Chat with AIExam 22: Macro Policies in Developing Countries
How does the existence of a dual economy affect a country's strategy of converting a developing economy to a market economy?
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VerifiedThe traditional sector is often outside the market economy.Policy makers want to be sure that the entire economy moves toward a market economy.This would mean, however, different policies for each sector.In the traditional sector, policy makers would want to push toward privatization and use of a market (away from barter) from within.The internationally oriented modern market sector could be used to attract foreign investment.
What three ways do developed countries differ from developing countries? Briefly explain your answer.
(35) VerifiedDeveloped and developing countries differ in terms of:
(1) Weighing of economic goals.In the developing countries, the primary goal of economic policies is to increase the growth in output through development so that the economy can fulfill people's basic needs.In developed countries, however, the basic goal is to equalize standards of living, which are already quite high, among members of the society.
2) Macroeconomic institutions.Institutions that include financial, fiscal, social, and cultural institutions are qualitatively different.
(3) Market institutions.Market concepts in most developed countries are built on private property rights-a concept that is not well developed or widely adopted in many developing countries.
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.
(27) VerifiedIn developing countries, the central bank cannot be assured that the economy has enough inertia, institutions, and history to keep itself running.Therefore, there is a greater burden on the central bank to help make sure the economy does not collapse.This means that monetary policy will frequently be driven by decisions regarding fiscal policy.Since fiscal policies likely require deficits, and since neither foreign credit nor a domestic bond market is likely available to finance those deficits, the central bank will have little choice but to monetize the debt by increasing the money supply.
What is the balance of payments constraint? What international financial institutions can countries turn to when facing this constraint?
(30) Briefly describe the three types of currency convertibility.Does lack of current convertibility, completely prevent international trade?
(24) The economic problems of developing countries may seem impossible to solve through the application of standard monetary and fiscal policy; but they sometimes can be solved by "regime change".How is regime change different from a policy change? Give an example where regime change was successful in turning around the economy of a developing country.
(31) Developed and developing countries have very different normative goals.What are these goals?
(30) Consider two hypothetical developing countries, both with very low incomes at similar levels.Country A has a very even distribution of income.Nearly everyone in country A has a similar income.Country B has great variation in income.A small percentage of persons in country B would be classified as middle class, and a smaller number as wealthy, by the standards of developed nations.All other things equal, which of these countries has more potential for development?
(30) Seven problems facing developing countries that make their path to development difficult are: (a) Political instability, (b) Corruption, (c) Lack of appropriate institutions, (d) Lack of investment, (e) Inappropriate education, (f) Overpopulation, (g) Poor health and diseases.Briefly explain two of these problems, indicating how they make development difficult.
(40) Because of the structure of government in many developing countries, many economists who, in Western developed countries, favor activist government policies may well favor Classical laissez-faire policies for the same reasons that early Classical economists did-because they have a profound distrust of the governments.Why do these economists often distrust government officials in countries with developing and transitional economies?
(38) The immediate cause of inflations in most developing countries is that the central bank is issuing too much money.What is the underlying cause of those inflations?
(41) Explain how the competition among countries for foreign investment can result in focal points and economic takeoff.
(29) What is the purchasing power parity method of comparing income in different countries? What are the results of using this method?
(29) What are some of the institutional barriers facing developing countries in terms of implementing fiscal policy?
(39) How are the economic institutions of developed economies different from those of developing countries? How does this affect the implementation of fiscal and monetary policy?
(45) What are the three potential sources of investment for development, and what sorts of difficulties are there with each?
(33) What is an inflation tax, and who receives the revenues from such a tax?
(38) On the basis of exchange rates, per capita income in developing countries is around $500 per year; in the United States per capita income is about $61,000.Why does this overstate the difference in living standards? How does the purchasing power parity method of comparing income in different countries deal with that problem?
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