____________________________
marginal abatement cost (MAC)
____________________________
marginal damage (MD)
____________________________
Montreal Protocol
____________________________
net primary productivity (NPP)
____________________________
OECD
____________________________
proven reserves
____________________________
public goods
____________________________
resource curse
____________________________
sustainable development
____________________________
tragedy of the commons
____________________________
transactions costs
____________________________

Multiple-Choice Questions

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1. Progress that meets the needs of the present without compromising the ability of
future generations to meet their own needs is
a. the tragedy of commons.
b. sustainable development.
c. net primary productivity (NPP).
d. the impossibility theorem.

2. Land and natural resources are considered

a. capital accumulation.
b. common property resources.
c. nonproducible.
d. output.

3. The Organization of Petroleum Exporting Countries (OPEC) is a(n) ________

whose members agree to limit output and fix prices.
a. monopoly.
b. entropy.
c. industry.
d. cartel.

4. Air pollution from automobile exhausts, and water pollution steel plants are
examples of
a. external economies.
b. negative externalities.
c. internal spillover.
d. social distortion.

5. Which of the following is an example of tragedy of commons?

a. over fishing.
b. smoking in a public place.
c. excessive rain.
d. common use of public toilets.

6. The government levying taxes on polluters or charging a surcharge for pesticide

use are
a. examples of Coase’s theorem.
b. internalization of negative spillover effects.
c. marginal abatement cost.
d. examples of a free rider.

7. Negative externality is also known as

a. external diseconomies.
b. marginal damage.
c. public goods.
d. resource curse.

8. Which of the following country has 25 percent of the world's estimated oil reserves
and the lowest cost production as well as a dominant role in OPEC pricing?
a. Russia.

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b. Saudi Arabia.
c. Iraq.
d. Venezuela.

9. The booming of North Seas' gas export revenues in the 1970s, that appreciated the
guilder, making industrial exports more costly in foreign currencies and increasing
foreign competition and unemployment, is known as
a. Trade deficit.
b. Blind river disease.
c. Dutch disease.
d. Economic turmoil.

10. Michael Roemer's three-sector model shows that growth in the booming export
sector
I reduces the price of foreign exchange.
II retards other sectors' growth by reducing incentives to export other commodities.
III reduces incentives to replace domestic goods for imports.
IV raises factor and input prices for non-booming sectors.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.

11. Theodore Panayotou (1993) argues that environmental degradation originates

from the following EXCEPT
a. market distortions.
b. defective economic policies.
c. inadequate property rights definitions.
d. the expansion of capitalism.

12. Deforestation
I leads to localized flooding.
II reduces sustainable logging potential.
III reduces watershed stability.
IV augments carbon restoration provided by forests.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

13. According to Coase’s theorem, when property rights are well defined and legally
enforceable, and transactions costs are not prohibitive,
a. population growth leads to rigid land rights.
b. participants will organize their transactions voluntarily to achieve efficient
outcomes.
c. violence, displacement, erosion, and poverty are minimized.
d. individuals’ overuse of the biosphere is curtailed.

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14. Irreversibility refers to

a. natural resource that cannot be reproduced in the future if we fail to preserve
them now.
b. obtaining intellectual property rights for those developing and patenting new
products.
c. natural extinction of various species in DCs.
d. industrialization replacing agriculture in LDCs.

15. Many environmental resources are public goods, which are characterized by
a. rivalry and exclusion in consumption.
b. nonrivalry and nonexclusion in consumption.
c. rivalry but nonexclusion in production.
d. nonrivalry but exclusion in usage.

16. Biodiversity
a. includes genetic, species, ecosystem, and functional diversities.
b. refers to diversifying earth’s nonrenewable resources.
c. refers to reconstruction of tropical rainforests.
d. refers to biological effects on commercial plantation.

17. The greenhouse effect is the phenomenon by which

a. biological diversity is dominant in agricultural production.
b. the globe’s water pollution affects plankton.
c. the earth's atmosphere traps infrared radiation.
d. climatic changes occur naturally in the forest.

18. The Montreal Protocol, signed in 1987 and strengthened in 1990,

a. attains the global optimal level of common property resource.
b. relies on internationally tradable emission permits.
c. minimizes free riders of public goods.
d. reduces ozone depletion through the cutting of chlorofluorocarbon
production.

19. The Club of Rome study, The Limits to Growth, suggests that as natural resources
diminish
a. capital increasingly replaces labor.
b. technological change compensates for capital depletion.
c. costs rise, leaving less capital for future investment.
d. contingent valuation becomes critical.

20. The Genuine Progress Indicator is

a. also known as Index of Sustainable Economic Welfare per capita.
b. GDP plus resource depletion and environmental cost.
c. resource depletion and environmental cost divided by GDP per capita.
d. increasing from 1976 to 2000.

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Monetary, Fiscal, and Incomes

Policy, and Inflation

_____________________________________________________________________
___
 Central banks in LDCs generally have less effect on expenditure and output
than in DCs.
 Tax revenue as a percentage of GNP in LDCs is about 18 percent compared to
38 percent in DCs.
 The increase in tax ratios with GNP per capita reflects both the growth in the
demand for public services and the capacity to levy and pay taxes.
 Direct taxes (such as taxes on property, wealth, inheritance, and income)
account for about one third of revenue sources in LDCs and about one-half to two
thirds in DCs.
 Major indirect taxes in most LDCs are those on international trade,
production, and internal transactions, which, however, distort resource allocation.
 Direct taxes generally have a higher elasticity than indirect taxes.
 Some DCs use the progressive income tax to mobilize large amounts of public
resources, improve income distribution, stabilize income and prices, and prevent
inefficient use of resources, often arising from a heavy reliance on indirect taxes.
 A number of LDCs have introduced the value-added tax. The appeals of the
value-added tax are simplicity, uniformity, and the generation of substantial
revenues.
 Developing countries cannot use fiscal policy to stabilize income and prices so
effectively as developed countries can.
 A relatively small percentage of government spending in LDCs is on health,
social security, and welfare, and a relatively high percentage on infrastructure.
 The annual inflation rate in LDCs increased from less than 10 percent in the
1960s to over 20 percent in the 1970s and over 70 percent in the 1980s, but fell to
16 percent in the 1990s. The highest inflation rates, in Latin America, dropped to
about 30 percent yearly in the 1990s.
 Demand pull is not an adequate explanation for inflation in LDCs. Inflation
may be cost push (from the market power of businesses and unions), ratchet (from
rigid prices downward), or structural (slow export growth and inelastic food
supply), with added momentum, once started, from inflationary expectations.
 Countries with high rates of inflation may use incomes policy--wage and price
guidelines or controls, and exchange-rate fixing--together with monetary and
fiscal stabilization to reduce increases in the price index.
 Some economists argue that inflation can promote economic growth by
redistributing income from low savers to high savers.
 Yet recent evidence indicates that inflation less than 30-40 percent yearly does
not hamper growth, indicating that LDCs probably should not be preoccupied with
controlling mild inflation.
 The LDC money markets are often highly oligopolistic and financially
repressive, distorting interest rates, foreign exchange rates, and other financial
prices.
 When financial markets channel funds to those with productive investment
opportunities poorly, the economy operates inefficiently, as in Asia during the
1997-98 financial crisis.

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Fill-in Questions
adverse selection
______________________________
capital market
______________________________
cascade tax
______________________________
consumer price index (CPI)
______________________________
cost push inflation
______________________________
crawling peg
______________________________
currency board
______________________________
current account
______________________________
demand pull inflation
______________________________
direct taxes
______________________________
elastic tax
______________________________
financial liberalization
______________________________
financial repression
______________________________
fiscal incentives
______________________________
fiscal policy
______________________________
GDP deflator
______________________________
Group of 10
______________________________
Hyperinflation
______________________________
import substitutes
______________________________
incomes policy
______________________________
indirect taxes
______________________________
inflation
______________________________
inflationary expectations
______________________________
inflation tax
______________________________

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international balance of merchandise trade

______________________________
monetary policy
______________________________
monopoly rents
______________________________
moral hazard
______________________________
political inflation
______________________________
progressive tax
______________________________
ratchet inflation
______________________________
regressive tax
______________________________
seigniorage
______________________________
social goods
______________________________
stagflation
______________________________
value-added tax (VAT)
______________________________
Wagner's law
______________________________

Multiple-Choice Questions
1. Monetary policy affects the ________ and ________.
a. reserve, unemployment.
b. money supply, interest rate.
c. taxes, exchange rate.
d. stock price, minimum wage.

2. By using fiscal policy, i.e. varying ________ and/or ___________, governments

achieve goals for output and employment growth as well as price stability.
a. demand-pull inflation, tax elasticity.
b. interest rates, financial liberalization
c. interest rates, tax rates.
d. tax rates, government spending.

3. The Bank of England and the Federal Reserve

a. are central banks.
b. are branches of commercial banks.
c. use fiscal policy to influence GDP.
d. loan money to most of LDC commercial banks.

4. __________ states that as real GNP per capita rises, people demand relatively
more social goods and relatively fewer private goods.
a. Incomes policy.

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b. Moral hazard.
c. Wagner's law.
d. Fiscal policy.

5. If people with higher incomes pay a higher percentage of income in taxes, the
income tax structure is
a. progressive.
b. regressive.
c. value-added taxes (VAT).
d. excise taxes.

6. The property tax, wealth tax, inheritance tax, and income taxes such as personal
and corporate taxes are
a. indirect taxes.
b. direct taxes.
c. inelastic.
d. value-added tax.

7. Fiscal incentives to attract businesses from abroad include

I tax holidays.
II accelerated depreciation.
III import duty relief.
IV lower tax rates for reinvested business profits.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

8. Which of the following is NOT true?

a. Taxes on international trade are the major source of tax revenue for low-income
countries with poor administrative capacity.
b. Import duties can restrict luxury goods consumption.
c. Several LDCs have used value-added taxes to raise a substantial fraction of
revenues.
d. Cascade tax, a form of progressive tax, is dominant in DCs.

9. Inflation is measured by the

I consumer price index (CPI).
II GDP deflator.
III current account.
IV depreciation.
a. I and II only.
b. I and III only.
c. III and IV only.
d. I, II and III.

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10. When the financial system lacks the capability of making judgements about
investment opportunities due to asymmetric information, leading to potentially bad
credit risks, lending is subject to
a. adverse selection.
b. moral hazard.
c. social goods.
d. hyperinflation.

11. During stagflation

I an increase in aggregate spending will eliminate the recession.
II a decrease in aggregate spending will reduce inflation.
III government faces contradictory goals.
IV the central bank decreases money supply to reduce inflation.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

12. Central banks in LDCs generally have less effect on expenditure and output than
in DCs because of
I an externally dependent banking system.
II a poorly developed securities market.
III a low percentage of demand deposits divided by the total money supply.
IV the relative insensitivity of investment and employment to monetary policies.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

13. Under financial repression

I banks engage in non-price rationing of loans.
II banks face pressure for loans to those with political connections.
III banks charge a high premium on foreign investments.
IV banks depend on foreign banks to set interest rates.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

14. Which of the following are costs of inflation?

I Inflation weakens the creation of credit and capital markets.
II Inflation distorts business behavior, especially investment behavior.
III Inflation increases the prices of foreign goods relative to domestic goods.
IV Inflation imposes a tax on the holders of money.
a. I and II only.
b. III and IV only.
c. I, II and IV only.
d. I, II and III only.

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15. With ________________, prices rise in the first sector, remain the same in the
second, and increase overall.
a. ratchet inflation.
b. inflationary expectations.
c. import substitution.
d. demand-pull inflation.

16. Demand-pull inflation results from

a. demand for government spending on public goods goes down due to lack of
financial backup through tax collection.
b. consumer, business, and government demand for goods and services in excess of
an economy's capacity to produce.
c. a shortage of demand for good and services in excess of supply during depression.
d. demand for public goods is greater than demand for consumer goods.

Balance of Payments, Aid, and

Foreign Investment
_____________________________________________________________________
___

 Globalization involves the expansion of economic activities across nation

states, deepening economic openness, integration, and interdependence among
countries.
 External openness generally benefits most of the world but is likely to
marginalize peripheral countries, especially their poorest citizens.
 A capital inflow enables a country to invest more than it saves and import
more than it exports.
 A newly industrializing country that effectively uses an inflow of foreign
funds should usually be able to pay back its debt from increased output and
productivity.
 Exports minus imports of goods and services equal the international balance
on goods, services, and income.
 Aid, remittances, loans, and investment from abroad finance a balance on
goods and services deficit.
 Countries give concessional aid to LDCs for reasons of national economic and
political interest, ideology, humanitarianism, and global political maintenance.

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 In 2001, Organization for Economic Cooperation and Development (OECD)

countries (the West and Japan) fell to $51.4 billion, 0.22 percent of GNP. Aid
given by the United States, the largest giver, was also lowest as a percentage of
GNP. The grant component of OECD concessional aid to LDCs was 94 percent.
 The major multilateral agencies providing concessional aid to LDCs were the
International Development Association (a World Bank affiliate), the Commission
of the European Communities, and the UN.
 A large share of international trade is multinational corporations’ intra-firm
trade. Although the United States still accounts for the largest share of the world's
foreign, private investment, its share steadily declined between 1971 and 2001.
 The largest multinational corporations have an economic strength comparable
to that of the LDCs with which they bargain. In 2001, the top ten recipients
received 73 percent of inward foreign direct investment (FDI). China was the
leading LDC recipient of FDI.
 Although MNCs in developing countries provide scarce capital and advanced
technology for growth, doing so may increase LDC dependence on foreign capital
and technology. The LDCs need a judicious combination of MNCs, joint MNC
local ventures, licensing, and other technological borrowing and adaptation.
 Loans to developing countries at bankers’ standards fell from 1990 to 2002.
 Why doesn’t capital flow from rich to poor countries? LDC capital markets
are imperfect and often subject to political risk.
 Why does 10 percent of the rest of the world’s savings flow to the United
States? The US has the most highly developed market for financial assets, and
attracts savings as the world’s largest reserve and trading currency.

Fill-in Questions
aid (official development assistance) ________________________
anti-globalization ________________________
average propensity to remit ________________________
bilateral aid ________________________
capital import ________________________
concessional funds ________________________
current account ________________________
direct investment ________________________
euro ________________________
Eurocurrency ________________________
Eurodollars ________________________
Fungible ________________________
General Agreements on Tariffs and Trade ________________________
globalization ________________________
global public goods ________________________
hawala system ________________________
international balance of payments statement ________________________
international balance on goods and services ________________________
International Development Association (IDA) ________________________
International Monetary Fund (IMF) ________________________
Investment ________________________
multilateral aid ________________________

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multinational corporations ________________________

oligopoly ________________________
portfolio investment ________________________
public goods ________________________
remittances ________________________
turnkey projects ________________________
vertical integration ________________________
World Bank ________________________

Multiple-Choice Questions
1. Dani Rodrik points out that
a. an economy more open to foreign trade and investment faces a more inelastic
demand
for unskilled workers.
b. employers and consumers can more readily replace domestic workers with foreign
workers by investing abroad or buying imports.
c. globalization increases job insecurity.
d. financial liberalization in LDCs leads to collapse of the economy.

2. Which of the following statement is NOT true about OECD aid?

a. During the 1980s, OECD countries contributed four-fifths of the world's bilateral
official development assistance to LDCs.
b. In the early 1990s, the OECD contributed 98 percent of all aid.
c. The OECD aid increased from $6.9 billion in 1970 to $8.9 billion in 2001.
d. In 2001, only Denmark, Norway, Sweden, the Netherlands, and Luxembourg
exceeded the aid target for LDCs.

3. Japan's aid programs

I are understaffed, politically muddled, and administratively complex.
II are biased toward Asia.
III go primarily to least developed countries in Africa.
IV focus on loans and the grant element of aid is low.
a. I, II and III.
b. I, II and IV.
c. II, III and IV.
d. I, II, III and IV.

4. Aid or official development assistance (ODA) includes

I development grants.
II loans with at least 25 percent grant element.
III military assistance.
IV technical cooperation.
a. I and II only.
b. I, II and III only.
c. I, II and IV only.

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d. I, II, III and IV only.

5. I = S + F
The equation above states that a country can increase its new capital formation (or
investment) through its
a. own domestic savings and by inflows of capital from abroad.
b. stock market and fiscal policy.
c. savings from abroad and financial outflow.
d. savings and financial liberalization.

6. MNCs can help the developing country to

I Finance a savings gap or balance of payments deficit.
II Obtain foreign technology and innovative methods of increasing productivity.
III Generate appropriate technology by adapting existing processes.
IV Employ domestic labor, especially in skilled jobs.
a. I and II only
b. III and IV only
c. I, II and III only
d. I, II, III and IV

7. An annual summary of a country's international economic and financial

transactions is
a. the capital account.
b. the international balance of payments statement.
c. the long term current account.
d. the trade account.

8. Hollis Chenery and Alan Strout identify three development stages in which
growth proceeds at the highest rate permitted by the most limiting factors. These
factors are
I the skill limit.
II the savings gap.
III the fiscal gap.
IV the foreign exchange gap.
a. I and II only.
b. II and IV only.
c. I, II and III only.
d. I, II and IV only.

9. Some economists and third-world policy makers criticize MNCs, arguing that they
have a negative effect on the developing country because they
I Increase the LDC's technological dependence on foreign sources, resulting in less
technological innovation by local workers.
II Hamper local entrepreneurship and investment in infant industries.
III Increase unemployment rates from unsuitable technology.
IV Restrict subsidiary exports when they undercut the market of the parent company.

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a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.

10. Barro and Lee find that, ceteris paribus, IMF lending has
a. negative effect on economic growth during the simultaneous five-year period but
has a
significantly positive effect on growth in the subsequent five years.
b. no effect on economic growth during the simultaneous five-year period but has a
significantly negative effect on growth in the subsequent five years.
c. a significantly positive effect on growth for ten years.
d. an exponentially negative effect on growth for 5 years.

11. Carmen Reinhart and Kenneth Rogoff explain the paradox of capital flows from
poor to rich countries by
a. the brain drain from LDCs to DCs.
b. the prime role of political and credit-market risk in many LDCs.
c. the law of increasing returns that implies that the marginal productivity of capital is
higher in LDCs.
d. the fact that the DC capital market is perfectly competitive.

12. The IMF is an agency charged with providing

a. technical assistance to stock market and financial market problems.
b. loans for post-World War II reconstruction.
c. short-term credit for international balance of payments deficits.
d. bonds denominated in U.S. dollars as a loan to LDCs.

13. In a portfolio investment

a. investors are directly involved in managing the operations.
b. as in direct investment, investors export goods and services abroad.
c. investors transfer the technology to local investors.
d. investors have no control over operations.

14. The U.S. real food aid, as well as food reserves dropped from the 1960s to the
1980s partly because
a. the transportation and storage cost increased tremendously.
b. proponents of basic-needs attainment opposed food-aid.
c. U.S. farm interests wanted to reduce surplus grain stocks.
d. agricultural production suffered excessively due to weather changes.

15. For Harvard’s Dani Rodrik, globalization involves

a. decreasing autonomy of the nation-state politically.
b. the increasing international integration of markets for goods, services, and
capital.
c. changes of a traditional culture of a country to a western culture.

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d. giving aid to poor countries to improve their economy, politics and social status.

16. Columbia’s Jagdish Bhagwati criticizes United States administrations’ inability to

distinguish between benefits of free trade
a. and the dangers of free capital movements for LDCs with poorly developed
financial institutions.
b. and the dangers of a trade deficit.
c. and the external openness of income growth among the poorest 40 percent of
LDCs.
d. and MNC domination and its effects on income distribution.

17. U.S. total official development assistance to developing countries is

a. lowest among the OECD countries.
b. higher currently than it was in the 1960s and 1970s.
c. is equivalent to Holland’s aid.
d. None of the above statements is true.

18. The balance on current account

I equals the absolute value of the balance on capital account.
II is financed by savings.
III is net grants minus remittances.
IV includes goods, services, and unilateral transfers.
a. I and II only.
b. II and III only.
c. I and IV only.
d. None of the above.

19. Bilateral aid

a. is technical aid given by IMF.
b. is given directly by one country to another.
c. is aid with repayment in inconvertible currency.
d. is a loan at bankers' standards.

