Question 1

Foreign aid:

Accepted Answer

A) is an important source of funding for investment in most developing countries. 
B) does not contribute much to domestic investment in most developing countries. 
C) is largely wasted in most developing countries because it comes with no strings attached. 
D) provided by developed countries to developing countries represents about 10 percent of the GDP of developed countries. 
A) is an important source of funding for investment in most developing countries. 
B) does not contribute much to domestic investment in most developing countries. 
C) is largely wasted in most developing countries because it comes with no strings attached. 
D) provided by developed countries to developing countries represents about 10 percent of the GDP of developed countries.

Question 2

Generally speaking, central banks in developing economies are:

Accepted Answer

A) completely independent from political pressures. 
B) more independent from political pressures than central banks in developed economies. 
C) about as independent from political pressures as central banks in developed countries. 
D) less independent from political pressures than central banks in developed economies. 
A) completely independent from political pressures. 
B) more independent from political pressures than central banks in developed economies. 
C) about as independent from political pressures as central banks in developed countries. 
D) less independent from political pressures than central banks in developed economies.

Question 3

Political instability is an obstacle to development in:

Accepted Answer

A) market economies. 
B) socialist economies. 
C) both market and socialist economies. 
D) neither market nor socialist economies. 
A) market economies. 
B) socialist economies. 
C) both market and socialist economies. 
D) neither market nor socialist economies.

Question 4

In the 1980s and 1990s, Chile adopted capital controls that limited the ability of its citizens to buy or sell assets abroad. This action:

Accepted Answer

A) introduced full convertibility. 
B) limited only current account convertibility. 
C) limited only capital account convertibility. 
D) limited both current and capital account convertibility. 
A) introduced full convertibility. 
B) limited only current account convertibility. 
C) limited only capital account convertibility. 
D) limited both current and capital account convertibility.

Question 5

A citizen in a developing country with a currency policy of convertibility on the current account could engage in all of the following transactions except:

Accepted Answer

A) purchase foreign currency in order to import a BMW. 
B) sell foreign currency resulting from the exports of manufactured t-shirts. 
C) purchase foreign currency in order to purchase a U.S. treasury bond. 
D) sell foreign currency resulting from the sale of a U.S. treasury bond. 
A) purchase foreign currency in order to import a BMW. 
B) sell foreign currency resulting from the exports of manufactured t-shirts. 
C) purchase foreign currency in order to purchase a U.S. treasury bond. 
D) sell foreign currency resulting from the sale of a U.S. treasury bond.

Question 6

Some economists and international organizations use the PPP method in order to compare the:

Accepted Answer

A) income among countries. 
B) income among citizens of a country. 
C) life expectancy rates among countries. 
D) labor mobility among countries. 
A) income among countries. 
B) income among citizens of a country. 
C) life expectancy rates among countries. 
D) labor mobility among countries.

Question 7

The buying and selling of foreign currency by the central bank is a trade policy whose objective is:

Accepted Answer

A) stabilizing the exchange rate against external shocks. 
B) stabilizing the interest rate against foreign capital outflows. 
C) promoting long term economic growth. 
D) reducing purchases of assets abroad. 
A) stabilizing the exchange rate against external shocks. 
B) stabilizing the interest rate against foreign capital outflows. 
C) promoting long term economic growth. 
D) reducing purchases of assets abroad.

Question 8

Which of the following countries is least likely to have a dual economy?

Accepted Answer

A) Brazil 
B) India 
C) South Africa 
D) Austria 
A) Brazil 
B) India 
C) South Africa 
D) Austria

Question 9

Political instability is an impediment to development mainly because it:

Accepted Answer

A) undermines both domestic and foreign investment in a developing country. 
B) produces excessive levels of domestic saving. 
C) redistributes income. 
D) creates cultural and social differences among groups in developing countries. 
A) undermines both domestic and foreign investment in a developing country. 
B) produces excessive levels of domestic saving. 
C) redistributes income. 
D) creates cultural and social differences among groups in developing countries.

Question 10

In 1980, Robert Mugabe was elected president of Zimbabwe. After his election, Mugabe introduced a number of Marxist economic reforms that were designed to give the government much greater control over the economy. His economic reforms are an example of:

Accepted Answer

A) neither a policy change nor a regime change. 
B) a policy change. 
C) a regime change. 
D) both a policy change and a regime change. 
A) neither a policy change nor a regime change. 
B) a policy change. 
C) a regime change. 
D) both a policy change and a regime change.

Question 11

In the early 2000s, some argued that the Indian government impeded foreign investment with tariffs, investment caps, and tons of red tape. In terms of promoting or retarding economic growth, such policies:

Accepted Answer

A) increase growth because they stop exploitation by foreigners. 
B) increase growth because they keep people producing for the local market. 
C) decrease growth because they slow the growth of capital. 
D) decrease growth because they cause inflation. 
A) increase growth because they stop exploitation by foreigners. 
B) increase growth because they keep people producing for the local market. 
C) decrease growth because they slow the growth of capital. 
D) decrease growth because they cause inflation.

Question 12

Relative to developed economies, budget deficits are:

Accepted Answer

A) more likely in developing economies. 
B) less likely in developing economies. 
C) equally likely developing economies. 
D) politically less acceptable in developing countries. 
A) more likely in developing economies. 
B) less likely in developing economies. 
C) equally likely developing economies. 
D) politically less acceptable in developing countries.