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The External Debt and Financial

Crises
_____________________________________________________________________
___
 Some of the causes of the debt crisis have been global shocks and instability a
decline in the ratio of official aid to commercial loans, inefficiency, poor
economic management, overvalued domestic currencies, and capital flight.
 Lending to LDCs (especially Latin American) may be undermined by capital
flight because perceived risk adjusted returns are higher in haven countries than in
LDCs.
 LDCs, especially Latin American, had an increase in their real external debt in
the last quarter of the twentieth century.
 The LDC debt service ratio more than doubled from the early 1970s to the late
1980s, but has fallen since then.
 The exposure of several major U.S. commercial banks to losses from LDC
loan write offs or write downs was substantial in the 1980s.
 The ratio of debt service to GNP is not always a good indicator of the debt
burden.
 Middle income countries account for almost four-fifths of the total outstanding
debt of all LDCs. Yet the debt burden for low income countries, such as the
majority of sub Saharan African countries, which have poor credit ratings, may be
as heavy as for middle income countries.
 Cross-border capital movements benefited LDC recipients in the long run but,
because of potential reverse outflows, increased vulnerability to financial and
currency crises.
 These financial and currency crises, also caused by large bank bad debt,
current account deficits, real currency appreciation, and fast credit growth, had a
negative impact on economic growth.
 In the late 1970s through the early years of the twenty-first century,
developing countries with chronic external deficits required economic adjustment,
imposed domestically or by the World Bank or IMF.
 In 1979, the World Bank began structural adjustment loans and soon thereafter
sectoral adjustment loans. IMF loans of last resort were conditioned on an LDC
implementing an acceptable macroeconomic stabilization program.
 Additionally, in 1986-87, the IMF initiated structural adjustment loans for
LDCs experiencing unanticipated external shocks.
 Finance officials in DCs instituted several plans for resolving the debt crisis.
The Baker plan (1985) emphasized new loans from multilateral agencies and

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surplus countries, while the Brady plan (1989) stressed debt reduction or
writedowns.
 Debt writedowns require multilateral coordination among creditors to avoid
the free-rider problem in which nonparticipating creditors benefit from the
increased value of debt holdings.
 Mosley, Harrigan, and Toye refer to the IMF and World Bank as a "managed
duopoly of policy advice."

Fill-in Questions
Baker plan ________________________
basis points ________________________
Brady plan ________________________
capital flight ________________________
debt exchanges ________________________
debt-for-development swaps ________________________
debt-for-nature swaps ________________________
Debt Reduction Facility ________________________
debt service ________________________
debt service ratio ________________________
Enterprise for the Americas Initiative (EAI) ________________________
exchange control ________________________
Group of Seven (G7) ________________________
hedging ________________________
HIPC initiative ________________________
IDA-eligible countries ________________________
London Club ________________________
London Interbank Offered Rate (LIBOR) ________________________
managed floating exchange rate system ________________________
negative real interest rates ________________________
net transfers ________________________
Paris Club ________________________
policy cartel ________________________
propensity to flee ________________________
real domestic currency appreciation ________________________
real domestic currency depreciation ________________________
risk premium ________________________
total external debt (EDT) ________________________

Multiple-Choice Questions
1. A country's total external debt (EDT) includes
I short-term debt with a maturity of one year or less.
II long-term debt with a maturity of more than one year.
III repurchase obligations to the IMF.
IV public official development assistance.
a. I and II only.
b. III and IV only.
c. I, II and III only.

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d. I, II and IV only.

2. Which of the following is NOT true about external debt?

a. External debt accumulates with international balance on goods, services, and
income
deficits.
b. When debts are denominated in U.S. dollars, their appreciation during the 1980s
and
1990s increased the cost of servicing such debts.
c. In the 1990s LDCs relied increasingly on aid from DCs.
d. International lenders required LDC governments to guarantee private debt.

3. Which of the following country did not experience large capital flights from 1976
to 1984?
a. Argentina.
b. Venezuela.
c. Mexico.
d. Canada.

4. Which of the following will NOT reduce capital flight from source countries?
a. dependable positive real interest rates.
b. higher taxes on capital gains.
c. more efficient state enterprises.
d. market liberalization.

5. Which of the following country did NOT suffer from increased poverty from debt
and financial crises in the 1990s?
a. Singapore (1994).
b. Mexico (1994).
c. Russia (1998).
d. Brazil (1998).

6. The debt-service ratio is the

a. long-term debt divided by GDP of a country in a given year.
b. interest and principal payments divided by exports of goods and services.
c. ratio of debt net of portfolio investment, financing, and foreign direct investment.
d. default and reschedule debt minus annual export revenues that must be devoted to
paying interest.

7. Net transfers are

a. investment, loans, and grants from overseas minus international resource outflows.
b. net international resource flows minus net international interest payments and
profit remittances.
c. international resource outflows minus international balance of payments and profit
remittances.

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d. foreign direct investment inflow minus investment, loans, and grants from
overseas.

8. Which of the following country was not a major LDC debtor in 2001?
a. Brazil.
b. Argentina.
c. Thailand.
d. Malaysia.

9. Which of the following countries were NOT beneficiaries of Jubilee 2000

writedowns and concessional funds?
I Cote d’Ivoire.
II Ethiopia.
III Nigeria.
IV Sierra Leone.
a. I and III only.
b. I only.
c. I, III and IV only.
d. I, II, III and IV.

10. Which of the following factors potentially increased the vulnerability to the 1997
Asian financial and currency crisis?
a. trade account surplus.
b. massive reverse outflows of capital.
c. technological transfer from DCs.
d. symmetric information in financial market.

11. Initial conditions in the year before the crisis in Thailand, Indonesia, Malaysia,
the Philippines, and Korea in 1997 indicate that
I capital inflows/GDP were very low.
II nonperforming bank loan ratios were high.
III current account deficits were high.
IV credit growth was fast.
a. I and IV only.
b. II and III only.
c. I, II, and III only.
d. II, III and IV only.

12. Shortly after 1979, World Bank introduced loans that emphasized reforms in
trade, agriculture, industry, public enterprise, finance, energy, education, or other
sectors and were known as
a. structural adjustment loans.
b. sectoral adjustment loans.
c. internal adjustment loans.
d. external leverage loans.

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13. Fundamentalists want the IMF to lend to crisis-stricken countries on condition

that they undertake fundamental structural reforms in banking. Joseph Stiglitz,
however, thinks it is
a. unrealistic for IMF to intervene in the financial markets of poor countries during
the
crisis.
b. impractical for the IMF to loan short-term as reforms can only be effective in the
middle- to long-run.
c. crucial that the IMF intervene in the reform of fiscal policy of the country and not
the monetary policy.
d. None of the statements above is correct.

14. Which IMF policy toward capital flows do Stiglitz, Krugman, and Bhagwati
denounce?
a. Toleration of stock market instability.
b. Premature capital market liberalization.
c. Support for capital controls.
d. Excessive emphasis on growth.

15. Which of the following statement is NOT true?

a. The ratio of debt service to GNP is a very good indicator of the debt burden.
b. Many large LDC debtors borrowed heavily because of their excellent international
credit ratings.
c. Middle income countries account for almost four-fifths of the total outstanding debt
of all LDCs.
d. The debt-burden of sub-Saharan African countries may be as heavy as for
middle-income countries.

16. Mosley, Harrigan, and Toye refer to the IMF and World Bank as
a. excessively committed to writing down LDC debt..
b. a managed duopoly of policy advice.
c. a U.S. monopoly.
d. the initiator of HIPCs’ debt forgiveness.

17. The Baker plan (1985) stressed ______ and the Brady plan (1989) emphasized
_____ respectively
a. IMF decentralization; World Bank dissolution.
b. new loans from multilateral agencies and surplus countries; debt reduction or
writedowns.
c. structural adjustment loans for LDCs experiencing unanticipated external shocks;
renewed emphases on macroeconomic stabilization programs.
d. debt relief for at least three-fourths of the eligible HIPCs; shorter requirements for
adjustment programs.

18. The policy cartel on debt reduction refers to the

a. screening of debtors based on their regional location.

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b. World Bank requiring LDCs seconded by a DC to get loan reduction.

c. loan denial to crisis-stricken highly indebted countries.
d. None of the above.

19. Highly-indebted poor countries (HIPCs) include

I Bolivia.
II Benin.
III Uganda.
IV Tanzania.
a. I and II only.
b. I, II, III only.
c. I, III and IV only.
d. I, II, III, and IV.

20. In 1990, during the Persian Gulf War, the U.S. government extended generous
terms to two middle-income countries by canceling or reducing their debt. The two
countries are
a. Iraq and Iran.
b. Egypt and Poland.
c. Pakistan and Afghanistan.
d. Saudi Arabia and Jordan.

International Trade

_____________________________________________________________________
___

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 The LDCs generally gain from a free trade policy wherein they produce goods
in which they have a comparative advantage. Factor endowment and technology
help determine a country's comparative advantage.
 Exceptions to the free trade argument include increasing returns to scale,
external economies, potential technological borrowing, changes in factor
endowment, a revenue tariff, increased employment, improved balanced of trade,
greater domestic stability, national defense, antidumping, and reduced luxury
consumption.
 In the more than one hundred years since the last quarter of the nineteenth
century, the commodity terms of trade of primary product exporters have probably
fallen.
 Export promotion is generally more effective than import substitution in
expanding output and employment.
 Rapid growth in LDC manufactured exports in the last few decades was
primarily concentrated in middle income countries, such as Taiwan, South Korea,
Hong Kong, Singapore, Spain, Brazil, Thailand, Indonesia, and Malaysia.
 Although the generalized system of tariff preferences and the 1970s' Tokyo
Round negotiations reduced DC tariffs on selected LDC imports, these gains may
have been outweighed by losses from protectionist policies set up during the
1980s. Additionally DCs increased nontariff trade barriers against LDC imports,
especially labor intensive goods, in the late 1970s, 1980s, and 1990s.
 For DCs with no tariff on LDC primary products but a substantial tariff on
manufacturing and processing that uses primary goods as inputs, the nominal rate
of protection is greater than the effective rate of protection.
 Expanding primary exports stimulated rapid economic growth in a number of
Western countries in the nineteenth century, but this approach has had a more
limited impact on growth in today's LDCs.
 Although the IMF's and European Union's compensatory financing schemes
have helped stabilize LDC export earnings, a common fund has not been
established, and buffer stock agreements have been of limited value.
 Agricultural subsidies in the United States, European Union, and Japan are
major barriers against LDC farm exports.
 The LDCs with a foreign exchange price below the market clearing price can
improve import rationing, encourage import substitution, and promote exports by
depreciating their currencies. Yet the gains may be limited if domestic prices are
still repressed.
 Regional economic integration among LDCs or of LDCs with DCs has the
potential for limited gains in LDC economic growth. However, regional free trade,
while superior to bilateral trade agreements, is inferior to worldwide free trade in
global efficiency.
 Developing countries gain from integration within the Asian and North
American borderless economies.
 However, members of these economies need to ensure that they do not
sacrifice their economic autonomy and gains from learning to integration as a
peripheral economy within a Japanese- or U.S.-organized borderless economy.
Fill-in Questions
Asian borderless economy ________________________
boomerang effect ________________________
buffer stocks ________________________
cartel ________________________

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commodity terms of trade ________________________

common market ________________________
comparative advantage ________________________
complete economic and monetary union ________________________
currency mismatch ________________________
customs union ________________________
Doha Development Round ________________________
Dumping ________________________
economic integration ________________________
economic union ________________________
effective rate of protection ________________________
Engel's law ________________________
Euro ________________________
exchange controls ________________________
export purchasing power ________________________
factor proportions theory ________________________
free trade area ________________________
General Agreements on Trade in Services (GATS) ________________________
generalized system of tariff preferences (GSP) ________________________
global production sharing ________________________
Group of 77 ________________________
Heckscher Ohlin theorem ________________________
import substitution ________________________
impossible trinity ________________________
income elasticity of demand ________________________
income terms of trade ________________________
infant entrepreneurship ________________________
infant industry arguments ________________________
inflation targeting ________________________
integrated program for commodities ________________________
intellectual property rights ________________________
intraindustry trade ________________________
laissez faire ________________________
liberalism ________________________
managed floating plus ________________________
monopolistically competitive ________________________
Multifiber Arrangement (MFA) ________________________
price of foreign exchange (exchange rate) ________________________
Prebisch Singer thesis ________________________
preferential trade arrangements ________________________
product cycle model ________________________
product differentiation ________________________
real appreciation ________________________
real exchange rate ________________________
rules of origin ________________________
single factoral terms of trade ________________________
special drawing rights (SDRs) ________________________
staple theory of growth ________________________
technological advantage ________________________
trade creation ________________________

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trade diversion ________________________

Uruguary Round ________________________
World Trade Organization ________________________

Multiple-Choice Questions
1. Jeffrey A. Frankel and David Romer found that a 1-percentage-point increase in
trade to GDP
a. has no impact on income per capita.
b. increases income per person by 0.5 - 2 %.
c. reduces economic growth by 5%.
d. is negatively correlated with income growth among the poorest 40 percent of
LDCs.

2. Mosley, Harrigan, and Toye (1991) argue that early liberalization of external trade
and supply-side stimulation in one glorious burst can result in
I rising unemployment.
II inflation.
III capital flight.
IV budget deficit.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II and IV only.

3. International trade and specialization are determined by

a. absolute advantage.
b. comparative advantage.
c. absolute costs.
d. production possibility frontier.

Use Table 1 to answer questions 4-6

TABLE 1 Comparative Costs of Textiles and Steel in India and Japan
India Japan
Textiles (price per meter) Rs. 50 Y300
Steel (price per ton) Rs. 200 Y400

4. The ratio of the price of steel to that of textiles is ________in Japan and _______in
India.
a. 4:3; 4:1.
b. 3:4; 1:4.
c. 0.75; 0.25.
d. cannot be determined.

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5. India has a comparative cost advantage in

a. textiles.
b. steel.
c. both of them
d. none of them

6. Japan has comparative cost in

a. steel.
b. textiles.
c. both of them.
d. cannot be determined.

7. Factor proportions theory is also known as the

a. comparative advantage theory.
b. laissez-faire theorem.
c. HeckscherOhlin theorem.
d. product cycle model.

8. The product cycle model indicates that while a product requires _______labor in
the beginning, later as markets grow and techniques become common knowledge, a
good becomes standardized, so that less-sophisticated countries can mass produce the
item with ________labor.
a. abundant, less.
b. less skilled, highly skilled.
c. a lot of , no.
d. highly skilled, less skilled.

9. Japanese economist Miyohei Shinohara (1982) speaks of a boomerang effect

referring to
a. US and Japanese MNCs competing in the Asian market to get more share in the
manufacturing production.
b. the intensification of competition in third markets arising from Japanese
enterprise expansion in other Asian countries.
c. advantages of free trade supersede the costs of trade restrictions in the Asian
countries.
d. tariffs, quantitative restrictions, and administrative barriers prevent a new good
from
appearing in the Asian markets.

10. The infant industry arguments refers to a tariff designed to

a. help foreign industries establish themselves in the local market.
b. protect young manufacturing products from foreign competition.
c. help consumers enjoy a variety of products in the local market.

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d. provide incentives for established local manufacturing firms to venture in foreign

markets.

11. The selling by Hyundai of its car cheaper in the United States than at home
(Korea) is known as
a. subsidized imports.
b. dumping.
c. internal economies of scale.
d. export substitution.

12. The commodity terms of trade equals the

a. (exports prices minus import prices)/ exchange rates.
b. exchange rates of country i divided by exchange rates of country j.
c. external balances/ balance of payments.
d. price index of exports divided by the price index of imports.

13. Engel's law indicates that as income increases

a. the proportion of income spent on manufactured goods rises and on primary
products falls.
b. the proportion of income spent on consumer goods rises and on capital products
falls.
c. the proportion of income spent on consumer, capital and necessity goods rises.
d. the proportion of income spent on giffen goods rises.

14. If export prices increase 5 percent and import prices 20 percent, the commodity
terms of trade is
a. 0.91.
b. 0.88.
c. 0.25.
d. 4.

15. The Organization of Petroleum Exporting Countries (OPEC) is a ________

whose members have agreed to limit output and fix prices.
a. duopoly.
b. generalized system of tariff preferences.
c. multifiber arrangement.
d. cartel.

16. The buffer stock management

a. secures more stable, remunerative, and equitable exchange rates for LDCs.
b. facilitates capital stock overaccumulation in LDCs.
c. buys and sells commodities to maintain prices within a certain range.
d. subsidizes commodities that are important for national security reasons.

17. Overvaluing the domestic currency relative to foreign currency will

a. discourage import substitution and exports.
b. encourage exports and discourage imports.
c. always leads to a balance of trade.

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d. create a trade surplus in the local market.

18. The real exchange rate is

a. the nominal exchange rate adjusted for relative inflation rates at home and
abroad.
b. the price of foreign exchange divided by CPI of previous year.
c. the CPI divided by exchange rate of home country.
d. the weighting the nominal exchange rate index of each trading partner.

Development Planning and

Policymaking: the State, and

the Market
_____________________________________________________________________
___
 A state planning ideology arose in LDCs as a reaction to nationalist
perceptions of slow economic growth under colonial capitalism.
 Development planning is the government's coordinated policies to achieve
national economic goals, such as rapid economic growth.
 Deepak Lal argues that development economics is dominated by dirigiste,
those in favor of government intervention into LDC prices.
 Planning in many LDCs has failed because detailed programs for the public
sector have not been worked out, and excessive controls are used in the private
sector.
 At one pole, Soviet "controlling" planning, which took years to develop, was
still subject to decentralized management discretion, even before the
Gorbachev era.
 The plan and market are separate ways of coordinating transactions. Although
the market allocates scarce resources efficiently among alternative means, it

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may not work so well as planning in considering externalities, correcting for

market failure, mobilizing saving, and adjusting for monopolies.
 Thus planning eliminates certain costs of the market but also increases large-
scale diseconomies through diminishing returns to management. The choice
for developing countries is usually not between the plan and the market, but
between various combinations of the two.
 Worker managed socialism helped contribute to Yugoslavia's rapid economic
growth from 1959 to 1979, but 1976 reforms, increasing checks and balances
and bureaucratizing enterprise decision making, hampered policy
implementation and increased worker dissatisfaction.
 Most LDCs have too few resources, skills, and data to benefit from complex
macroeconomic planning models. Yet a simple aggregate model may be useful
as a first step in drawing up policies and projects.
 An input output table is useful for assessing the effects of different
development strategies on exports, imports, the balance of payments,
employment, national income, and sectoral investment demand and output.
 Most LDCs with a large private sector are limited to an indicative plan that
states expectations, aspirations, and intentions but authorizes little public
spending.
 In most mixed and capitalist LDCs, documents showing how to improve data
collection, raise revenue, recruit personnel, and select and implement projects
are more important for successful planning than planning models.

Fill-in Questions
Afro-Asian socialism ____________________________
commanding heights ____________________________
controlling plan ____________________________
current expenditures ____________________________
development planning ____________________________
dirigiste debate ____________________________
indicative plan ____________________________
input output table ____________________________
instrument variables ____________________________
market socialism ____________________________
recurrent expenditures ____________________________
rolling plan ____________________________
soft budget constraint ____________________________
target variables ____________________________

Multiple-Choice Questions
1. Deepak Lal argues that development economics is dominated by a _______
approach that favors government intervention into LDC prices.
a. dirigiste.

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b. Keynesian.
c. commanding heights.
d. soft budget.

2. Takatoshi Ito (1992) contends that parliamentary governments manipulate the

timing of ________, while presidential governments manipulate the timing of
_______.
a. monetary policy; fiscal policy.
b. elections; economic policies.
c. economic policies; political policies.
d. tax collection, tax implementation.

3. Government's use of coordinated policies to achieve national economic objectives

is
a. commanding heights.
b. entrepreneurial programs.
c. public physical policy.
d. development planning.

4. The market efficiently allocates scarce resources among alternative ends such that
I consumers receive goods for which they are willing to pay.
II production resources hire out to maximize income.
III the market determines available labor and capital.
IV the market distributes income among rich individuals.
a. III and IV only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.

5. According to Oskar Lange’s model, socialist enterprises should produce where

a. the monopoly profit maximization rule applies.
b. product price equals marginal cost.
c. marginal revenue equals average cost.
d. total revenue equals total cost.

6. The input-output table, when divided vertically, shows

a. the inputs to each industry from other industries and sectors.
b. development planning and the required information on national income growth.
c. the planned public capital divided by feasible actual industrial projects public
capital.

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d. how the output of each industry is distributed within the sectors of the economy.

7. Worker-managed socialism helped contribute to _________'s rapid economic growth

from 1959 to 1979.
a. Yugoslavia.
b. Chile.
c. Vietnam.
d. Japan.

8. A medium-term plan can be a(n) _________, revised at the end of each year.
a. instrument variable.
b. seasonal expenditure.
c. rolling plan.
d. perspective plan.

9. Most mixed or capitalist developing countries are limited to an indicative plan, which
indicates expectations, aspirations, and intentions
a. but falls short of authorization.
b. with immediate implementation.
c. of the central bank.
d. of implementation through foreign aid.

10. Annual GNP growth of 6%.

Poverty reduced by 1 % point of the population
Balance of payments deficit not in excess of $200 million.
For a planner, the above are
a. achieved only through socialism.
b. target variables.
c. bound by soft budget.
d. recurrent expenditures.

11. Polish economist Oskar Lange's model of decentralized ___________ combined the
advantages of market allocation with more uniform income distribution by dividing the
returns from social ownership of nonhuman, productive resources among the whole
population.
a. market socialism.
b. capitalism.
c. mixed economy.
d. monopoly.

12. Goals are achieved through ___________, such as monetary, fiscal, exchange rate,
tariff, tax, subsidy, business incentive, foreign investment and foreign aid.
a. indicative plan.
b. central bank policies.
c. central planning.
d. instrument variables.

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13. Branko Horvat’s historical review of the last two and one-half century indicates
that, in large part, market or decentralized socialism
a. has failed.
b. works well in Utopia.
c. is widely used in sub-Saharan Africa.
d. is the only way to eradicate poverty.

14. Under Soviet-type economy-wide central planning,

a. most resources lack freedom to move to their highest value uses.
b. resources are free to move to their lowest cost uses.
c. resources owned by private entities moves to efficient use but not those owned
publicly.
d. resources are privately owned by capitalists.

15. Which of the following assumptions underlying input-output analysis raise

questions about its validity?
I The technical coefficients are fixed, which means no substitution between inputs
occurs.
II There are no externalities, so that the total effect of carrying out several activities is
the
sum of the separate effects.
III Each good is produced by only one industry, and each industry produces only one
commodity.
IV There is no technical change.
a. I and II only.
b. I, II, III only.
c. I, II, IV only.
d. I, II, III and IV.

16. Which of the following is not a public policy to promote the private sector?
a. Investigating development potential through scientific and market research, and
natural
resources surveys.
b. Providing adequate infrastructure for public and private agencies
c. Creating markets, including commodity markets, security exchanges, banks, credit
facilities, and insurance companies.
d. Increasing market monopolies and oligopolies to help producers.

17. A state planning ideology arose in LDCs as a reaction to nationalist perceptions of

a. keeping balanced budget a prime target.
b. slow economic growth under colonial capitalism.
c. minimizing public spending in the rural areas.
d. western countries’ nation-state ideology.

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18. Planning in many LDCs has failed because detailed programs for the public sector
have not been worked out and
a. governments depend primarily on their colonial masters.
b. excessive controls are used in the private sector.
c. the brain drain cost government substantially.
d. monopolies dominate in the agricultural sector.

Stabilization, Adjustment,

Reform, and Privatization

_____________________________________________________________________
___

 Many third-world countries of Africa, Asia, and Latin America can learn from
Russia's, Poland's, and China's efforts at liberalization and adjustment.
 Russia's state socialism, more developed and deep-seated than Poland's and
China's, required more substantial institutional change for successful transition to
the market
 Russia's legacies of consumer-goods neglect, gigantimania and industrial
concentration, resistance to technological innovation, shoddy quality, quota
disincentives, and information concealment were more institutionalized than
Poland's.
 Peter Nolan (1995) has two explanations for the success of China's economic
growth and reforms compared to Russia’s: (1) China’s pursuit of economic
reforms while avoiding political liberalization (similar to other East Asian fast-
growing economies) and (2) China's step-by-step approach to economic reform,
rejecting "shock therapy," especially as practiced by the IMF and World Bank.
 John Ross (1994:19-28) provides several rules for liberalization policy, based
on the experiences of China, Russia, and Eastern Europe.
 In agriculture, China decollectivized much more successfully than Russia,
which stifled private initiative and marketization. In industry, China encountered
many of the same stubborn interests opposing liberalization as Russia did.
 Third-world countries should not follow the path of Russia or China to reform,
although these countries can learn lessons from Russia and China.
 Each developing country needs to find its own path toward adjustment and
development.

Fill-in Questions

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Adjustment
____________________________
balance of payments equilibrium
____________________________
conditionality
____________________________
creative destruction
____________________________
economic rents
____________________________
European Bank for Reconstruction and Development
___________________________
expenditure-reducing policies
____________________________
expenditure switching policies
____________________________
external balance
____________________________
Gosplan
____________________________
individual economy
____________________________
internal balance
____________________________
management responsibility system
____________________________
material balance planning
____________________________
net material product (NMP)
____________________________
nomenklatura system
____________________________
parastatals
____________________________
privatization
____________________________
public enterprises
____________________________
public goods
____________________________
shock therapy
____________________________
soft budget constraint
____________________________
state owned enterprises (SOEs)
____________________________
structuralists
____________________________
township and village enterprises (TVEs)
____________________________

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Multiple-Choice Questions
1. Which of the following may constitute the International Monetary Fund’s
conditionality for borrowing?
I government reducing budget deficits.
II limiting credit creation and liberalizing trade.
III achieving market-clearing prices.
IV restraining public-sector employment and wage rates.
a. I and II only.
b. III and IV only.
c. I, II, III and IV.
d. None of the above.

2. Countries with chronic balance of payments deficits eventually need to borrow

abroad, often from the _______ as the lender of last resort.
a. U.S.
b. OECD.
c. IMF.
d. OPEC.

3. According to the Brandt report, the IMF's insistence on drastic measures in short
time periods
I contributes to low-income countries’ recovery quickly.
II reduces basic-needs attainment.
III may lead to "IMF riots."
IV may lead to the downfall of governments.
a. I only.
b. II only.
c. I and II only.
d. II, III and IV only.

4. S = Savings, I = domestic investment, X = exports of goods and services, and M =

imports of goods and services.
Which of the following is true?
a. S - I = X - M.
b. S + I = X + M.
c. S = I - (X+M).
d. S-I = X /M.
5. Internal balance refers to
a. full employment and price stability.
b. exports minus imports.
c. monetary policy offsetting fiscal policy.
d. exports equal to imports.

6. Countries facing a persistent external deficit can

I borrow overseas.
II increase trade restrictions and exchange controls.
III undertake expansionary monetary and fiscal policies.
IV undertake expenditure-reducing policies.
a. I and II only.

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b. III and IV only.

c. I, II and III only.
d. I, II and IV only.

7. When the World Bank or IMF requires improved external balance in the short run,
the agency may condition its loan on expenditure switching, that is,
a. switching spending from domestic to foreign sources.
b. devaluing local currencies.
c. increase trade restrictions by imposing quota.
d. increase government spending.

8. Structural economists from the United Nations Economic Commission for Latin
America (ECLA) emphasized
a. contractionary monetary and fiscal policies.
b. currency devaluation.
c. long-run institutional and structural economic change.
d. short term-adjustment with a human face.

9. Countries such as____________, that failed to adjust to a persistent external

disequilibrium, were more vulnerable to poverty, displacement, and even war.
a. Japan and Korea.
b. Brazil and Argentina.
c. Algeria and Yugoslavia.
d. Singapore and Malaysia.

10. In 1979-80, China first created ____________for foreigners to set up

enterprises, hire labor, and import duty-free goods for processing and re-exporting.
a. special economic zones.
b. liberalized trade monopoly zones.
c. economic union zones.
d. communist free trade areas.

11. Before the 1978 reforms, China had a(n)

a. agricultural bank only.
b. urban credit cooperatives.
c. monobank system.
d. housing savings banks.

12. The industrial concentration ratio is the proportion of an industry’s output

a. produced by the three largest firms in the industry.
b. produced in cement, machine tools and steel industries.
c. and labor intensities relative to labor productivity.
d. as a percentage of production and marketing.

13. Which of the following is not a quasi-public good?

a. national defense.
b. an automobile.
c. libraries.

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d. fire protection.

14. State-owned enterprises (SOEs) are also called

a. centralized firms.
b. government oligopolies.
c. market economies.
d. public enterprises.

15. Which of the following statement is NOT true about state owned enterprises
(SOEs)?
a. SOEs perform better with competition.
b. Successful performing SOEs in Japan, Singapore and Sweden have greater
managerial autonomy and accountability than other SOEs.
c. SOEs in South Korea and Sweden generally achieve inferior economic results to
those in Ghana.
d. Financial autonomy is a major factor contributing to SOE managerial effectiveness.

16. Privatization refers to a range of policies including

I changing part of a public enterprise's ownership to the private sector.
II liberalization of entry into activities previously restricted to the public sector.
III two infant industries merging into a monopoly.
IV franchising or contracting public services or leasing public assets to the private
sector.
a. III only.
b. IV only.
c. I, II and IV only.
d. None of the above.

17. A development bank based in London, which loans funds to governments of

Eastern Europe and the former Soviet Union is the
a. Transitional Monetary Fund.
b. World Bank.
c. European Bank for Reconstruction and Development.
d. OECD.

18. A critic of “shock therapy” to transition economies, Vladamir Popov, contends that
shock therapists put a heavy emphasis on
a. introducing the reform package at once to ensure that it became too late and costly
to reverse the reforms.
b. agricultural reform rather than industrial reform to overcome food insecurity.
c. the creation of a small-scale private sector and small independent banks.
d. attempts to gradually remake institutions.

19. Pathologies endemic to the Soviet bureaucracy included secrecy, formalism,

cumbersome procedures, rigidity, and the tendency to concentrate on control rather
than performance. The party controlled the state by using the _________, the power

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to recommend and approve managers in administration and enterprises, of

appointments and promotions to control access to government positions.
a. Gosplan.
b. Gosagroprom.
c. nomenklatura system.
d. parastatals.

1.D 2.B 3.D 4.A 5.B 6.B 7.B 8.B 9.D 10.D

11.D

1.B 2.A 3.C 4.A 5.B 6.A 7.D 8.C 9.B 10.C

11.A 12.B 13.A 14.C 15.C 16.D 17.D 18.C 19.A 20.B

21.A 22.A 23.C 24.A 25.A 26.A 27.A 28.A 29.A 30.B

31.B 32.A 33.A 34.C 35.C 36.B 37.C

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1.B 2.A 3.B 4.A 5.C 6.B 7.D 8.A 9.B 10.D

11.C 12.D 13.B 14.C 15.C 16.B 17.B 18.C

1.B 2.C 3.B 4.B 5.C 6.A 7.A 8.C 9.B 10.D

11.C 12.A 13.D 14.C 15.C 16.C 17.A 18.C 19.B 20.B

21.B 22.D 23.B 24.C

1.D 2.D 3.B 4.C 5.D 6.A 7.C 8.C 9.A 10.D

11.D 12.D 13.C 14.B 15.C 16.A 17.B 18.C 19.A 20.D

21.D 22.B 23.A

1.D 2.A 3.B 4.B 5.C 6.D 7.B 8.A 9.B 10.A

11.A 12.D 13.C 14.B

1.C 2.C 3.C 4.A 5.B 6.D 7.D 8.B 9.D 10.B

11.B 12.A 13.D 14.C 15.B 16.A

1.A 2.D 3.B 4.C 5.A 6.B 7.A 8. C 9.B 10.C

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11.A 12.B 13.A 14.B 15.B 16.D 17.B 18.D 19.A

1.B 2.C 3.A 4.D 5.B 6.D 7.A 8.C 9.B 10.A

11.D 12.A 13.C 14.A 15.B 16.A 17.D 18.A

1.B 2.D 3.A 4.B 5.C 6.B 7.C 8.D 9.D 10.B

11.B 12.B 13.C

1.B 2.C 3.D 4.B 5.A 6.B 7.A 8.B 9.C 10.D

11.D 12.C 13.B 14.A 15.B 16.A 17.C 18.D 19.C 20.A

1.B 2.D 3.A 4.C 5.A 6.B 7.D 8.D 9.A 10.A

11.D 12.D 13.A 14.C 15.A 16.B

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1.C 2.C 3.B 4.C 5.A 6.D 7.B 8.D 9.D 10.B

11.B 12.C 13.D 14.C 15.B 16.A 17.D 18.C 19.B

1.C 2.C 3.D 4.B 5.A 6.B 7.B 8.D 9.D 10.B

11.D 12.B 13.B 14.B 15.A 16.B 17.B 18.D 19.D 20.B

1.B 2.C 3.B 4.A 5.A 6.A 7.C 8.D 9.B 10.B

11.B 12.D 13.A 14.B 15.D 16.C 17.A 18.A

1.A 2.B 3.D 4.C 5.B 6.A 7.A 8.C 9.A 10.B

11.A 12.D 13.A 14.A 15.D 16.D 17.B 18.B

1.C 2.C 3.D 4.A 5.A 6.D 7.B 8.C 9.C 10.A

11.C 12.A 13.B 14.D 15.C 16.C 17.C 18.A 19.C

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
 ABSOLUTELY PREPARED AT HOME
ClASS NOTES
Class: IX Topic: Poverty as a challenge
Chapter-3 (Worksheet- MCQ)Subject: Economics
‫مش محلول‬Multiple Choice Questions
1. In which state is the public distribution system responsible for
the reduction in poverty?
(a) Andhra Pradesh
(b) Tamil Nadu
(c) Both (a) and (b)
(d) None of the above
2. Which of the following is responsible for high poverty rates?
(a) Huge income inequalities
(b) Unequal distribution of land
(c) Lack of effective implementation of land reforms
(d) All the above
3. Nutritional level of food energy is expressed in the form of
(a) calories per day
(b) wheat consumption
(c) rice consumption per day
(d) none of the above
4. Who advocated that India would be truly independent only
when the poorest of its people
become free of human suffering?
(a) Mahatma Gandhi
(b) Indira Gandhi
(c) Jawahar lal Nehru
(d) Subhash Chandra Bose
5. Who do not come under the category of urban poor?
(a) The casual workers
(b) The unemployed
(c) The shopkeeper
(d) Rickshaw pullers
6. Which scheme was started in 1993 to create self-employment
opportunities for educated
unemployed youth in rural areas and small towns?

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(a) Prime Minister Rojgar Yojana

(b) National Rural Employment Guarantee Act
(c) Rural Employment Generation Programme
(d) Swarnajayanti Gram Swarojgar Yoja
7. The calorie requirement is higher in the rural areas because:
(a) they do not enjoy as much as people in the urban areas.
(b) food items are expensive.
(c) they are engaged in mental work.
(d) people are engaged in physical labour.
 ABSOLUTELY PREPARED AT HOME
8. NFWP is stand for:
(a) National Federation for Work and Progress
(b) National Forest for Wildlife Protection
(c) National Food and Wheat Processing
(d) National Food for Work Programme
9. Which social group is most vulnerable to poverty in India?
(a) Scheduled castes
(b) Scheduled tribes
(c) Casual labourers
(d) All the above
10. Poverty line in rural areas is (As per 1999 – 2000 prices)
(a) Rs 328
(b) Rs. 370
(c) Rs 454
(d) Rs. 460
11. Which one from the following is considered as poor?
(a) A rich landlord
(b) A businessman
(c) A landless labourer
(d) A teacher
12. Who do not come under the category of urban poor?
(a) The casual workers
(b) The unemployed
(c) The shopkeeper
(d) Rickshaw pullers
13. Which one are not the major causes of income inequality in
India?
(a) Unequal distribution of land
(b) Lack of fertile land
(c) Gap between rich and the poor

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(d) Increase in population

14. What is the poverty ratio in the state of Orissa?
(a) 50%
(b) 47%
(c) 60%
(d) 57%
15. Which country of south- Asia Made rapid economic
growth?
a) India
b) China
c) Nepal
 ABSOLUTELY PREPARED AT HOME
d) Pakistan


Which two of the following are likely to represent the views

1. of ‘Commutative Justice’?

a) Each person should receive an income according to their

productivity performance
b) Difference in the distribution of income and wealth are
normal for any society
c) Each person should receive income according to need
d) The free market economy automatically solves the
inequality problem
e) A certain amount of social control is needed in an economy
to achieve a fair distribution of income

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c) and e)
Your Answer:
a) and b)
Correct
Answer:

Answer Feedback: c) is ‘Distributive Justice’; e) is often

linked to ‘Distributive Justice’.

Which two of the following are likely to represent the views

2. of those interested in ‘Distributive Justice’?

a) Each person should receive an income according to their

productivity performance
b) Difference in the distribution of income and wealth are
normal for any society
c) Each person should receive income according to need
d) The free market economy automatically solves the
inequality problem
e) A certain amount of social control is needed in an economy
to achieve a fair distribution of income

Your (blank)
Answer:

Which two of the following are most likely to reflect a move

3. towards a more equal distribution of income?

a) The share of total income going to the top 20% of income

earners rises from 40% to 50%
b) The Gini coefficient falls towards zero
c) The Gini coefficient rises towards one
d) The share of income going to the bottom 20% of income
earners falls from 8% to 7%
e) The share of total income going to the bottom 50% of
income earners rises from 40% to 50%
a) and c)
Your Answer:
b) and e)
Correct
Answer:

Answer Feedback: a) and c) are both less equal.

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Which two of the following are most likely to be associated

4. with an increase in the incidence of poverty?

a) The Gini coefficient falls substantially

b) The real income of those in the top 20% of income earners
falls by 10%
c) The number of households earning below 50% of average
incomes has increased substantially
d) The number of single persons with children and of single
pensioners has increased substantially
e) The number of people earning below the level of income
support has decreased
b) and d)
Your Answer:
c) and d)
Correct
Answer:

Answer Feedback: b) irrelevant.

Which two of the following are the most likely reasons why
5. the share of income going to employees has increased over
the past hundred years?

a) The productivity of labour has risen faster than the

productivity of capital
b) Increased investment in education and training has led to a
more highly skilled labour force
c) Self employment income has increased faster than GDP
d) The growth of the operating surplus of private
corporations has risen faster than GDP
e) There has been a rapid growth of labour-saving technology
in the service industry
a) and b)
Your
Answer:

In the following five questions you will be given a

6. description of a particular aspect of the income/wealth
distribution. Which one of the expressions listed underneath
each description most accurately fits the description.

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A line which links the cumulative percentage of population to

the cumulative percentage income share.
Perfect equality curve
Your Answer:
Lorenz curve
Correct
Answer:

A single measure of income distribution which assesses

7. inequality over the whole range of income distribution.
The Median income statistic
Your Answer:
The Gini coefficient
Correct
Answer:

A theory of earnings differentials which stresses the

8. importance of non-monetary advantages between occupations
and the varying length and cost of education.
Intra-skill theory
Your Answer:
Market theory
Correct
Answer:

A measure which defines relative poverty as occurring where

9. the annual earnings of group members falls below 60% of the
country’s average earnings.

Your (blank)
Answer:

A type of inequality in which the value of fringe benefits and

10 pension entitlements is most likely to play a significant role.
. Inequality between shareholders and
Your Answer: employees
Inequality between occupations
Correct

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Answer:

Answer the following five questions either 'True' or 'False'.

11
. The wealthiest 1% of the population have seen their share of
marketable wealth fall over the last 25 years.
False
Your Answer:
True
Correct
Answer:

The percentage of single people with children who are in

12 poverty is nearly twice as high as for single pensioners who
. are in poverty.
False
Your Answer:
True
Correct
Answer:

The bargaining power of trade unions or professional bodies

13 has no influence on the inequality of incomes in the UK.
. False
Your
Answer:

The ‘Gini coefficient’ and the ‘90/10 ratio’ both suggest that
14 the inequality of income is higher in the US than it is in the
. ‘average’ EU country.
False
Your Answer:
True
Correct
Answer:

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The distribution of wealth is even more unequal than the

15 distribution of income in the UK.
. False
Your Answer:
True
Correct
Answer:

Multiple Choice Questions

1. The social gradient that reflects the disparity in morbidity and mortality between
those in different socioeconomic classes is often referred to as a ______.

a. health gradient
b. sex gradient
c. postcode gradient
d. income gradient

Answer: A

2. Which year did the World Health Organization first express the right to health as a
fundamental human right?

a. 1946
b. 1952
c. 1987
d. 2000

Answer: A

3. Frederich Engels’ book entitled The Condition of the Working Class in England in
1844 provided a detailed description of the appalling living and working conditions
and the limited health care of working-class residents in which of the following
English cities?

a. London
b. Manchester
c. Liverpool
d. none of these

Answer: B

4. Which of the following approaches conceptualized the developmental influences of

health inequalities in terms of four nested systems?