Question 13

List five problems facing developing countries that make their path to development difficult.

Accepted Answer

(Any five of the following)
(1

Question 14

Central banks in developing countries have far less independence than do central banks in developed countries.Explain why this is a problem in developing countries.

Accepted Answer

In developing countries,the central bank

Question 15

The IMF offers loans to developing countries in times of balance of payment constraints, but the IMF also faces strong criticisms because:

Accepted Answer

A) it employs economists that know little about developing countries and their economic affairs. 
B) the conditions tend to be procyclical, therefore worsening the recessions. 
C) contractionary fiscal and monetary policies are always undesirable for any developing country. 
D) contractionary fiscal policy and expansionary monetary policy tend to be ineffective against balance of payment constraints. 
A) it employs economists that know little about developing countries and their economic affairs. 
B) the conditions tend to be procyclical, therefore worsening the recessions. 
C) contractionary fiscal and monetary policies are always undesirable for any developing country. 
D) contractionary fiscal policy and expansionary monetary policy tend to be ineffective against balance of payment constraints.

Question 16

The normative economic goals of developing countries:

Accepted Answer

A) are the same as those of developed countries. 
B) focus primarily on achieving economic stability. 
C) focus primarily on achieving an equitable distribution of income. 
D) focus primarily on meeting basic needs. 
A) are the same as those of developed countries. 
B) focus primarily on achieving economic stability. 
C) focus primarily on achieving an equitable distribution of income. 
D) focus primarily on meeting basic needs.

Question 17

Frequently, developing countries compete for foreign investment to be located in their countries. Which of the following are not something a developing country would likely offer?

Accepted Answer

A) A guaranteed low cost labor force 
B) Tax rebates or tax exemptions 
C) High environmental regulations 
D) The required infrastructure 
A) A guaranteed low cost labor force 
B) Tax rebates or tax exemptions 
C) High environmental regulations 
D) The required infrastructure

Question 18

Developing countries employ the inflation tax because it provides a:

Accepted Answer

A) long-run solution to their budget problems even if it is politically unpopular. 
B) short-run solution that helps keep the government afloat, even if only temporarily. 
C) a solution to their inflation problem. 
D) long-run solution to both their economic and political problems. 
A) long-run solution to their budget problems even if it is politically unpopular. 
B) short-run solution that helps keep the government afloat, even if only temporarily. 
C) a solution to their inflation problem. 
D) long-run solution to both their economic and political problems.

Question 19

Inadequate health care and disease treatment impede development for all of the following reasons except:

Accepted Answer

A) they contribute to overpopulation. 
B) they reduce the ability of a person to work. 
C) they reduce the ability of a person to care for others. 
D) developing countries lack the resources and infrastructure to deal with these problems. 
A) they contribute to overpopulation. 
B) they reduce the ability of a person to work. 
C) they reduce the ability of a person to care for others. 
D) developing countries lack the resources and infrastructure to deal with these problems.

Question 20

Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pounds in Britain: the market exchange rate is 25 pesos per pound. Using purchasing power parity, the appropriate exchange rate for comparing the incomes of the two countries is:

Accepted Answer

A) 0.25 pesos per pound. 
B) 10 pesos per pound. 
C) 16 pesos per pound. 
D) 25 pesos per pound. 
A) 0.25 pesos per pound. 
B) 10 pesos per pound. 
C) 16 pesos per pound. 
D) 25 pesos per pound.

Exam 38: Macro Policy in Developing Countries

Foreign aid:

Generally speaking, central banks in developing economies are:

Political instability is an obstacle to development in:

In the 1980s and 1990s, Chile adopted capital controls that limited the ability of its citizens to buy or sell assets abroad. This action:

A citizen in a developing country with a currency policy of convertibility on the current account could engage in all of the following transactions except:

Some economists and international organizations use the PPP method in order to compare the:

The buying and selling of foreign currency by the central bank is a trade policy whose objective is:

Which of the following countries is least likely to have a dual economy?

Political instability is an impediment to development mainly because it:

In 1980, Robert Mugabe was elected president of Zimbabwe. After his election, Mugabe introduced a number of Marxist economic reforms that were designed to give the government much greater control over the economy. His economic reforms are an example of:

In the early 2000s, some argued that the Indian government impeded foreign investment with tariffs, investment caps, and tons of red tape. In terms of promoting or retarding economic growth, such policies:

Relative to developed economies, budget deficits are:

List five problems facing developing countries that make their path to development difficult.

Central banks in developing countries have far less independence than do central banks in developed countries.Explain why this is a problem in developing countries.

The IMF offers loans to developing countries in times of balance of payment constraints, but the IMF also faces strong criticisms because:

The normative economic goals of developing countries:

Frequently, developing countries compete for foreign investment to be located in their countries. Which of the following are not something a developing country would likely offer?

Developing countries employ the inflation tax because it provides a:

Inadequate health care and disease treatment impede development for all of the following reasons except:

Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pounds in Britain: the market exchange rate is 25 pesos per pound. Using purchasing power parity, the appropriate exchange rate for comparing the incomes of the two countries is:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

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