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a. social Darwinism approach

b. ecological approach
c. naturalist approach
d. behaviourist approach

Answer: B

5. The influence of families, schools and neighbourhoods in explaining social

inequalities in health can be categorised in which of the following systems?

a. microsystem
b. mesosystem
c. exosystem
d. macrosystem

6. Which of the following explanations for health inequalities attributes the social
gradient in health on the role of economic factors?

a. an artefact
b. natural and social selection
c. materialist and structuralist explanations
d. cultural and/or behavioural differences

Answer: C

7. Which of the following explanations for health inequalities focus on the individual
as the unit of analysis, emphasizing unthinking, reckless or irresponsible behaviour or
incautious lifestyle as the moving determinant?

a. individualist explanations
b. natural and social selection
c. materialist and structuralist explanations
d. cultural and/or behavioural differences

Answer: D

8. The ‘health selection’ explanation for the relationship between income inequality
and health refers to the explanation that ______.

a. people are not sick because they are poor. Rather, poor health lowers one’s
income and limits one’s earning potential
b. income inequality erodes social bonds that allow people to work together,
decreases social resources, and results in low trust and civic participation,
greater crime, and other unhealthy conditions
c. income inequality results in less investment in social and environmental
conditions (safe housing, good schools, etc.) necessary for promoting health
among the poorest
d. none of these

Answer: A

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9. Which of the following principle(s) is/are included in moral philosopher John

Rawls’ theory of ‘justice of fairness’?

a. Assure people equal basic liberties including guaranteeing the right of political
participation.
b. Provide a robust form of equal opportunity.
c. Limit inequalities to those that benefit the least advantaged.
d. all of these

Answer: D

10. Which of the following provides guidance for reconstructing global governance
for health by grounding health in the context of human rights?

a. Framework Convention on Global Health

b. Principles of the Global Determinants of Health
c. Framework for Global Governance and Economic Development
d. none of these

Answer: A

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When statisticians discuss the distribution of income, which of the following figures
do they look at?
a) The incomes of different individuals.
b) The incomes of different households.
c) The incomes each household would need to maintain its present living standard
if it comprised just one adult.
d) The incomes each household would need to maintain its present living
standard if it comprised just a married or cohabiting couple.

Question 2

Which of the following definitions of a household's income is false?

a) Its original income is its income from earnings, investments and pensions other
than State Pensions.
b) Its gross income adds in transfers from the government.
c) Its disposable income deducts taxes paid directly to the government.

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d) Its post-tax income deducts other taxes and adds in the value of government
services received free of charge.

Question 3

Which of the following statements about income inequality is false?

a) Gross incomes are less unequal than original incomes.
b) Final incomes are less unequal than disposable incomes.
c) A curve which plots a cumulative percentage of income against a cumulative
percentage of households is called a Lorenz curve.
d) If we compare the distribution of two incomes, the one with the lower Gini
coefficient is the more unequal.

Question 4

Which of the following might help to make the distribution of original incomes more
unequal?
a) A rise in the State Pension.
b) A ceiling on the number of hours that people were allowed to work each week.
c) A policy to encourage more low income households to buy shares in
companies.
d) An effective policy to reduce bankers' bonuses.

Question 5

Which of the following might help to make original incomes less unequal?
a) People living longer.
b) A rise in the demand for unskilled labour.
c) Lower occupational pensions in many jobs.
d) A rise in unemployment.

Question 6

Many rich people support government policies for redistribution. Which of the
following would not help to explain why they do so?
a) Rich people may be altruistic.
b) Rich people may fear that one day in the future they may be poor themselves.
c) Rich people may feel redistribution should be left to voluntary donations
d) Rich people regard redistribution as a public good.

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Question 7

Which of the following statements is false?

a) Utilitarians believe the government should aim to maximize total utility.
b) Followers of Rawls believe the government should aim to make the person
with the lowest original income as well off as possible.
c) With each tax, the higher the rate, the larger the revenue.
d) A government which pursued complete equality of final incomes might leave
everyone on very low incomes.

Question 8

Which of the following statements about approaches to poverty is false?

a) On every approach, a doubling of the incomes of all households would reduce
the number of people in poverty.
b) A problem with the absolute approach to poverty is deciding what items to put
on the list.
c) A problem with the relative approach to poverty is deciding what percentage of
average incomes to use.
d) A problem with hybrid approaches to poverty is deciding exactly what to
include.

Question 9

Suppose a UK newspaper headline reads 'government figures show that more children
are in poverty than was the case ten years ago'. What can we be sure of from this?
a) More children are in households which find it harder to survive than was the
case ten years ago.
b) Many children are in households whose incomes are lower than they were ten
years ago.
c) The incomes of poorer families have risen less over the last ten years than the
incomes of average families.
d) The very poorest households are poorer than they were ten years ago.

Question 10

Which of the following does not cause problems for the government in its efforts to
reduce poverty?
a) The fact that means-tested transfers may create an unemployment trap.
b) The fact that housing is covered by separate benefits.
c) The fact that some people may become benefit-reliant.

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d) The fact that some people do not claim benefits to which they are entitled.

When statisticians discuss the distribution of income, which of the following figures
do they look at?

Your answer:

d) The incomes each household would need to maintain its present living standard if it
comprised just a married or cohabiting couple.

Feedback:

Statement d is correct. This is the definition of households' equivalized incomes

Page reference: 339-340

Question 2

Which of the following definitions of a household's income is false?

Your answer:

a) Its original income is its income from earnings, investments and pensions other
than State Pensions.

Correct answer:

d) Its post-tax income deducts other taxes and adds in the value of government
services received free of charge.

Feedback:

Statement d is false. The household's post-tax income does deduct other taxes, but it
does not include the value of government services; the income which includes the
value of these is the household's final income.
Page reference: 341

Question 3

Which of the following statements about income inequality is false?

Your answer:

a) Gross incomes are less unequal than original incomes.

Correct answer:

d) If we compare the distribution of two incomes, the one with the lower Gini
coefficient is the more unequal.

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Feedback:

Statement d is false. The more unequal is a distribution, the higher is the Gini
coefficient.
Page reference: 342-344

Question 4

Which of the following might help to make the distribution of original incomes more
unequal?

Your answer:

a) A rise in the State Pension.

Feedback:

Statement a is correct. People might respond to this policy by saving less for
retirement, and so have lower original incomes in retirement.
Page reference: 341-344

Question 5

Which of the following would help to make original incomes less unequal?

Your answer:

a) People living longer.

Correct answer:

b) A rise in the demand for unskilled labour.

Feedback:

Statement b is correct. This would raise the wages of unskilled people, and as their
wags are relatively low, this would make original incomes less unequal.
Page reference: 339-347

Question 6

Many rich people support government policies for redistribution. Which of the
following would not help to explain why they do so?

Your answer:

a) Rich people may be altruistic.

Correct answer:

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c) Rich people may feel redistribution should be left to voluntary donations

Feedback:

Statement c would not help to explain why rich people support government
redistribution.
Page reference: 347-350

Question 7

Which of the following statements is false?

Your answer:

b) Followers of Rawls believe the government should aim to make the person with the
lowest original income as well off as possible.

Correct answer:

c) With each tax, the higher the rate, the larger the revenue.

Feedback:

Statement c is false. It is likely that each tax has a Laffer curve, showing that as the
rate approaches 100%, its yield approaches zero because fewer and fewer people
would both to undertake whatever was being taxed.
Page reference: 348-350

Question 8

Which of the following statements about approaches to poverty is false?

Your answer:

c) A problem with the relative approach to poverty is deciding what percentage of

average incomes to use.

Correct answer:

a) On every approach, a doubling of the incomes of all households would reduce the
number of people in poverty.

Feedback:

Statement a is false. On the relative approach, a doubling of everyone's income would

not help the relative position of poor households at all, so this approach would say
that the number of households in poverty is the same as before.
Page reference: 351-353

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Question 9

Suppose a UK newspaper headline reads 'government figures show that more children
are in poverty than was the case ten years ago'. What can we be sure of from this?

Your answer:

a) More children are in households which find it harder to survive than was the case
ten years ago.

Correct answer:

c) The incomes of poorer families have risen less over the last ten years than the
incomes of average families.

Feedback:

Statement c is correct. UK figures define poverty as having an income under 60% of

the median household, so the number of children in poverty will rise if the incomes of
poor families rise less than the incomes of average families. But even if the number of
children in poverty rises, the incomes of their households may actually have
increased.
Page reference: 351-352

Question 10

Which of the following does not cause problems for the government in its efforts to
reduce poverty?

Your answer:

a) The fact that means-tested transfers may create an unemployment trap.

Correct answer:

b) The fact that housing is covered by separate benefits.

Feedback:

Statement b does not make things more difficult for the government. In fact, housing
is treated separately so that more help can be concentrated on people in areas where
housing is relatively expensive, to try and raise their living standards to the same level
as people in areas where housing is relatively cheap.
Page reference: 353-355

A level of personal or family income below which one is classified as poor

according to governmental standards is known as
poverty threshold
poverty rate
poverty ratio

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poverty rank

MCQ: A graph that shows all the possible output combination of two goods/services,
with the resources being fully utilized is
PPF
Budget line
Isoquant
indifference curve

MCQ: One of the cost reducing determinant of supply is known to be as

buyers and sellers
technology
gadgets
discounts

MCQ: If the terms of trade and wealth effect of the economy tends to be positive, the
nation's welfare be definitely
decreases
constant
varying
increase

MCQ: The graph of demand for labor will always be

positively sloped
negatively sloped
straight line
curved

1
A Gini Coefficient of 0 represents which of the following?
Choose one answer.

a. A country which does not have a service sector

b. Perfect inequality

c. A country whose GDP per capita growth is 0

d. Perfect equality

e. A country that has a high GDP per capita growth

Question 2
A multi-dimensional measure of poverty include includes which of the following elements?
Choose one answer.

a. Health level

b. Education level

c. Vulnerability to natural events

d. All of these answers

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e. C and D only
Question 3
As defined by the 1987 UN World Commission on Environment and Development, which of the following best
describes sustainable development?
Choose one answer.

a. Development with a small carbon footprint

b. Development for which financial resources will be available over the medium
and long term

c. Development strategies that can be easily replicated by other countries or

regions

d. Development that meets the needs of the present without compromising the
ability of future generations to meet their own needs

e. Development that threatens the needs of future generations

Question 4
On Figure 1, which line on the Lorenz curve represents a country with the highest level of inequality?

Choose one answer.

a. Line A

b. Line B

c. Line C

d. Lines A and B

e. Lines B and C
Question 5

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On Figure 2, what is the name of Line D in the Lorenz curve model?

Choose one answer.

a. Line of absolute equality

b. Line of development

c. Line of industrialization

d. Line of high growth

e. Line of absolute inequality

Question 6
The Gini Coefficient for a country is 0.8. What can one conclude about the income distribution in this country?
Choose one answer.

a. Income is equally distributed.

b. Income is nearly equally distributed.

c. Income is perfectly distributed.

d. Income is close to being imperfectly distributed.

e. Income is nearly perfectly distributed.

Question 7
The Gini Coefficient is calculated by finding which of the following?
Choose one answer.

a. The percentage of the population living on less than $1 a day

b. The area between a Lorenz curve and the line of absolute equality

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c. The difference between the richest and poorest of the population

d. The proportion of the population with more than a primary education

e. The percentage of the population living on more than $1 a day

Question 8
True or False. For any two countries, the one with the bigger per capita GDP will have a more equitable
distribution of income.
Choose one answer.

a. True

b. False
Question 9
True or False. Population growth is higher in high income countries rather than in low income countries.
Choose one answer.

a. True

b. False
Question 10
True or False. Sustainability is principally a national issue and is not an international or global one.
Choose one answer.

a. True

b. False
Question 11
True or False. There is a strong positive correlation between economic growth and poverty.
Choose one answer.

a. True

b. False
Question 12
True or False. There is not enough food produced in the world to feed the world's population.
Choose one answer.

a. True

b. False
Question 13
What change in the economy is associated with postindustrialization?
Choose one answer.

a. Transition to democracy

b. Improvement in the physical infrastructure

c. Increase of the service sector

d. Decrease in legal barriers to trade

e. Decrease of the service sector

Question 14
What percentage of the world population does the developing world constitute?
Choose one answer.

a. Less than 10%

b. More than 10% but less than 25%

c. More than 25% but less than 50%

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d. More than 50% but less than 75%

e. More than 75%

Question 15
Which of the following best represents Adam Smith’s view of laissez faire?
Choose one answer.
a. The accumulation of gold and silver by the state through increased exports
and decreased imports

b. The accumulation of gold and silver through by the state through increased
imports of goods and services

c. The consolidation of a single free market in Europe

d. The domination of other countries by discouraging their imports and

encouraging their exports

e. The export of gold and silver to other countries in exchange for their raw
materials ANSWER: A

f. Large markets are superior to small markets.

g. Markets are most effective at generating wealth when government

intervention is limited.

h. Mercantilism is the most effective development strategy for a state.

i. Development should be led by a strong centralized state.

j. Markets are least effective at generating wealth when government

intervention is limited.
Question 16
Which of the following countries in the Americas is least developed?
Choose one answer.

a. USA

b. Canada

c. Mexico

d. Guatemala

e. Brazil
Question 17
Which of the following describes why income inequality is bad for economic development?
Choose one answer.
a. Income inequality may threaten political stability, because people are
dissatisfied with their economic situation and place blame on political
authorities.

b. Income inequality reduces the pool of people with resources, such as

education, to improve productivity.

c. Income inequality may increase distrust and deter commitment amongst

people in the marketplace, making contracts enforcement difficult.

d. All of these answers

e. A and B only
Question 18
Which of the following factors tend not to lead to a decrease in population growth?

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Choose one answer.

a. When health conditions improve and parents no longer fear some of their
children will die

b. When more women join the labor market and thus decide to have fewer
children

c. When the population has access to modern contraception

d. When more women are educated

e. When men are more educated than women

Question 19
Which of the following indicates a classification which does not determine a country’s level of development?
Choose one answer.

a. Level of industrialization

b. Level of income

c. Level of natural and human resources

d. GDP per capita

e. Population
Question 20
Which of the following is a goal of economic development?
Choose one answer.

a. Economic growth

b. Reduction of poverty

c. Improvement of human development (education, health, etc).

d. All of these answers

e. None of these answers

Question 21
Which of the following statements best describes the social and political system of a feudal society?
Choose one answer.
a. It is a decentralized system where serfs that are loyal to a single count provide
services to the count in return for security and protection.

b. It is a highly centralized system in which upward mobility is determined by

individual merit and entrepreneurship.

c. It is a centralized monarchic system where a king is the sole authority over a

wide expanse of territory.

d. It is a system with a high level of democratic decision-making and grassroots

participation in policy-making.

e. It is a decentralized system in which upward mobility is determined by

individual merit and entrepreneurship.
Question 22
According to neo-classical theory, what changes will lead to a shift out in long-run aggregate supply?
Choose one answer.

a. Privatization of state-owned enterprises

b. Opening controls against foreign investment

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c. Eliminating barriers to trade

d. All of these answers

e. None of these answers

Question 23
According to the Neo-Marxists, what dynamic reinforces underdevelopment?
Choose one answer.
a. The need to extract excess value from under-developed countries, particularly
with raw materials

b. The effect of copyright laws on the ability of underdeveloped countries to

develop a manufacturing sector

c. The institution of heavy trade barriers by developed countries against

developing countries

d. The competitive nature of capitalism

e. The need for labor imports into the developed countries

Question 24
According to the Romer model, if the stock of ideas increases by 15 %, by how much will output per worker
increase, when all else is equal?
Choose one answer.

a. 5%

b. 10%

c. 15%

d. 20%

e. 30%
Question 25
Complete the following sentence. Marx believed that economic development should be led by:
Choose one answer.

a. religious leaders.

b. capitalists.

c. individual entrepreneurs .

d. the state.

e. the bourgeoisie.
Question 26
Complete the following sentence. The Romer model falls into a class of growth models in which the key
determinants of economic growth are.
Choose one answer.

a. implicit in the model.

b. explicit in the model.

c. exogenously determined.

d. not known.

e. the given saving and population growth rates.

Question 27

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Fill in the blanks. In the Solow model, if net investment is positive, then the economy is ___________ its
steady state level, and output growth is ___________.
Choose one answer.

a. above; negative

b. below; negative

c. above; positive

d. below; positive

e. above; neutral
Question 28
For neo-classical theorists, economic under-development is the product of which of the following?
Choose one answer.
a. Inappropriate economic policies and too much state interference in the
economy

b. Barriers against free trade

c. Low prices for raw materials

d. Both A and B

e. Both A and C
Question 29
For Rostow, which of the following constitute pre-conditions for take-off?
Choose one answer.

a. Investment rate of at least 10% of GNP

b. Universal primary education

c. Development of one or more manufacturing sectors with a high growth rate

d. Both A and B

e. Both A and C
Question 30
Given constant returns to labor, if 2 workers produced 14,000 bales of hay, how many bales of hay would 5
workers produce?
Choose one answer.

a. 14,000

b. 25,000

c. 35,000

d. 50,000

e. 65,000
Question 31
How might a government try to increase output, if the government is to follow the suggestions of the Harrod-
Domar model?
Choose one answer.

a. By encouraging savings

b. By beginning to use state-owned enterprises

c. By promoting technologies which help firms to produce more output with less

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capital (lowering the capital to output ratio)

d. Both A and B

e. Both A and C
Question 32
How would Lewis describe the traditional agricultural sector?
Choose one answer.

a. A sector which might help to elevate the livelihoods of the people involved

b. A sector with low productivity, high unemployment, low incomes, and low
savings

c. A sector from which people cannot transition into other sectors

d. A sector with highly educated but low productivity labor

e. A sector with full employment and therefore producing at the full employment
output
Question 33
If $20 worth of capital equipment produces each $5 of annual output, then what is the capital to output ratio?
Choose one answer.

a. 1 to 4

b. 4 to 1

c. 1 to 2

d. 2 to 1

e. 4 to 4
Question 34
If you double the inputs K and L, what will happen to the output Y?
Choose one answer.

a. The output Y will increase but at a diminishing rate.

b. The output Y will increase at an increasing rate.

c. The output Y will decrease but at a diminishing rate.

d. The output Y will remain the same.

e. The output Y will double.

Question 35
Important beliefs of the structuralist school include which of the following?
Choose one answer.
a. The northern developed countries do not share the wealth generated from
productivity enhancing technological improvements due to problems in the
political structure.

b. A completely free market approach will always yield the most efficient and
equitable outcome.

c. One way for southern countries to develop is to substitute imported industrial

goods with domestically produced ones.

d. Both A and B

e. Both A and C
Question 36

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In the Lewis model, what does the term “surplus labor” refer to?
Choose one answer.
a. An amount of labor that is so high that it deflates wages throughout the
economy

b. Labor that does not have at least a primary level education

c. Labor that can be withdrawn from the low productivity agricultural sector
without a decrease in the total production

d. Labor that is exploited by the capitalist class

e. Labor that can be withdrawn from the industrial sector without a decrease in
the total production
Question 37
In the Lewis model, what will cause an expansion in modern sector employment?
Choose one answer.

a. A reinvestment of profits by capitalists that allows production to expand

b. Interventions by the State to expand employment

c. An increase in technology

d. An increase in the surplus labor

e. An increase in wages in the traditional agricultural sector

Question 38
In the resource constraint equation (see Figure 4), what does Lat signify?

Choose one answer.

a. The number of unemployed workers

b. The number of workers producing ideas or new technologies

c. The number of workers saving money

d. The number of workers working abroad

e. The number of workers producing output

Question 39
In the Solow Growth model, if we start from a steady state and there is no change in savings/investment,
then what will result from a permanent increase in the rate of depreciation?
Choose one answer.
a. Output growth will rise permanently, and the new steady state level of GDP
will be higher than the old one.

b. Output growth will rise temporarily, and the new steady state level of GDP
will be lower than the old one.

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c. Output growth will fall temporarily, and the new steady state level of GDP will
be higher than the old one.

d. Output growth will fall temporarily, and the new steady state level of GDP will
be lower than the old one.

e. The result is ambiguous; we cannot be certain.

Question 40
In the Solow model, how might we express the economic meaning of the vertical gap between the investment
curve and the depreciation curve as indicated in Figure 3?

Choose one answer.

a. Capital stock

b. GDP per capita

c. Consumption

d. Investment

e. Savings
Question 41
In the Solow model, if a country is in the steady state, an earthquake causes wide-spread destruction of the
capital stock, and there is no change in the level of savings or depreciation, then this will result in which of the
following?
Choose one answer.
a. The growth rate of output will drop, and the country will end up at a lower
steady state.

b. The growth rate of output will increase, and the country will end up at a
higher steady state.

c. The growth rate of output will increase, and the country will end up at the
original steady state.

d. The growth rate of output will increase, and the country will end up at a
lower steady state.

e. The result is ambiguous; we cannot be certain.

Question 42

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In the Solow model, if an economy experiences an increase in the investment rate and an increase in the
depreciation rate at the same time, then what will be the result?
Choose one answer.

a. Output will rise.

b. Output will fall.

c. Capital per worker will rise.

d. Capital per worker will fall.

e. The result is ambiguous; we cannot be certain.

Question 43
In the steady state, which country will have the higher per capita consumption, and why?
Choose one answer.
a. B will have the higher per capita consumption, because it is devoting more of
its output to consumption and less to saving.

b. B will have the higher per capita consumption, because it will have a higher
capital stock per worker, a higher output per worker, and thus a higher
consumption per worker.

c. A will have the higher per capita consumption, because it will have a higher
capital stock per worker, a higher output per worker, and thus a higher
consumption per worker.

d. A will have the higher per capita consumption, because it will have a lower
capital stock per worker, a lower output per worker, and thus a higher
consumption per worker.

e. Both A and B will have the same consumption per worker, because they both
have equal capital stock per worker, output per worker, and consumption per
worker.
Question 44
The Dependencia theory has its roots in what region of the world?
Choose one answer.

a. Southeast Asia

b. North America

c. Latin America

d. The Middle East

e. Sub-Saharan Africa
Question 45
The faster the population grows, the more labor there will be to produce goods and services, so faster
population growth is good for economic growth. Why may this not be true according to the Solow model?
Choose one answer.

a. There will be too many people to feed and this may not be good.

b. What matters is per capita GDP; an increase in GDP may not translate to
higher per capita GDP.

c. In the Solow model, what matters is capital stock per worker. If the
additional population is not equipped with additional capital, output per worker
will fall even though GDP is increasing.

d. All of these answers

e. B and C only
Question 46

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The Harrod-Domar growth model is based on the relationship of what two economic elements?
Choose one answer.

a. Raw materials and technology

b. Savings and investment

c. Educational enrollment and number of teachers

d. Tariff and tax levels

e. Population and economic development

Question 47
The Lewis model works as long as which of the following holds true?
Choose one answer.
a. The wage rate in the modern sector is higher than in the traditional
agricultural sector.

b. The modern sector grows fast enough to absorb labor from the traditional
agricultural sector.

c. The traditional agricultural sector remains unproductive and thus able to

release workers without reducing agriculture output.

d. The workers released from the agricultural sector can be quickly retrained to
fit into the modern sector.

e. All of these answers

Question 48
True or False. Import-substitution led to the development of many highly competitive industries in the
countries which implemented it.
Choose one answer.

a. True

b. False
Question 49
True or False. Lenin believed that imperialism would delay the final crisis that will cause capitalism to collapse.
Choose one answer.

a. True

b. False
Question 50
True or False. Neo-classical economists believe that government-led development is the most effective path.
Choose one answer.

a. True

b. False
Question 51
True or False. The Neo-Marxists believed that developing countries must pass through advanced capitalism
before moving on to socialism.
Choose one answer.

a. True

b. False
Question 52
True or False. The structuralists did not support capitalism.
Choose one answer.

a. True

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b. False
Question 53
Using the formula in Figure 5 for the idea production function, if z = 0.01, l = 0.10, and N = 25, what is the
growth rate of the stock of ideas?

Choose one answer.

a. 1%

b. 2.5%

c. 5%

d. 25%

e. 30%
Question 54
What are the three stages in Fisher Clark’s theory of structural change?
Choose one answer.

a. Primal organization, medieval organization, and industrial organization

b. Tribal order, preparation for take-off, and take-off

c. Primary production, secondary production, and tertiary production

d. Primary production, industrial production, and take-off production

e. Industrial organization, tribal organization, and primal organization

Question 55
What does it mean in the Romer model when it says that there are constant returns to labor?
Choose one answer.
a. Production of output will increase by the same marginal amount for every
additional worker.

b. Workers can never become more productive.

c. Production of output is the same as in other countries.

d. Doubling inputs doubles output.

e. Doubling inputs doubles labor’s output.

Question 56
What does the Romer model include that allows an economy to sustain growth over time (holding savings
constant) that the Solow model does not?
Choose one answer.

a. Infrastructure

b. Discovery of raw materials

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c. Technology

d. Investment

e. Savings
Question 57
Which of the following accurately describes a criticism of the Lewis model?
Choose one answer.
a. Urbanization in poor countries happens more quickly than the modern sector
can create jobs, leading to problems of unemployment.

b. Capital might be plowed into labor saving technologies, which might in fact
reduce employment in the modern sector.

c. Skilled labor is likely to immigrate abroad.

d. All of these answers

e. A and B only
Question 58
Which of the following accurately describes a criticism of the Harrod-Domar model?
Choose one answer.

a. Economic growth does not necessarily result in economic development.

b. People in poor countries may be stuck in a poverty trap and unable to invest.

c. State owned enterprises tend to be less efficient than their privately owned
competitors.

d. Both A and B

e. Both A and C
Question 59
Which of the following accurately describes a criticism of Rostow’s stages of development model?
Choose one answer.

a. The model does not take into account technological changes.

b. The model is not relevant in a globalized world.

c. The model assumes that LDCs are just like DCs, except for differences in
savings and investment.

d. The model is dynamic; it describes the process of how one stage ushers in
the next.

e. The model’s linearity is its strongest proof of its validity.

Question 60
Which of the following accurately describes the belief of the Dependencia school regarding the effect of trade
on developing countries?
Choose one answer.

a. Free trade is the best and only means to promote development.

b. Export-led growth holds the key to industrialization and development.

c. Developing countries should protect domestic industry from competition and

pursue a policy of import-substitution.

d. Developing countries are not integrated into the world system of trade.

e. Developing countries could not import capital to produce manufactured

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goods.
Question 61
Which of the following accurately describes the economic reasons behind industrialization?
Choose one answer.
a. As incomes rise, people’s demands for food reach a limit and the demand for
manufactured goods rises.

b. As the agricultural sector becomes more productive, labor can move to the
industrial sector.

c. There is a change in interest rates.

d. Both A and B

e. Both B and C
Question 62
Which of the following is a criticism against the neo-classical school?
Choose one answer.

a. The model does not consider the potential for inequality.

b. The model has too large of a role for the government.

c. Market failures are not addressed.

d. Both A and B

e. Both A and C
Question 63
Which of the following is a stage in Rostow’s stages of development theory?
Choose one answer.

a. Tribal

b. Communal

c. Metropolitan

d. Capitalist

e. Age of high mass consumption

Question 64
Which of the following is a tactic suggested by the structuralist school to promote economic growth and
development?
Choose one answer.

a. Tariffs on imported industrial goods to help domestic producers to develop

b. State-owned enterprises

c. Import-substitution industrialization

d. All of these answers

e. A and B only
Question 65
Which of the following is central to Marx’s economic theory of labor?
Choose one answer.

a. Workers become more effective as education in the country increases.

b. Strong population growth is necessary to continue to increase national

production.

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c. Workers, or the proletariat, are being robbed of their labors by the owners of
capital, or the bourgeoisie.

d. Without capital, labor has no value.

e. As capital becomes plentiful, labor loses its value.

Question 66
Which of the following is not a tenet of the Dependencia school?
Choose one answer.
a. According to some Latin American economists, capitalism will not give
workers the chance for them to move upward.

b. Poor nations provide natural resources to the wealthy nations and are
destinations for manufactured products.

c. Poor nations have been integrated into the world economy in such a way that
it makes them dependent on the wealthy countries.

d. As long as the poor remain producers of primary products, they can never
become developed.

e. As long as developing countries trade with the developed countries, they are
bound to develop.
Question 67
Which of the following schools was a proponent of import-substitution industrialization?
Choose one answer.

a. Marxist

b. Harrod-Domar

c. Keynesian

d. Dependencia

e. Structuralist
Question 68
Which school of thought believes that a major impediment to development comes from the dualistic nature of
underdeveloped economies (where a modern sector dependent on developed countries for technology exists
side by side with a traditional sector)?
Choose one answer.

a. Neo-liberal

b. Structuralist

c. Marxist

d. Keynesian

e. Neo-Marxist
Question 69
Why is it difficult for developing countries to join the “knowledge revolution”?
Choose one answer.

a. Developing countries have relatively few scientists.

b. Information technology tools are less prevalent.

c. People in developing countries do not have useful applications for the

technologies.

d. All of these answers

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e. A and B only
Question 70
According to Fukuyama, the “radius of trust” can be which of the following?
Choose one answer.
a. Limited to the number of people an individual can directly supervise and can
therefore trust

b. Defined as the circle of people among whom cooperative norms function

c. As small as a group of friends or as large as an NGO or religious group

d. Both A and B

e. Both B and C
Question 71
According to the earlier proponents of the big push strategy for development, a “big push” in investment is
necessary in developing countries because of which of the following reasons?
Choose one answer.
a. In a traditional economy, people do not have the required habits for a
profitable industrial society and therefore need a push.

b. The lack of modern technology requires a large investment in education.

c. Poor economies do not grow because complementary industries fail to

cooperate; a “big push” is required to get these industries to develop
simultaneously.

d. Poor economies must resolve pressing health and education challenges before
they can industrialize.

e. Investment can only come in big lumps; smaller lumps are not profitable.
Question 72
According to the World Bank, why is social capital so important for the poor?
Choose one answer.
a. The poor rely on their friends, families, and neighbors to help them in the
case of disaster (bad health, inclement weather, etc.).

b. The poor pool their resources to start up enterprises.

c. The poor cooperate to assure that child care needs are met.

d. All of these answers

e. None of these answers

Question 73
According to Williamson’s Hierarchy of Institutions (in the New Institutional Economics School), which of the
following can be considered to be institutions?
Choose one answer.

a. Human motivations

b. Social structure

c. Political institutions

d. All of these answers

e. B and C only
Question 74
Complete the following sentence. According to Francis Fukuyama, social capital can be defined as:
Choose one answer.

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a. a capital good that promotes communication between people.

b. an informal norm that promotes cooperation between two or more

individuals.

c. an institution that forces people to come together that would not normally
come together.

d. a formal structure that relinquishes power from one individual to another.

e. a capital good that deters communication between people.

Question 75
Complete the following statement. According to Sen, South Korea is more developed than North Korea,
because South Koreans have:
Choose one answer.
a. political freedoms, economic facilities, social opportunities, transparency
guarantees, and protective securities.

b. economic freedoms, religious freedoms, freedom of expression, freedom of

movement, and free association.

c. free movement of goods and services, freedom from oppression by the

government, freedom to start and close a business, freedom from undue
taxation, and freedom from over-regulation.

d. political restrictions, religious restrictions, and social restrictions.

e. economic freedoms, social freedoms, and political restrictions.

Question 76
How does Fukuyama suggest that social capital is formed?
Choose one answer.
a. By repeated interactions between people and groups that show that
cooperation pays off

b. By shared historical experience

c. By state intervention to create a large bureaucracy capable of monitoring

and enforcing contracts

d. Both A and B

e. Both B and C
Question 77
How does Mohammad Younis’ microfinance scheme respond to adverse selection problems in microfinance?
Choose one answer.
a. By implementing the requirement that borrowers put up collateral, such as
motor bikes or livestock

b. By the use of specialized training to help the members of the bank to become
better informed of savings and investment strategies

c. By placing borrowers in groups of people who know each other and giving
the groups control over who receives loans, which results in the groups
selecting those members most likely to pay back loans

d. By requiring collateral of all borrowers which is some fraction of how much

the group borrowed

e. By requiring a lengthy disclosure of all pertinent information about borrowers

and their associates
Question 78
How does Sen define poverty?

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Choose one answer.

a. The lack of material well-being

b. The deprivation of basic capabilities for an individual

c. The lack of supportive social institutions to ensure ones basic livelihood

d. The lack of a cultural or religious identity

e. The need to supplement luxuries for an individual

Question 79
In New Institutional Economics, what is meant by the principal-agent problem?
Choose one answer.

a. The difficulty of finding a well-trained employee

b. The difficulty of motivating an agent to take an action, when the action is

not directly observable

c. The difficulty of replicating good results in repeat projects

d. The difficulty of motivating an agent to take no action, when this is the best
reward

e. The difficulty of identifying the principal results of a project

Question 80
In New Institutional Economics, which of the following is an example of “transaction costs,” which institutions
can help to resolve?
Choose one answer.

a. Uncertainty about the trustworthiness of sellers and buyers

b. The risk for a bank that lenders will not pay back

c. The high costs of constructing a public highway

d. Both A and B

e. Both B and C
Question 81
In the model presented by Sachs et al., what was the effect of adding share of imported intermediate inputs
in final demand?
Choose one answer.
a. Countries which import an important part of their final production are very
dependent on the rich, developed northern countries, and these countries should
pursue import substitution industrialization.

b. Having a high share of imported intermediate inputs creates a high risk for a
country in the event of a future exchange rate crisis.

c. The production of intermediate inputs tends to generate more employment

than final goods; thus, countries with a high share of imported intermediate
inputs will not produce as many jobs as they could otherwise.

d. When a country has to import a large value of intermediate inputs (relative to

total production), even small transport costs can have important effects on
output and growth.

e. There is no economic impact on importing intermediate inputs as long as the

inputs are from a reliable source.
Question 82
More recent calls for a “big push” strategy are concerned with which of the following?
Choose one answer.

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a. A big increase in foreign aid

b. A simultaneous increase in investment in many different sectors, as well as

complementary policy changes and technical interventions

c. A national plan with an administrative structure to direct investments,

technical intervention, and policy changes

d. All of these answers

e. None of these answers

Question 83
True or False. There is a clear positive relationship between population density and per capita income.
Choose one answer.

a. True

b. False
Question 84
What economic function does social capital play?
Choose one answer.
a. Social capital reduces the transaction costs related with contracts,
hierarchies, and bureaucracy.

b. Social capital allows for coordination based on informal norms.

c. Social capital enables more efficient forms of industrial organization due to

increased trust between workers and managers.

d. Social capital facilitates the free flow of information.

e. All of these answers

Question 85
What is meant by the term “neighborhood effects,” in the 2009 World Development report?
Choose one answer.
a. The creation of functioning, pro-development neighborhoods on a city or
village level can promote economic growth and development on a national level.

b. A country can experience either positive or negative spill-overs from countries

in its region.

c. Countries in which neighbors live closer together tend to have higher social
capital, leading to better development outcomes.

d. If two countries are close to each other, then it is more likely that they are
both developed.

e. A poor country closer to a richer country will always be dominated by the

richer country and remain poor.
Question 86
What is the most important contribution to economic growth theory offered by New Institutional Economics?
Choose one answer.
a. New Institutional Economics rejects the neo-classical theory and replaces it
with an emphasis on institutions.

b. New Institutional Economics rejects the notion of market equilibrium

determining prices and allocating resources.

c. New Institutional Economics includes the role of institutions in furthering or

retarding economic growth.

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d. New Institutional Economics rejects the role of laws, rules, customs, and
norms in economic growth.

e. New Institutional Economics claims that institutions do not have a role in

furthering or retarding economic growth.
Question 87
What problem does the New Institutional Economics school suggest can arise when performance based
measures are implemented (such as rewarding teachers for high test scores) to resolve the principal-agent
problem?
Choose one answer.
a. The agent will game the system in order to gain the benefit, often through
manipulating the performance based measure through cheating or fraud.

b. The reward system can often become too expensive.

c. The system can be too confusing for the agent to understand, and it will be
impossible to get an accurate measure of performance on the ground.

d. Performance will not improve, harming both agent and principal.

e. The principal will not be able to monitor the behavior of the agent .
Question 88
What variable do Sachs et al. add to the Harrod-Domar model to look at the relationship between income
growth and geography?
Choose one answer.

a. Transport costs

b. Population density

c. Elevation

d. Size of the country

e. GPD
Question 89
What “poverty trap” or “vicious circle of poverty” did Nurkse famously describe in 1953?
Choose one answer.
a. People in poor countries are too poor to save, which means that they cannot
invest in capital to increase their productivity, which means they remain poor.

b. Women in poor countries are uneducated, which tends to result in high

fertility rates, which means households do not have enough money to send girls
to school.

c. Social structures in developing countries tend to limit the options available to

the poor.

d. The poor tend to live far away from physical infrastructure, which limits their
possibilities for accessing markets.

e. Workers in poor countries are fatalistic and accept poverty as their lot, so
they remain poor.
Question 90
What, according to Amartya Sen, is the principal end of development?
Choose one answer.

a. Increased incomes

b. Freedom

c. Movement to industrial forms of organization

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d. Democracy

e. Increased education
Question 91
Which of the following behaviors is evidence of social capital?
Choose one answer.

a. Honesty

b. Keeping commitments

c. Reciprocity

d. All of these answers

e. None of these answers

Question 92
Which of the following benefits might social capital provide to political development?
Choose one answer.
a. Social capital allows people in an individualist democratic system to form
associations and organize for common causes.

b. Social capital allows for the organization of a civil society which protects
against the power of the state.

c. Social capital leaves the responsibility to each individual to work for their own
individual self interest.

d. All of these answers

e. A and B only
Question 93
Which of the following is a problem that some critics have with Sen’s capability approach?
Choose one answer.
a. Sen’s capability approach does not clearly provide for individual freedoms,
focusing too much on the overall social good of society.

b. Sen’s capability approach does not consider the right to education, which is
an important social good.

c. Sen’s capability approach focuses too narrowly on economic development,

defined as income per capita.

d. Sen’s capability approach relies on a mix of capitalism and good values but
cannot explain how good values might be developed.

e. Sen’s capability approach does not take political freedoms into consideration.

Question 94
Which of the following is included in the three dimensions of geographical transformations for economic
development, as defined in the 2009 World Development Report?
Choose one answer.

a. Density, distance, and division

b. Productivity, power, and populism

c. Region, mineral richness, and roads

d. Education, history of dominance, and diversity

e. Power, education, and diversity

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Question 95
Why does Fukuyama argue that social capital can have negative externalities?
Choose one answer.
a. Social networking sites, such as Facebook, waste productive time at work.

b. Strong social networks may work for their internal interest, which might be
counter to that of society as a whole.

c. Socializing is a waste of time, and that time that would be better used to
produce goods and services.

d. Too much social capital, like physical capital, can have diminishing marginal
returns.

e. All of the studies on social capital show that it decreases productivity.

Question 96
China’s economic development progress can accurately be described by which economic development model?
Choose one answer.

a. Harrod-Domar model

b. Solow Growth model

c. A. Lewis model

d. All of these answers

e. None of these answers

Question 97
Fill in the blanks. Economic development is a(n) __________ process which can at best be explained by
____________.
Choose one answer.

a. complex; several factors

b. linear process; specific factors

c. government controlled; institutional factors

d. external; factors outside the control of any country

e. internal; limited factors

Question 98
Fill in the blanks. Many economic development theories focus on quantifiable factors such as ________, which
are necessary for economic development but not ________. This suggests that there are some other
important non-easily quantifiable factors such as __________, which are often ignored.
Choose one answer.

a. savings; sufficient; capital

b. savings; sufficient; social capital

c. institutions; important; labor

d. institutions; important; capital

e. savings; insufficient; social capital

Question 99
In the Mozambique study on achieving shared growth, which of the following are cited as key factors of
success?
Choose one answer.
a. The use of state-run industries to replace imported goods with domestically

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produced ones

b. The use of price controls to make sure that farmers receive at least a
minimum level of income

c. The printing of extra money to finance a heightened level of public

investment in infrastructure

d. All of these answers

e. None of these answers

Question 100
True or False. It is only after a country has developed that the factors that led to development can be clearly
delineated.
Choose one answer.

a. True

b. False
Question 101
Which of the following major risks was cited in the Sierra Leone case study on rebuilding local governments?
Choose one answer.

a. The lack of significant local resources at the local level

b. Weak political commitment to real decentralization

c. National officials possibly feeling challenged by the rising power of local

officials

d. All of these answers

e. A and B only
Question 102
Which of the following were success factors of the Mali rural electrification case study?
Choose one answer.

a. The use of a highly centralized government led strategy

b. The use of women associations as energy providers in rural areas

c. The development of public private partnerships with local private operators

d. Both A and B

e. Both B and C

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Preview text

Part One
Principles and Concepts
Economic Development 10th Edition Todaro Test Bank

Full Download: alibabadownload/product/economic-development-10th-edition-todaro-test-bank/

This is sample only, Download all chapters at: AlibabaDownload

Chapter 1

Economics, Institutions, and Development:

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A Global Perspective

 Key Concepts

It is easy to forget that students (especially in rich countries) may have a limited
understanding of how life in the developing world differs from life in the developed
world. The first main point of Chapter 1 is to drive this idea home, while also
introducing through examples of debt crises and oil shocks, the idea that the world is
becoming increasingly interdependent and that actions taken in the developed world
can have a profound impact, for better or worse, on the developing world.

The second point is to provide an overview of the nature of development economics

as a field. A defense of development economics as a distinct field, rather than an
agglomeration of other economics subfields, is offered. A major theme of the book,
that development economics must encompass the study of institutional and social, as
well as economic, mechanisms for modernizing an economy while eliminating
absolute poverty, is introduced.

The plan of the book is introduced through a series of 27 basic questions of

development economics. Depending on the amount of material covered by the
instructor, students should be able to intelligently address most of these questions by
the end of the course.

Alternative meanings of development are offered, starting with the ability to achieve
sustained increases in GNP, and expanding to include other indicators of the quality of
life including absolute poverty, inequality, freedom, and self-esteem. This is closely
tied with the discussion of Sen’s “Capabilities” approach, first introduced in the 7th
edition. Further, the new edition talks specifically about happiness in the context of
economic development, relating the level of happiness not only to level of income but
to other factors such as democratic freedoms and the quality of social relationships.
The role of normative values in development economics—a subject dealing with
human misery and human potential, with equity as well as efficiency, with cultural
change that causes losses as well as gains, and with transfer as well as creation of
wealth—is also stressed.

The conclusion is that development is both a physical reality and a state of mind. The
meaning and objectives of development include the provision of basic needs, reducing
inequality, raising living standards through appropriate economic growth, improving
self-esteem in relation to the developed countries, and expanding freedom of choice in
the market and beyond.

The new edition presents a more in depth examination of the UN’s Millennium
Development Goals (MDGs). This includes a more comprehensive list of the goals
themselves (appearing in Box 1), a deeper look at the central role of women in the
fight to eradicate poverty, and a discussion of the predicted failure to meet some of the
goals based on current trends. Moreover, the Brazil case study at the end of the
chapter has been revised and updated.

4 Todaro/Smith • Economic Development, Tenth Edition

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The 27 basic questions can be used to motivate student interest in the subject as well
as present an overview of what the class is all about. It can be emphasized that there is
no one answer to the general question of why some countries are more developed than
others. There are as many different opinions on what a less developed-country should
do to become more developed. A good approach is to present differing viewpoints
throughout the course and let the students make up their minds on their own.

If you have developing-country experience, mentioning some of your own

experiences with, “How the Other Half Live,” is a way of introducing the first chapter
and really getting students’ attention.

 Discussion Topics

Encouraging class participation is a good way to motivate the students and make them
feel involved in the learning process. The first few weeks of class in particular are
conducive to this sort of exercise. Two ideas for discussions at this stage are:

 What is the meaning of economic development? In what way(s) is economic growth

different from economic development.

 Is it possible for the whole world to be developed? This can be an interesting

question to ask at the beginning of the course and then again at the end of the course.

 Sample Questions

Short Answer

1. Provide a definition of development economics. Justify your choice carefully.

Answer: See the section in Chapter 1 entitled, “The Nature of Development

Economics,” on Pages 9–10 for some ideas about how the students might answer this
question. They should in some way say that development economics is more than just
growth in GDP.

2. In defining development to include more than just the growth of per capita
income, there is an implicit assumption that the growth of per capita income
alone is not sufficient to guarantee the reduction of poverty and the growth of
self-esteem. Is it possible that there could be growth of per capita income
without the achievement of these other objectives? Answer: Per capita income
can show growth even when that growth does not touch vast portions of the
population. The growth may be centered in one area or sector of the economy
for example. Also, most developed countries have, at some time in their
histories, introduced policies emphasizing equity.
3. In what way is development economics greater in scope than traditional
economics?

Answer: Development economics must encompass the study of institutional,

political, and social as well as economic mechanisms for modernizing an economy
while eliminating absolute poverty and transforming states of mind as well as physical
conditions. More details found in the chapter.

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4. Make a case that development economics might be merely a combination of

all the other subfields of economics, only applied to low-income countries.
Answer: See Question 3 above.

Chapter 1 Economics, Institutions, and Development: A Global Perspective 5

5. What do you think are the most serious obstacles to further progress in the
developing world?

Answer: The main point here is to ensure that students are thinking carefully about
the issues raised in the text. You may also wish to draw from the critical questions on
Pages 10–12.

6. In reviewing discussions of life in developing countries, what is it about

lifestyles in the low-income countries compared with lifestyles in the high-
income countries that most strikes you? Why? Answer: This is an open-ended
question to stimulate reflection.
7. It has been said that “underdevelopment is a state of mind.” Comment.

Answer: You may look for a discussion of the role of modern values in the
development process, as on Pages 13–14 of the text.

8. Do you think it is in the material interests of high-income countries to help

low-income countries improve their economic performance? Why or why not?
Answer: Answers might touch on increasing the market for products in which
high-income countries have a comparative advantage, reducing the dangers of
regional war and terrorism, reducing international transmission of disease, and
curbing international migration.
9. How is happiness related to development?

Answer: Answers should make reference to the correlation between happiness and
income level as well as touch on the connection between happiness and social
relationships, personal and democratic freedoms, religious beliefs, and health, among
other factors listed on Page 20. Further, answers should include a discussion on
happiness as being a part of Amartya Sen’s concept of functionings.

10. What are the Millennium Development Goals (MDGs) and how did they come
about? What do you consider to be the most important of these and why?
Answer: The answer should stress that the goals cover a broad range of
objectives both economic and social. These were put forward so that
developing countries would have numerical targets against which their
progress could be judged and, where warranted, appropriate assistance offered.
An interim assessment of the MDGs can be found at: unmilleniumproject.
11. Why are women often referred to as playing a central role in economic
development?

Answer: An answer should include how women can influence whether or not the next
generation will be impoverished through their role of childrearing based on the
resources they bring to this task and the values they pass to their children. Another
key point that should be mentioned is that empirically, women tend to allocate a

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higher percentage of the income under their own control to the family and children
than men.

12. What are the most important characteristics that have shaped Brazil’s
economic and social progress during the last three decades? Answer:
Discussion should include the large degree of income inequality, the need for
land reform as a result of the dualistic nature of the land tenure system and the
environmental challenge faced by what is one of the world’s most
environmentally diverse countries.

Chapter 1 Economics, Institutions, and Development: A Global Perspective 7

7. Which of the following is not an important objective of development? a.

increases in per capita income b. the expansion of available choices c.
increases in individual and national self-esteem d. all of the above are
important objectives of development Answer: D
8. The Millennium Development Goals include a. eliminating the proportion of
people living on less than $1 per day. b. universal primary education. c.
increasing exports by one half. d. all of the above. Answer: B
9. The core values of development include a. increasing income per person. b.
reducing the inequality of income. c. the ability to meet basic needs. d. all of
the above. Answer: C
10. It is not possible for a country to experience a. economic development without
economic growth. b. economic growth without economic development. c.
economic growth and economic development simultaneously. d. both (a) and
(b) are correct. Answer: A
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Chapter 1 Economics, Institutions, and Development: A Global Perspective 5
5. What do you think are the most serious obstacles to further progress in the
developing world?
Answer: The main point here is to ensure that students are thinking carefully about the
issues raised
in the text. You may also wish to draw from the critical questions on Pages 10–12.
6. In reviewing discussions of life in developing countries, what is it about lifestyles
in the low-income
countries compared with lifestyles in the high-income countries that most strikes you?
Why?
Answer: This is an open-ended question to stimulate reflection.
7. It has been said that “underdevelopment is a state of mind.” Comment.
Answer: You may look for a discussion of the role of modern values in the
development process, as
on Pages 13–14 of the text.
8. Do you think it is in the material interests of high-income countries to help low-
income countries
improve their economic performance? Why or why not?

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Answer: Answers might touch on increasing the market for products in which high-
income countries
have a comparative advantage, reducing the dangers of regional war and terrorism,
reducing
international transmission of disease, and curbing international migration.
9. How is happiness related to development?
Answer: Answers should make reference to the correlation between happiness and
income level as
well as touch on the connection between happiness and social relationships, personal
and
democratic freedoms, religious beliefs, and health, among other factors listed on Page
20.
Further, answers should include a discussion on happiness as being a part of Amartya
Sen’s
concept of functionings.
10. What are the Millennium Development Goals (MDGs) and how did they come
about? What do you
consider to be the most important of these and why?
Answer: The answer should stress that the goals cover a broad range of objectives
both
economic and social. These were put forward so that developing countries would
have numerical targets against which their progress could be judged and, where
warranted, appropriate assistance offered. An interim assessment of the MDGs can be
found at: www.unmilleniumproject.org.
11. Why are women often referred to as playing a central role in economic
development?
Answer: An answer should include how women can influence whether or not the next
generation
will be impoverished through their role of childrearing based on the resources they
bring
to this task and the values they pass to their children. Another key point that should be
mentioned is that empirically, women tend to allocate a higher percentage of the
income
under their own control to the family and children than men.
12. What are the most important characteristics that have shaped Brazil’s economic
and social progress
during the last three decades?
Answer: Discussion should include the large degree of income inequality, the need for
land reform
as a result of the dualistic nature of the land tenure system and the environmental
challenge
faced by what is one of the world’s most environmentally diverse countries.

Recommended for you

23

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
100% (1)


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Chapter 1 Economics, Institutions, and Development: A Global Perspective 7

7. Which of the following is not an important objective of development?
a. increases in per capita income
b. the expansion of available choices
c. increases in individual and national self-esteem
d. all of the above are important objectives of development
Answer: D
8. The Millennium Development Goals include
a. eliminating the proportion of people living on less than $1 per day.
b. universal primary education.
c. increasing exports by one half.
d. all of the above.
Answer: B
9. The core values of development include
a. increasing income per person.
b. reducing the inequality of income.
c. the ability to meet basic needs.
d. all of the above.
Answer: C
10. It is not possible for a country to experience
a. economic development without economic growth.
b. economic growth without economic development.
c. economic growth and economic development simultaneously.
d. both (a) and (b) are correct.
Answer: A
Economic Development 10th Edition Todaro Test Bank

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Company
1. Countries tend to be classified as more or less developed based on
a. the literacy rate.
b. the poverty rate.
c. the level of income per capita.
d. the types of goods they produce.
Answer: C
2. Which of the following demonstrates international interdependence?
a. the oil shocks
b. the debt crisis
c. global warming
d. all of the above.
Answer: D
3. A subsistence economy is
a. a very low income economy.
b. an economy in which people make what they consume.
c. an economy in which people receive food for pay.
d. all of the above.
Answer: B
4. Development economics is the study of the
a. alleviation of absolute poverty.
b. transformation of institutions.
c. allocation of resources in developing countries.
d. all of the above.
Answer: D
5. Development economics must have a scope wider than traditional economics
because
a. values and attitudes play little role in the pace of development.
b. people in developing societies do less utility-maximizing.
c. transformation of social institutions is necessary for development.
d. all of the above.
Answer: C
6. A good definition of the meaning of development is the
a. elimination of absolute poverty.
b. improvement in the quality of life.
c. fulfillment of the potential of individuals.
d. all of the above.
Answer: D
7. Which of the following is not an important objective of development?
a. increases in per capita income
b. the expansion of available choices
c. increases in individual and national self-esteem
d. all of the above are important objectives of development
Answer: D
8. The Millennium Development Goals include
a. eliminating the proportion of people living on less than $1 per day.
b. universal primary education.

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c. increasing exports by one half.

d. all of the above.
Answer: B
9. The core values of development include
a. increasing income per person.
b. reducing the inequality of income.
c. the ability to meet basic needs.
d. all of the above.
Answer: C
10. It is not possible for a country to experience
a. economic development without economic growth.
b. economic growth without economic development.
c. economic growth and economic development simultaneously.
d. both (a) and (b) are correct.
Answer: A

Preview text

Test Bank for Economic Development

12th Edition by Todaro and Smith

Chapter 2

Comparative Economic Development



Key Concepts


In the new edition, Chapter 2 serves to further examine the extreme contrasts not only
between developed and developing countries, but also between different developing
countries.

As in the last edition, Chapter 2 introduces quantitative comparison methods. After

classifying countries as low–income, lower–middle income, upper–middle income,
high-income OECD, and other high- income countries (in accordance with the World
Bank’s income classification structure), Purchasing Power Parity (PPP) is explained
as a tool to make more accurate comparisons between countries based on income
level. As an alternative to the World Bank’s classification based on income, Chapter 2
looks at other key development factors such as education and gender inequality,
mainly through an introduction to the Human Development Index and how it is
calculated. This edition also introduces students to the new Human Development
Index and how it differs from the original HDI. It emphasizes the calculations of these
two indexes and how a nation’s income level is often not consistent with its HDI or

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NHDI. Numerous new country comparison tables were added to better illustrate this
point.

As in the 11 th edition, the 12 th emphasizes the similarities among developing

countries. The chapter stresses ten key similarities of developing countries:

 Low levels of living and productivity

 Low levels of human capital

 High levels of income inequality and absolute poverty

 High rates of population growth

 Social fraternization

 Large rural population with rapid rural–urban migration

 Low levels of industrialization

 Adverse geography

 Underdeveloped financial systems and markets

 Lingering colonial impact and external dependence

Within the discussion of these similarities are highlights of the diversity among
developing nations despite their commonalities.

The chapter goes into greater detail when discussing that developing countries began
modern economic growth with initial conditions much different from those of the
developed countries. In comparison to the position of the developed countries on the
eve of their development, many of today’s LDCs have:

 more limited natural resource endowments.

 lower per capita incomes.

 a less temperate climate and possibly unfavorable geographic conditions.

 larger population sizes and growth rates.

 fewer migration possibilities, but a larger “braindrain” problem among those who do
migrate

 (the new edition specifically addresses the problems associated with remittances).
 fewer growth benefits from international trade.

 limited scientific and technological research capacity.

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 ineffective domestic institutions.

This section is followed up by a discussion as to whether the living standards in

developing and developed nations are starting to converge.

A section on the long-run causes of comparative development provides a framework

linking these causes, designed purposely to give students a foundation for the
following chapters which discuss different theories of economic development.
Included is a diagram that is helpful for students when trying to visualize the linkages.

The chapter ends with a case study on Pakistan and Bangladesh.

Lecture Suggestions


As is stated in the in the text “... the characterization of the developing world as sub-
Saharan Africa, North Africa, the Middle East, Asia (except for Japan and, more
recently South Korea and perhaps two or three of the other high-income economies),
Latin America and the Caribbean, and the “transition” countries of eastern Europe and
central Asia including the former Soviet Union, remains a useful generalization”
(page 42). This quote coupled with a brief discussion of what is to be found in Table
2. (the fact that all low-income, low middle-income and upper middle-income
countries are to be found in the developing world as defined in the text) should be
sufficient. You can then turn to the question how the per capita income used in
classifying countries as developed and less developed is measured as well as the
question of what makes these economies more similar to one another than countries of
the developed world.

Note that the text discusses GNI as opposed to GDP. Given that the vast majority of
principles of macroeconomics textbooks focus on GDP, it may be helpful to discuss
the difference between the two and the reason for using GNI rather than GDP to
measure per capita income. You should not go into any more detail than a particular
class seems to need. You might also like to consult Clara Capelli and Gianni Vaggi’s
“A better indicator for the standard of living: The Gross National Disposable Income”
(voxeu/article/better-measure-standard-living) for a further refinement over GNI.

The GNI conversion problem. In order to classify countries according to GNI per
capita each country’s GNI must be converted to dollars. Asking a class if, given
statistics on GNI for a particular economy in local currency, how they would convert
this figure into dollars you are sure to be told that you should use the exchange rate. It
is often useful at this point to ask students if they have traveled and what the exchange
rate has played as they paid for things and tried to keep track of what they had spent.
To being a discussion

 Ask the students whether they think becoming more economically developed is
equivalent to becoming more industrialized. You can present data on the share of
industry in GDP, discuss the difference between necessary and sufficient conditions,

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and introduce the concept of modern economic growth and the structural changes that
go along with development (this is discussed further

 in Chapter 3 as part of the structural change theory).

Students will find it instructive to review the many differences between Europe on the
eve of its postwar “miracle” and developing countries at their time of independence.
These differences include infrastructure (at least engineering plans for destroyed
sections), human capital (such as industrial skills even if industry was destroyed),
magnitude and type of capital inflow, values of modernity, developing countries lower
political autonomy and the legacy of colonialism, and the fact European countries not
only were not colonies themselves but owned colonies. This topic can also be
discussed in Chapter 3 as part of the discussion of the Harrod-Domar model. The
Harrod-Domar model worked well for the European countries after WWII because
they had the right complementary inputs in place.

Sample Questions


Short Answer

1. Explain how low levels of living can turn into a vicious cycle in developing
countries. Answer: See the section on low levels of living in the chapter.
2. Carefully explain some of the similar problems faced by otherwise diverse
countries in Africa, Asia,

and Latin America. Answer: This calls for students to summarize some of the main
points discussed in the chapter 3. What are some of the main ways in which the
economies of developing countries differ from one another?

Answer: See the Key Concepts above for a summary.

4. Explain why purchasing power parity measures of income levels tend to show
a smaller difference

between poor and rich countries. Answer: PPP measures show the number of units of
developing country currency required to purchase a basket of goods and services in
the developing country market that costs one dollar in the U. Prices for most services
tend to be much cheaper in developing countries than in the U.

5. In what way does nationalism tend to be a hindering force in attaining modern

economic growth

and development, and in what way a facilitating force? Answer: This is a question
that would depend on what you have covered in lecture.

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6. What are the three main indicators that make up the Human Development
Index? Answer: Life expectancy, educational attainment, GDP per capita
measured in PPP terms.
7. If countries are first ranked by level of real GDP per capita, and then by the
value of the Human Development Index, would you expect the ranking of
countries to be similar or different? Explain. Answer: The final column of
Table 1 in the Human Development Report ( hdr.undp ) shows the difference
in ranking between the two classification methods and students can be directed
to that.
8. Comment on the following statement: The level and growth rate of real GDP
per capita can be a misleading indicator of development. At the same time,
countries that experience sustained

increases in real GDP per capita over time will tend to be more developed. Answer:
Open-ended essay.

9. What are the three major components of economic growth? Answer: Capital
accumulation, labor force growth, and technological progress.
10. Explain the lingering effects of colonialism and how it is still playing a role in
hindering economic development in the developing world. Answer: Answers
should be based on the points covered in the section on the colonial impact as
well as in lecture.
11. Why might the use of more advanced technology not be a sufficient condition
for sustained economic growth? Answer: It may require an inefficiently high
capital labor ratio and complementary factors, especially education, may be
lacking. Additional points depend on lecture coverage.
12. A newly industrialized country is

a. the same as a high-income country.

b. any country that has experienced sustained growth in industry. c. a special

classification given to some upper-middle income countries that

have achieved relatively advanced manufacturing sectors.

d. any country that has moved out of lower income status. Answer: C

3. Which of the following is not an upper-middle income country?

a. Brazil

b. South Africa

c. Pakistan

d. Argentina Answer: C

4. Which of the following is a low-income country?

a. Mexico

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b. Thailand

c. Turkey

d. Bangladesh Answer: D

5. One of the components of the human development index is

a. the percentage of the population who are high school graduates.

b. the average daily intake of protein.

c. life expectancy at birth. d. the number of doctors per hundred people in the
population. Answer: C

6. What percent of the world’s nations have at least five significant ethnic
populations?

a. 0 – 10

b. 10 – 20

c. 20 – 30

d. 30 – 40

e. over 40 Answer: E

7. What fraction of developing countries have recently experienced some form of

significant interethnic conflict?

a. less than one-tenth

b. a tenth to one-quarter

c. one quarter to one half

d. over one half Answer: D

8. Which of the following African countries has experienced widespread death

and destruction

due to ethnic or clan based conflict in the previous decade?

a. Rwanda

b. Sudan

c. Somalia d. all of the above Answer: D

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9. Which measure uses a common set of international prices for all goods and
services produced?

a. purchasing power parity income levels

b. GNI price deflators

c. foreign exchange rate conversions to U. dollars

d. the exchange rate Answer: A

10. The number of units of developing country currency required to purchase a

basket of goods and

services in a developing country that costs one dollar in the U. is given by

a. GNI price deflator.

b. Human Development Index ranking.

c. purchasing power parity.

d. the exchange rate. Answer: C

11. About how many people lack access to basic sanitation?

a. 20 million

b. 200 million

c. 500 million

d. 1 billion

e. 2 billion Answer: E

12. About how many people lack access to safe water?

a. 20 million

b. 200 million

c. 500 million

d. 1 billion

e. 2 billion Answer: D

13. About how many malnourished children under age five are there in the
developing world?

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a. 20 million

b. 150 million c. 500 million

d. 1 billion

e. 2 billion Answer: B

b. higher output levels are achieved by more capital intensive methods.

d. higher output levels are achieved by more labor intensive methods.

e. higher output levels are achieved. Answer: A

15. Conditions of today’s developed countries at the start of their industrialization

differ from conditions

in the developing world in that

a. population growth rates were higher.

b. more advanced technology was available.

c. there were more opportunities for development assistance.

d. none of the above. Answer: D

16. Most successful examples of modern economic growth have occurred in a

country with

a. a temperate-zone climate.

b. a market economy.

c. exports of manufactured goods.

d. all of the above. Answer: D

17. Which of the following is not an indicator that is used by the World Bank in
measuring the

level of economic development?

a. life expectancy at birth.

b. adult literacy rate.

c. infant mortality rate.

d. all of the above are not used by the World Bank. Answer: D

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18. The dependency burden is

a. a measure of the degree to which the less developed countries are dependent on the
rich

industrial countries.

b. the average number of children that a woman gives birth to during her lifetime.

c. the number of babies born per 1000 persons.

d. the percent of the population that is below 15 and above 65 years of age. Answer:
D

19. How many people still live on less than the equivalent of $1 per day (new
definition of “extreme

poverty”)?

a. 100 million.

b. 500 million.

c. 1 billion.

d. 2 billion. Answer: C

20. Which of the following is not an indicator that is used to compute the Human
Development

Index? a. life expectancy at birth.

b. real GDP per capita.

c. infant mortality rate. d. adult literacy rate. Answer: C

21. The combined GDP of developing countries constitutes approximately

a. 5 percent of global GDP.

b. 20 percent of global GDP.

c. 30 percent of global GDP.

d. 40 percent of global GDP. Answer: D

22. Developing countries are starting to converge with developed countries in the
long run in what

respect?

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a. Growth rate

b. Income inequality

c. Population

d. Per capita income Answer: D

23. Which region in the world has the lowest GNI per capita based on the World
Bank Atlas method?

a. Sub-Saharan Africa

b. East Asia/Pacific

c. South Asia

d. Latin America/The Caribbean Answer: C

b. higher output levels are achieved by more capital intensive methods.

d. higher output levels are achieved by more labor intensive methods.
e. higher output levels are achieved.
Answer: A
15. Conditions of today’s developed countries at the start of their industrialization
differ from conditions
in the developing world in that
a. population growth rates were higher.
b. more advanced technology was available.
c. there were more opportunities for development assistance.
d. none of the above.
Answer: D
16. Most successful examples of modern economic growth have occurred in a country
with
a. a temperate-zone climate.
b. a market economy.
c. exports of manufactured goods.
d. all of the above.
Answer: D
17. Which of the following is not an indicator that is used by the World Bank in
measuring the
level of economic development?
a. life expectancy at birth.
b. adult literacy rate.
c. infant mortality rate.
d. all of the above are not used by the World Bank.
Answer: D
18. The dependency burden is
a. a measure of the degree to which the less developed countries are dependent on the
rich

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industrial countries.
b. the average number of children that a woman gives birth to during her lifetime.
c. the number of babies born per 1000 persons.
d. the percent of the population that is below 15 and above 65 years of age.
Answer: D
19. How many people still live on less than the equivalent of $1.25 per day (new
definition of “extreme
poverty”)?
a. 100 million.
b. 500 million.
c. 1.4 billion.
d. 2.2 billion.
Answer: C
20. Which of the following is not an indicator that is used to compute the Human
Development
Index? a. life expectancy at birth.
b. real GDP per capita.
c. infant mortality rate.
d. adult literacy rate.
Answer: C
21. The combined GDP of developing countries constitutes approximately
a. 5 percent of global GDP.
b. 20 percent of global GDP.
c. 30 percent of global GDP.
d. 40 percent of global GDP.
Answer: D
22. Developing countries are starting to converge with developed countries in the long
run in what
respect?
a. Growth rate
b. Income inequality
c. Population
d. Per capita income
Answer: D
23. Which region in the world has the lowest GNI per capita based on the World Bank
Atlas method?
a. Sub-Saharan Africa
b. East Asia/Pacific
c. South Asia
d. Latin America/The Caribbean
Answer: C

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MCQ of Agriculture

Q1. How much of India’s population is engaged in Agricultural activities

A. Two third B. Half C. One third D. Almost all

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 lOMoARcPSD|32798221

Q2. Over these years, cultivation methods have changed significantly depending upon
the characteristics of ......................

A. Type of crop B. technological know-how C. Type of season D. Government

intervention

Q3. Farming has varied from subsistence to ........... type.

A. Intensive B. Extensive C. Commercial D. Plantation

Q4. Agriculture is practised on small patches of land with the help of primitive tools
like hoe, dao and digging sticks, and family/ community labour- what type of
agriculture is this?

A. Intensive B. Primitive subsistence C. Extensive D. Plantation

Q5. What has been the main dependency of primitive farming?

A. monsoon, B. labour C. suitability of other environment D. technical

Q6. Which type of agriculture is called ‘slash and burn’ agriculture?

A. Plantation B. Intensive C. Primitive subsistence D. Extensive

Q7. What are the features of primitive subsistence agriculture?

A. Large amount of labour B. When the soil fertility decreases, the farmers shift and
clear a fresh patch of land C. Canals were used D. Use of fertilisers

Q8. What is ‘slash and burn’ agriculture called in many North eastern states?

A. Jhumming B. Milpa C. Masole D. ray

Q9. Intensive Subsistence Farming is ...................

A. Machine based B. Crop rotation C. labour intensive D. Soil consistent

Q15. Which state is known for growing tea?

A. Assam B. Shillong C. Meghalaya D. Sikkim

Q16 many cropping seasons does India have?

A. 4

B. 2

C. 5

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D. 3

Q17. When are rabi crops harvested?

A. October B. April C. December D. July

Q18. Identify the Rabi crops?

A. Jowar B. Rice C. Soyabean D. Peas

Q19. Which state is known for growing Rabi crops?

A. Madhya Pradesh B. Rajasthan C. Odisha D. Punjab

Q20. Availability of ______ during winter months due to the western temperate
cyclones helps in the success of Rabi crops.

A. Monsoons B. Precipitation C. Frost D. Winds

Q21. Which states are known for their success in the green revolution?

A. Punjab B. Uttar Pradesh C. Uttarakhand D. Gujrat

Q22. When are Kharif crops harvested?

A. September-October B. December- January C. June-July D. April- May

Q23. Name a crop grown during the Kharif season?

A. Barley B. Gram C. Rice D. Jowar

Q24. Name an important wheat growing region. A. West Bengal B. Odisha C. Punjab
D. Maharashtra

Q30. India the .......... producer of rice in the world.

A. First B. Second C. Third D. Fourth

Q31. Rice requires high humidity with ...... annual rainfall?

A. above 100 cm B. Below 100 cm C. Above 75 cm DA. Above 60 cm

Q32. How has it become possible to grow rice in areas of less rainfall such as Punjab,
Haryana and western Uttar Pradesh and parts of Rajasthan?

A. With roof top water reserves B. Canals C. lakes D. Rivers

Q33. What kind of weather conditions are favourable for the growth of Wheat?

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 lOMoARcPSD|32798221

A. Hot wet weather B. Monsoon C. Dry hot weather D. cool growing season and a
bright sunshine

Q34. Wheat requires 50 to 75 cm of annual rainfall evenly distributed over the

growing season?

A. 80 to 100 B. 50 to 70 C. 75 to 90 D. 90 to 100

Q 35. Which are the two important wheat-growing zones in the country?

A. Ganga-Satluj plains B. Coastal areas C. region of the Deccan D. Deep south

Q36. Which crops come under the classification of millets?

A. Peas and maize B. Mustard and soybean C. Urad and moong D. Jowar & bajra

Q37. Millets have high nutritional value and are rich in ...........

A. Iron, calcium B. Minerals C. Phosphate D. Proteins

Q38. Jowar is the......... important food crop with respect to area and production.

A. First B. Second C. Third D. fourth

Q39. Jowar is a rain-fed crop mostly grown in the moist areas which needs .........
irrigation.

A. High B. Medium C. Less D. No

Q45. Name a major Banana producing state of India?

A. Andhra Pradesh B. Telangana C. Meghalaya D. Kerala

Q46. Where is rubber mainly grown?

A. Andhra Pradesh B. Karnataka C. Andaman and Nicobar D. Madhya Pradesh

Q47. Which fibre crop is obtained from cocoons of the silkworms fed on green
leaves?

A. Jute B. Silk C. Cotton D. hemp

Q48. Which fibre is also known as the golden fibre?

A. Jute B. Silk C. Cotton D. hemp

Q. 49. Name a state which is a major producer of Jute?

A. Andhrapradesh B. Maharashtra C. Madhya Pradesh

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 lOMoARcPSD|32798221

D. West Bengal

Q50. In 2016, India was the ........... producer of fruits and vegetables in the world.

A. First B. Second C. Third D. Fourth

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MCQ of Agriculture
Q1. How much of India’s population is engaged in Agricultural activities
A. Two third
B. Half
C. One third
D. Almost all
Q2. Over these years, cultivation methods have changed significantly depending upon
the
characteristics of ………………….
A. Type of crop
B. technological know-how
C. Type of season
D. Government intervention
Q3. Farming has varied from subsistence to ……….. type.
A. Intensive
B. Extensive
C. Commercial
D. Plantation
Q4. Agriculture is practised on small patches of land with the help of primitive tools
like hoe, dao
and digging sticks, and family/ community labour- what type of agriculture is this?
A. Intensive
B. Primitive subsistence

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 lOMoARcPSD|32798221

C. Extensive
D. Plantation
Q5. What has been the main dependency of primitive farming?
A. monsoon,
B. labour
C. suitability of other environment
D. technical
Q6. Which type of agriculture is called ‘slash and burn’ agriculture?
A. Plantation
B. Intensive
C. Primitive subsistence
D. Extensive
Q7. What are the features of primitive subsistence agriculture?
A. Large amount of labour
B. When the soil fertility decreases, the farmers shift and clear a fresh patch of land
C. Canals were used
D. Use of fertilisers
Q8. What is ‘slash and burn’ agriculture called in many North eastern states?
A. Jhumming
B. Milpa
C. Masole
D. ray
Q9. Intensive Subsistence Farming is ……………….farming.
A. Machine based
B. Crop rotation
C. labour intensive
D. Soil consistent

Why is this page out of focus?

This is a Premium document. Become Premium to read the whole document.
Q20. Availability of ______ during winter months due to the western temperate
cyclones helps
in the success of Rabi crops.
A. Monsoons
B. Precipitation
C. Frost
D. Winds
Q21. Which states are known for their success in the green revolution?
A. Punjab
B. Uttar Pradesh
C. Uttarakhand
D. Gujrat
Q22. When are Kharif crops harvested?
A. September-October
B. December- January
C. June-July
D. April- May
Q23. Name a crop grown during the Kharif season?
A. Barley
B. Gram

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 lOMoARcPSD|32798221

C. Rice
D. Jowar
Q24. Name an important wheat growing region.
A. West Bengal
B. Odisha
C. Punjab
D. Maharashtra

Why is this page out of focus?

This is a Premium document. Become Premium to read the whole document.
Q30. India the ………..largest producer of rice in the world.
A. First
B. Second
C. Third
D. Fourth
Q31. Rice requires high humidity with …….cm annual rainfall?
A. above 100 cm
B. Below 100 cm
C. Above 75 cm
DA. Above 60 cm
Q32. How has it become possible to grow rice in areas of less rainfall such as Punjab,
Haryana
and western Uttar Pradesh and parts of Rajasthan?
A. With roof top water reserves
B. Canals
C. lakes
D. Rivers
Q33. What kind of weather conditions are favourable for the growth of Wheat?
A. Hot wet weather
B. Monsoon
C. Dry hot weather
D. cool growing season and a bright sunshine
Q34. Wheat requires 50 to 75 cm of annual rainfall evenly distributed over the
growing season?
A. 80 to 100
B. 50 to 70
C. 75 to 90
D. 90 to 100
Q 35. Which are the two important wheat-growing zones in the country?
A. Ganga-Satluj plains
B. Coastal areas
C. region of the Deccan
D. Deep south
Q36. Which crops come under the classification of millets?
A. Peas and maize
B. Mustard and soybean
C. Urad and moong
D. Jowar & bajra
Q37. Millets have high nutritional value and are rich in ………..
A. Iron, calcium

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 lOMoARcPSD|32798221

B. Minerals
C. Phosphate
D. Proteins
Q38. Jowar is the……….most important food crop with respect to area and
production.
A. First
B. Second
C. Third
D. fourth
Q39. Jowar is a rain-fed crop mostly grown in the moist areas which needs ………
irrigation.
A. High
B. Medium
C. Less
D. No

Why is this page out of focus?

This is a Premium document. Become Premium to read the whole document.
Q45. Name a major Banana producing state of India?
A. Andhra Pradesh
B. Telangana
C. Meghalaya
D. Kerala
Q46. Where is rubber mainly grown?
A. Andhra Pradesh
B. Karnataka
C. Andaman and Nicobar
D. Madhya Pradesh
Q47. Which fibre crop is obtained from cocoons of the silkworms fed on green
leaves?
A. Jute
B. Silk
C. Cotton
D. hemp
Q48. Which fibre is also known as the golden fibre?
A. Jute
B. Silk
C. Cotton
D. hemp
Q. 49. Name a state which is a major producer of Jute?
A. Andhrapradesh
B. Maharashtra
C. Madhya Pradesh
D. West Bengal
Q50. In 2016, India was the …………largest producer of fruits and vegetables in the
world.
A. First
B. Second
C. Third
D. Fourth

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 Q.

Agricultural development is now seen as an important part of any

development strategy
answer choices

True

False

Malnutrition and famine inspire calls for a new green revolution

focused on ______

Philippines

Africa

Asia

Latin America

Roles for Government in Agricultural Development.

Addressing monopoly power in input supply

Economies of scale in marketing

Increase GDP

Increase GNP

Reasons on Subsistence Agriculture and Extensive Cultivation in Africa

Shifting Cultivation

Seasonal demand for labor depending on rainy season

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Famine

Relatively high fraction of underutilized land

3 subsistence farming

risk aversion

uncertainty

survival

famine

Conditions for Rural Development (choose 2 answer)

land reform

supportive policies

technology

innovation

countries where agriculture is still a major source of economic growth—

mainly because agriculture makes up a large share of GDP

True

False

This country has moved from being a borderline transforming country

to a solidly urbanized one according to World Bank classification

Brazil

India

China

Philippines

In all Asian countries surveyed, average- farm size was below 5 h, in

Indonesia just 1.1 hectares
answer choices

False

True

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 lOMoARcPSD|32798221

very large landholdings

Latifundios

minifundios

haciendas

lafitifundios

HomeExpert solutions
Upgrade: free 7-day trial

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Final study chapter 4-6

Final study chapter 4-6

25 studiers recently

 Flashcards
 Learn
 Test
 Match
Term
1 / 21
1. The absolute poverty line
a. decreases as real income grows.
b. shows the average income of the lowest
income group.
c. can be measured with the Lorenz curve.
d. None of the above.
Definition
1 / 21

d. None of the above.

Created by
mocerial

Terms in this set (21)

1. The absolute poverty line

a. decreases as real income grows.
b. shows the average income of the lowest income group.
c. can be measured with the Lorenz curve.
d. None of the above.
d. None of the above.

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2. The Gini coefficient provides a measure of

a. the level of poverty.
b. the level of relative inequality.
c. disguised unemployment.
d. the rate of growth.
b. the level of relative inequality.
3. Kuznets' inverted-U hypothesis

a. implies that things must get worse before they get better.
b. suggests that inequality will worsen and then improve as a country grows.
c. suggests that inequality will improve and then worsen as a country grows.
d. points out six characteristics of modern economic growth.
b. suggests that inequality will worsen and then improve as a country grows.
4. According to Kuznets, in the process of development inequality in an economy will
normally
a. first rise and then fall.
b. first fall and then rise.
c. remain about the same.
d. show no definite pattern.
a. first rise and then fall.
5. The number of people in the world who are absolutely poor is closest to
a. a quarter-billion.
b. a half-billion.
c. one and a half billion.
d. two billion.
e. four billion.
c. one and a half billion.
6. With modern sector enrichment growth, inequality will
a. first rise and then fall.
b. first fall and then rise.
c. remain about the same.
d. None of the above.
d. None of the above.
7. With modern sector enlargement growth, inequality will
a. first rise and then fall.
b. first fall and then rise.
c. remain about the same.
d. All of the above.
a. first rise and then fall.
8. Higher-income countries tend to have lower levels of absolute poverty because they
a. have more employment opportunities.
b. have more public assistance.
c. have greater entrepreneurship opportunities.
d. All of the above.
d. All of the above.
9. One of the characteristics of the poor is that they are

a. more likely to be employed in the modern industrial sector.

b. more likely to come from small families.

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c. more likely to be well educated.

d. more likely to live in a rural area.
d. more likely to live in a rural area.
10. About what percent of the world's poorest people are female?
a. 30
b. 50
c. 70
d. 90
c. 70
11. Which of the following groups is (are) more likely to be poor?
a. Minorities
b. Indigenous people
c. Women
d. All of the above.
d. All of the above.
12. Distribution of income according to percentiles, such as the highest 40 percent or
lowest 20 percent
is known as the _______________ distribution of income.

a. size
b. functional
c. GNP-weighted
d. equal-weighted
a. size
13. What conclusion can be reached from the following data on income shares?
Percentage of Income Received by
Lowest 40% Highest 20%
Bangladesh 17.3 45.3
Indonesia 14.4 49.4

a. absolute poverty is more widespread in Bangladesh

b. the size distribution of income is more unequal in Indonesia
c. Bangladesh had adopted a strategy of redistribution with growth
d. growth in Bangladesh is calculated using poverty weights rather than income
weights
b. the size distribution of income is more unequal in Indonesia
14. Developing countries who have adopted capital intensive technologies tend to
have

a. relatively higher Gini coefficients.

b. relatively lower Gini coefficients.
c. Gini coefficients equal to one.
d. Gini coefficients equal to zero.
a. relatively higher Gini coefficients.
15. Assuming that the Gini coefficient for Egypt is .403 and the Gini coefficeient for
Australia is .404, it is possible to conclude that both Egypt and Australia have

a. virtually the same number of households in absolute poverty

b. virtually the same percentage of households in absolute poverty

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c. virtually the same level of the Human Development Index

d. none of the above
d. none of the above
Poverty is better studied with size distribution measures than with those based on
factor distribution because
a. labor income may be highly concentrated in well-paid modern sector workers.
b. some poor farmers may receive a sizable share of income in rent.
c. income from nonmarket activities, such as foraging, may be important.
d. All of the above.
d. All of the above.
Which of the following policies might increase labor intensity in industry?
a. a decline in the cost of credit
b. a decline in the minimum wage rate
c. a decline in the elasticity of substitution
d. All of the above
b. a decline in the minimum wage rate
Which of the following policies may decrease the level of capital intensity in
industry?
a. an increase in the cost of capital
b. a decrease in the minimum wage
c. an increase in the elasticity of substitution
d. All of the above
d. All of the above
The Ahluwalia-Chenery Welfare Index
a. is a method used to measure changes in absolute poverty.
b. shows the value judgement implications of using the change in income per capita as
a measure of the change in development.
c. is a method used to measure changes in inequality.
d. is a method used to measure the growth rate of GDP.
b. shows the value judgement implications of using the change in income per capita as
a measure of the change in development.
About how many girls and women are said to be "missing" in LDCs?
a. 2 million
b. 20 million
c. 200 million
d. 2 billion
c. 200 million
The poverty gap is the

a. absolute number of people below the international poverty line.

b. percentage of the population below the international poverty line.
c. consumption (measured in dollars) necessary to bring everyone living below the
poverty line up to the poverty line.
d. percentage of a country's total consumption necessary to bring everyone in the
country living below the poverty line, up to the poverty line.
d. percentage of a country's total consumption necessary to bring everyone in the
country living
below the poverty line, up to the poverty line.

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Chapter 6 (Population Growth and Economic Development: Causes,

Consequences, and Controversies)

1. Social Science
2. Human Geography

Chapter 6 (Population Growth and

Economic Development: Causes,
Consequences, and Controversies)
10 studiers recently

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Term
1 / 20
Projections place world population by 2050 at
a. between 4 and 6 billion.
b. between 6 and 8 billion.
c. between 8 and 10 billion.
d. between 10 and 12 billion
Definition
1 / 20

c. between 8 and 10 billion

Created by
taitchaf

Terms in this set (20)

Projections place world population by 2050 at

a. between 4 and 6 billion.
b. between 6 and 8 billion.
c. between 8 and 10 billion.
d. between 10 and 12 billion
c. between 8 and 10 billion
Children under the age of 15 represent about __________ percent of the population of
developing countries
a. 25
b. 29
c. 53
d. 61
e. 75
b. 29
Evidence presented in the text suggests that birthrates among developing countries are
lower with

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 lOMoARcPSD|32798221

a. higher growth
b. higher inequality.
c. higher GNP per capita.
d. All of the above
a. higher growth
The hidden momentum of population growth is caused by
a. the demographic transition.
b. population age structure
c. the opportunity cost of a woman's time
d. children's contribution to income
b. population age structure
The world rate of population growth is closest to
a. 1%.
b. 2%.
c. 3%.
d. 4%
a. 1%
In stage III of the demographic transition
a. the birth rate and the death rate are relatively low.
b. the birth rate and the death rate are relatively high.
c. the birth rate is relatively high and the death rate is relativelylow
d. birth rate is relatively low and the death rate is relatively high
a. the birth rate and the death rate are relatively low
The Malthusian population trap assumes that
a. contraception is unavailable.
b. technological progress may be rapid.
c. fertility increases with per capita income.
d. All of the above.
c. fertility increases with per capita income
Which of the following would most likely reduce the birthrate?
a. public health improvements
b. an increase in child mortality
c. a decline in the availability of secondary education
d. A reduction in the opportunity cost of a woman's time
e. All of the above
a. public health improvements
The number of live births per 1000 people in the population per year is the
a. hidden momentum of population growth.
b. population growth rate.
c. demographic transition.
d. crude birth rate
d. crude birth rate
Which of the following will cause the largest reduction in the birthrate?
a. the population becomes less religious
b. public healthcare improves
c. education becomes more available
d. an increase in the opportunity cost of a woman's time
d. an increase in the opportunity cost of a woman's time
In recent years, the fertility rate in developing countries has been
a. declining.

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b. holding steady
c. increasing
d. showing no particular pattern
a. declining
Evidence suggests that population growth has negative effects on
a. economic growth.
b. poverty reduction.
c. environment.
d. education.
e. All of the above
e. all of the above
The proportion of the total population aged 0-15 and over 65, is known as the
a. dependencv burden
b. unproductive population.
c. surplus labor.
d. population momentum
a. dependency burden
The rate of natural increase in the population of developing countries is most
correlated with
a. advances in developed country technology
b. increases in developing country income.
c. an increase in the fertility rate.
d. All of the above
a. advances in developed country technology
Which of the following is a direct implication of the view that childbearing is an
economic decision?
a. Peopic will not have additional children unless the can earn a profit from doing so.
b. Social factors have no effect on childbearing decisions.
c. Compulsory education will increase fertility because educated children have the
potential to earn higher salaries
d. Fertility should fall with improved opportunities for women to work in jobs outside
the home
d. Fertility should fall with improved opportunities for women to work in jobs outside
the home
Which of the following geographic regions is expected to experience the largest
percentage increase in its population between 2003 and 2050?
a. Asia and Oceania.
b. Latin America
c. North America
d. Africa
d. africa
At present, approximately how many years would it take for the world's population to
double?
a. 35
b. 58
c. 96
d. 211
b. 58
The Malthusian population trap model has been criticized on the grounds that it
a. ignores the role or technological progress.

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b. assumes that population growth is primark- determined

the number of children to have.
c. Both (a) and (b) are correct.
d. Neither (a) nor (b) is correct
a. ignores the role of technological progress
Approximately how many women were estimated to be "missing" in China?
a. 20-30 million
b. 35-48 million
c. 44-50 million
d. 52-58 million
c. 44-50 million
If the rural wage is 4 and the formal urban wage rate is 10, there will be rural to urban
migration if the formal urban unemployment rate is

a. 40%
b. 10%
c. 50%
d. 25%
c. 50%

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Which of the following is not a policy proposal of the neoclassical counter-revolution

school?
(a) promoting free trade
(b) privatizing state-owned enterprises
(c) welcoming multinational corporations
(d) promoting trade unions
(d) promoting trade unions
Which of the following is an assumption of the Lewis two-sector model?
(a) surplus labor in the rural sector
(b) high unemployment in the urban modern sector
(c) rising real urban wages
(d) rising marginal product of labor in the rural sector
(a) surplus labor in the rural sector

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The false paradigm model attributes lack of development to

(a) inadequate attention to price incentives.
(b) inappropriate advice from rich country economists.
(c) low levels of savings and investment.
(d) a lack of government regulation.
(b) inappropriate advice from rich country economists.
Which of the following is a criticism of the neoclassical counter-revolution school's
approach?
(a) markets are not competitive in developing countries.
(b) externalities are common in developing countries.
(c) inequality may worsen when interventions are removed in developing countries.
(d) all of the above.
(d) all of the above.
Which of the following approaches does not offer an international dependence
explanation of underdevelopment?
(a) the false paradigm model
(b) the neoclassical counter-revolution
(c) the dualistic development model
(d) the neocolonial dependence model
(b) the neoclassical counter-revolution
The neoclassical counter-revolution school supports
(a) trade restrictions.
(b) state-owned enterprises.
(c) eliminating government regulations.
(d) limitations on foreign investors.
(c) eliminating government regulations.
Implicit assumptions from which theories evolve are known as
(a) a paradigm.
(b) biases.
(c) stylized facts.
(d) normative economics.
(a) a paradigm.
On which of the following does the neoclassical counter-revolution school most
blame underdevelopment?
(a) misguided government policies
(b) relatively rigid cultural traditions
(c) the legacy of colonialism
(d) unfair trade practices on the part of developed countries
(a) misguided government policies
According to the theory of structural patterns of development, which of the following
tends to occur as a country develops?
(a) a shift from agriculture to industry and services
(b) an increase in the percentage of income spent on food
(c) growth of the rural sector
(d) a decline in trade as a share of GNP
(a) a shift from agriculture to industry and services
In the public choice (or new political economy) approach to development the
emphasis is on
(a) growth in the rural sector.
(b) the self-interested behavior of public officials.

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(c) the dependence of LDCs on former colonial powers.

(d) the inherent efficiency of developing country markets.
(b) the self-interested behavior of public officials.
A situation in which government intervention in the economy worsens the economic
outcome is termed
(a) neoclassical failure.
(b) socialism.
(c) government failure.
(d) dependency revolution.
(c) government failure.
According to the dependence theory, the developing world is known as the
(a) backward areas.
(b) periphery.
(c) first world.
(d) center.
(b) periphery.
The underlying assumption of the Harrod-Domar growth model is that
(a) the incremental capital-output ratio is given by k Y/K.
(b) growth is mainly determined by capital accumulation.
(c) growth can be sustained only if agricultural productivity rises.
(d) developing countries save too much and invest too little.
(b) growth is mainly determined by capital accumulation.
The supply curve of labor to industry in the Lewis model is horizontal if there is
surplus labor in agriculture. This condition persists as long as
(a) the marginal product of labor is less than the average product of labor in
agriculture.
(b) the marginal product of labor in agriculture is less than the marginal product of
labor in industry.
(c) there are diminishing returns to labor in agriculture.
(d) the marginal product of labor in agriculture is zero.
(d) the marginal product of labor in agriculture is zero.
International dependence theories distinguish between two groups of countries known
as
(a) rich-poor.
(b) developed-developing.
(c) center-periphery.
(d) independent-dependent.
(c) center-periphery.
Which of the following is an assumption of the Lewis two-sector model?
(a) surplus labor in industry.
(b) positive marginal product of labor in agriculture.
(c) an upward sloping labor supply curve in industry.
(d) none of the above.
(d) none of the above.
The market-friendly approach to development emphasizes
(a) self-interested behavior of public officials in LDCs.
(b) the dependence of LDCs on former colonial powers.
(c) the inherent efficiency of markets in developing countries.
(d) that markets in LDCs fail sometimes and selective interventions can promote
economic development.

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(d) that markets in LDCs fail sometimes and selective interventions can promote
economic development.
The linear stages theory of economic growth fails to recognize that increased
investment is
(a) both a necessary and a sufficient condition.
(b) a necessary but not a sufficient condition.
(c) a sufficient but not a necessary condition.
(d) neither a necessary nor a sufficient condition.
(b) a necessary but not a sufficient condition.
Which of the following are components of economic growth
(a) growth in labor force.
(b) technological progress.
(c) investment.
(d) all of the above.
(d) all of the above.
The Solow residual helps explain growth that derives from
(a) increasing the size of the labor force.
(b) increasing the size of the capital stock.
(c) increasing the capital-labor ratio.
(d) anything except increases in the size of the labor force or the capital stock.
(d) anything except increases in the size of the labor force or the capital stock.
In endogenous growth models, it is assumed that
(a) there are external economies from public or private investments.
(b) there are diminishing marginal returns to capital.
(c) growth is explained by forces outside the model.
(d) the capital-labor ratio is constant.
(a) there are external economies from public or private investments.
In contrast to the earlier neoclassical models of economic growth, in endogenous
growth models, there is more emphasis on
(a) human capital.
(b) externalities.
(c) increasing returns to scale.
(d) all of the above.
(d) all of the above.
The new growth theory attempts to explain
(a) the rate of population growth within a country.
(b) the rate of capital accumulation within a country.
(c) the factors that determine the size of the Solow residual.
(d) why there are diminishing returns to capital.
(c) the factors that determine the size of the Solow residual.
The S-curve is used to illustrate
(a) the typical path taken by the current account over time.
(b) economic fluctuations in the economy.
(c) the typical growth path of a developing economy.
(d) the existence of multiple equilibria.
(d) the existence of multiple equilibria.
The big-push theory argues that coordination failures may arise because of
(a) Pecuniary externalities.
(b) technological externalities.

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(c) lack of human capital.

(d) all of the above.
(a) Pecuniary externalities.
The O-ring theory places emphasis on
(a) education of the labor force.
(b) skill complementarities.
(c) purchases of machinery and equipment by firms.
(d) none of the above.
(b) skill complementarities.

1. The absolute poverty line

a decreases as real income grows.
b. shows the average income of the lowest income group.
c. can be measured with the Lorenz curve.
d. None of the above
(d) none of the above.
2. The Gini coefficient provides a measure of
a. the level of poverty.
b. the level of relative inequality.
c. disguised unemploymcnt.
d. the rate of growth
(b) the level of relative inequality.
3. Kuznets' inverted-U hypothesis
a. implies that things must get worse before they get better
b. suggests that inequality will worsen and then improve as a country grows.
c. suggests that inequality will improve and then worsen as a country grows.
d. points out six characteristics of modern economic growth.
(b) suggests that inequality will worsen and then improve as a country grows.
4. According to Kuznets, in the process of development inequality in an economy will
normally
a first rise and then fall.
b. first fall and then rise.
c. remain about the same.
d. show no definite pattern
(a) first rise and then fall.
5. Poverty is better studied with size distribution measures than those based on factor
distribution because
a. Labor income may be highly conctraded in well-paid modern sector workers.
b. some poor farmers may receive a sizable share of income in rent.
c. income from nonmarket activities such as foraging may be important
d. All of the above
(d) all of the above.
6. The number of people in the world who are absolutely poor is closest to
a. a quarter-billion.
b. a half-billion.
c. one billion
d. two billion.
e. four billion
(c) one billion.

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7. With modern sector enrichment growth, inequality will

a. first rise and then fall.
b. first fall and then rise.
c. remain about the same.
d. None of the above.
(d) none of the above.
8. With modern sector enlargement growth, inequality will
a. first rise and then fall.
b. first fall and then rise.
c. remain about the same.
d. All of the above.
(a) first rise and then fall.
9. Higher income countries tend to have lower levels of absolute poverty because
a. have more employment opportunities.
b. have more public assistance.
c. have greater entrepreneurship opportunities.
d. All of the above
(d) all of the above.
10. One of the characteristics of the poor is that they are
a. more likely to be employed in the modern industrial sector.
b. more likely to come from small families.
c. more likely to be well educated.
d. more likely to live in a rural area
(d) more likely to live in a rural area.
11. Which of the following policies might increase labor intensity in industry?
a. a decline in the cost of credit
b. a decline in the minimum wage rate
c. a decline in the elasticity of substitution.
d. All of the above
(b) a decline in the minimum wage rate
12. Which of the following policies may decrease the level of capital intensity in
industry?
a. an increase in the cost of capital
b. a decrease in the minimum wage
c. an increase in the elasticity of substitution
d. All of the above
(d) all of the above.
00:03 01:28
13. The Ahluwalia-Chenery welfare index
a. is a method used to measure changes in absolute poverty.
b. shows the value judgement implications of using the change in income per capita as
a measure of the change in development.
c. is a method used to measure changes in inequality.
d. is a method used to mcasure the growth rate of GDP
(b) shows the value judgement implications of using the change in income per capita
as a measure of the change in development.
14. About what percent of the world's poorest people are female?
a. 30
b. 50

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c. 70
d. 90
(c) 70
15. About how many girls and women are said to be "missing" in LDCs?
a. 2 million
b. 20 million
c. 200 million
d. 2 Billion
(c) 200 million
16. Which of the following groups is(are) more likely to be poor?
a. Minorities
b. Indigenous people
c. Women
d. All of the above
(d) all of the above.
17. Distribution of income according to percentiles, such as the highest 40% or lowest
20% is known as the _______________ distribution of income.

a. size
b. functional
c. GNP-weighted
d. equal-weighted
(a) size
18. What conclusion can be reached from the following data on income shares?

Percentage of Income received by lowest 40% und highest 20%

Bangladesh: 17.3 (Lowest 40%); 45.3 (Highest 20%)

Indonesia: 14.4 (Lowest 40%); 49.4 (Highest 20%)

a. absolute poverty is more widespread in Bangladesh

b. the size distribution of income is more unequal in lndonesia
c. Bangladesh had adopted a strategy of redistribution with growth
d. Growth in Bangladesh is calculated using poverty weights rather than income
weights
(b) the size distribution of income is more unequal in Indonesia
19. Developing countries who have adopted capital intensive technologies tend to
have
a. relatively higher Gini coefficients.
b. relatively Iower Gini coefficients.
c. Gini coefficients equal to one
d. Gini cocfficients equal to zero.
(a) relatively higher Gini coefficients.
20. Assuming that the Gini coefficient for Egypt is 0.403 and the Gini coefficient for
Australia is 0.404, it is possible to conclude that both Egypt and Australia have

a. virtually the same number of households in absolute povcrty.

b. virtually the same percentage of households in absolute poverty.
c. virtually the same level of the Human Development Index.
d. None of the above

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(d) none of the above.

21. Brazil's growth rate during the 1960's was 6.0% when poverty weights were used
to evaluate growth, compared with 8.2% when GNP weights were used to evaluate
growth. One can conclude from these numbers that

a. average income growth was greater for poor households than for rich households.
b. average income Growth was greater for rich households than for poor households
c. more and more households were falling below the poverty line.
d. the size distribution of income was getting worse.
(b) average income growth was greater for rich households than for poor households.
22. The poverty gap is the
a. absolute number of people below the international poverty line.
b. percentage of the population below the international poverty line.
c. consumption (measured in dollars) necessary to bring everyone living below the
poverty line up to the poverty line.
d. percentage of a country's total consumption necessary to bring evervone in the
country living below the poverty line, up to the poverty
(d) percentage of a country's total consumption necessary to bring everyone in the
country below the poverty line up to the line.
23. The functional distribution of income refers to the distribution of income between
a. individuals or households.
b. rural individuals or households.
c. urban individuals or households.
d. the factors of production (Land, Labor and capital).
(d) the factors of production (land, labor and capital).

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1. Crops produced entirely for the market are known as

(a) basic crops.
(b) mixed crops.
(c) hybrid crops.
(d) cash crops.
D
An agrarian system refers to
(a) the pattern of land ownership.
(b) the type of crops grown.
(c) the processing of agricultural commodities.
(d) an economy that has no industry.
A

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The primary goal of an agricultural extension service is to

(a) bring new areas under cultivation.
(b) increase the yield per hectare.
(c) introduce land reform.
(d) assist rural-urban migration.
B
Which of the following is an important factor in the success of agrarian land reform
policies?
(a) the introduction of sharecropping.
(b) the introduction of tenant farming.
(c) farmer training programs.
(d) the introduction of more capital intensive methods.
C
It is important to place particular stress on the role of women in rural development
programs because
(a) women have received less training in the past.
(b) women perform a large majority of the work in the rural sector.
(c) women tend to allocate more resources to their children's health and education.
(d) all of the above.
D
Sharecropping can be best understood as
(a) a type of agreement preferred by peasants.
(b) a type of agreement preferred by landlords.
(c) a compromise between peasant and landlord preferences.
(d) a type of agreement preferred by neither but given by tradition.
C
A program through which new ideas, methods, and advice are offered to farmers to
increase farm yields is known as
(a) agricultural extension.
(b) agricultural mechanization.
(c) an agrarian system.
(d) land reform.
A
In South Asia and Sub-Saharan Africa, about what share of the labor force works in
agriculture?
(a) One tenth.
(b) One third.
(c) One half.
(d) Two thirds.
D
In South Asia and Sub-Saharan Africa, about what share of output is contributed by
agriculture?
(a) One tenth.
(b) One fifth.
(c) Two fifths.
(d) One half.
B
In which of these developing regions has food production per capita steadily fallen
over the last quarter century?
(a) Africa.

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(b) East Asia.

(c) South Asia.
(d) Latin America.
A
In a world of perfect certainty, sharecropping would be less efficient than a farm
owner working his own farm because
(a) sharecroppers receive only half of their marginal product.
(b) paying a worker a wage gives him or her an incentive to shirk.
(c) sharecroppers are exploited by landlords.
(d) renting farmland concentrates risk on the renters.
(e) all of the above.
A
During the 1990s, food production increased faster than population in all regions of
the developing world except
(a) Latin America.
(b) East Asia.
(c) Sub-Saharan Africa.
(d) none of the above.
C
The African agrarian system is characterized by
(a) absentee landlords.
(b) a dual agrarian system known as latifundio-minifundio.
(c) land fragmentation.
(d) shifting cultivation.
C
The system of land tenure in which tenant farmers pay a fixed share of their crop to
landowners is called
(a) communal farming.
(b) collective farming.
(c) latifundio-minifundio system.
(d) sharecropping.
D
Absentee landowners characterize the agrarian system of
(a) Asia.
(b) Latin America.
(c) Sub-Saharan Africa.
(d) all of the above.
A

A major cause of environmental degradation in developing countries is

(a) population growth.
(b) rural poverty.
(c) rapid urbanization.
(d) all of the above.
D

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Sustainable development means

(a) emphasizing the role of the market.
(b) emphasizing the role of government.
(c) meeting the present generation's needs without compromising the needs of future
generations.
(d) maintaining output growth at a constant rate.
C
Which of the following environmental problems are largely caused by persistent
poverty?
(a) Deforestation.
(b) Soil erosion.
(c) Ground water contamination.
(d) All of the above.
D
Which of the following conditions is violated if there is a free rider problem?
(a) universality
(b) exclusivity
(c) transferability
(d) enforceability
B
A major cause of environmental degradation in developing countries is
(a) debt for nature swaps.
(b) poverty.
(c) a lack of public transportation.
(d) land reform.
B
The "cost of rainforest preservation" can be lowered for developing countries by
(a) the development of alternative rainforest products.
(b) research on agriculture in rainforest soils.
(c) encouraging rainforest settlement of the poor.
(d) subsidies for activities like cattle raising.
A
Debt-for-nature swaps are most generally
(a) beneficial only to the developing country.
(b) beneficial only to the developed country.
(c) beneficial only to the bank which can write off the debt.
(d) beneficial to all countries.
D
A resource that is publicly owned and allocated under a system of unrestricted access
is known as
(a) a socialist resource.
(b) a collective resource.
(c) a common property resource.
(d) a transferable resource.
C
The portion of a country's overall assets that is directly related to the environment,
such as forests and soil quality, is known as
(a) environmental capital.
(b) debt for nature swaps.

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(c) protected areas.

(d) common property assets.
A
The free rider problem is a situation in which
(a) effluents such as CFCs combine with ozone and decrease concentrations of that
protective chemical.
(b) one agent secures benefits that others pay for.
(c) there are excessive subsidies given to polluting buses or other forms of mass
transit.
(d) perfect property rights exist.
B
International resources shared by all countries such as oceans and air are known as
(a) global commons.
(b) free rider problems.
(c) nonrenewable resources.
(d) cooperative resources.
A
The annual income that can be consumed without diminishing the total capital assets
of a nation is
(a) purchasing power parity income.
(b) sustainable national income.
(c) environmental capital stock.
(d) per capita income.
B
An example of a biomass fuel is
(a) coal.
(b) nuclear fuel.
(c) manure.
(d) oil.
C
Which of the following conditions does not characterize perfect property rights
markets?
(a) universality
(b) exclusivity
(c) sustainability.
(d) enforceability.
C
In what way do developing countries make the largest contribution to the global
concentrations of greenhouse gases?
(a) vehicle emissions.
(b) deforestation.
(c) mining.
(d) irrigation.
B

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