Question 1

Limited capital account convertibility provides:

Accepted Answer

A) a greater level of convertibility than full convertibility. 
B) a greater level of convertibility than convertibility on the current account. 
C) a lower level of convertibility than convertibility on the current account. 
D) the lowest possible level of convertibility. 
A) a greater level of convertibility than full convertibility. 
B) a greater level of convertibility than convertibility on the current account. 
C) a lower level of convertibility than convertibility on the current account. 
D) the lowest possible level of convertibility.

Question 2

In the late 1990s, Thailand, Malaysia, and Indonesia all experienced sharp declines in the value of their currencies that resulted in economic instability and crisis.The collapse in the values of their currencies undermined their development by:

Accepted Answer

A) increasing corruption. 
B) reducing investment. 
C) decreasing population growth. 
D) decreasing political instability. 
A) increasing corruption. 
B) reducing investment. 
C) decreasing population growth. 
D) decreasing political instability.

Question 3

If government expenditures exceed tax receipts in a developing country, the government is most likely to:

Accepted Answer

A) cut spending. 
B) increase taxes. 
C) sell bonds to the central bank. 
D) buy bonds from the central bank. 
A) cut spending. 
B) increase taxes. 
C) sell bonds to the central bank. 
D) buy bonds from the central bank.

Question 4

Malthus predicted that:

Accepted Answer

A) population and income would eventually grow at the same rate, so per capita income would increase over time. 
B) population and income would eventually grow at the same rate, so per capita income would eventually be constant. 
C) population would eventually grow faster than income, so per capita income would eventually begin to decrease. 
D) income would eventually grow faster than population, so per capita income would eventually begin to increase. 
A) population and income would eventually grow at the same rate, so per capita income would increase over time. 
B) population and income would eventually grow at the same rate, so per capita income would eventually be constant. 
C) population would eventually grow faster than income, so per capita income would eventually begin to decrease. 
D) income would eventually grow faster than population, so per capita income would eventually begin to increase.

Question 5

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) the IMF has 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) the IMF has 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 6

Proponents of using the inflation tax to finance government budget deficits argue that:

Accepted Answer

A) these deficits would be far worse otherwise. 
B) inflation is ultimately beneficial in the long run. 
C) while inflation is undesirable, the breakdown of the economy that would occur in the absence of an inflation tax would be worse. 
D) the economic slowdown produced by the inflation tax is preferable to the hyperinflation that would occur in the absence of the inflation tax. 
A) these deficits would be far worse otherwise. 
B) inflation is ultimately beneficial in the long run. 
C) while inflation is undesirable, the breakdown of the economy that would occur in the absence of an inflation tax would be worse. 
D) the economic slowdown produced by the inflation tax is preferable to the hyperinflation that would occur in the absence of the inflation tax.

Question 7

When considering activist fiscal policy in developing countries, these governments:

Accepted Answer

A) usually have greater flexibility in determining expenditures than governments in developed countries. 
B) have about the same degree of flexibility in determining expenditures as governments in developed countries. 
C) usually have less flexibility in determining expenditures than governments in developed countries. 
D) do not have to worry about their expenditures because they have no taxes with which to finance them. 
A) usually have greater flexibility in determining expenditures than governments in developed countries. 
B) have about the same degree of flexibility in determining expenditures as governments in developed countries. 
C) usually have less flexibility in determining expenditures than governments in developed countries. 
D) do not have to worry about their expenditures because they have no taxes with which to finance them.

Question 8

In countries such as El Salvador or Ghana, the tax revenue is extremely limited due to the lack of an adequate tax-collection agency.These countries most likely will issue bonds and sell them to the central bank in order to cover government expenditures.Thus, the lack of:

Accepted Answer

A) government intervention may lead these economies to inflation and poor economic performance. 
B) property rights and laws may lead these economies to inflation and poor economic performance. 
C) a banking system may lead these economies to inflation and poor economic performance. 
D) well-developed bond markets may lead these economies to inflation and poor economic performance. 
A) government intervention may lead these economies to inflation and poor economic performance. 
B) property rights and laws may lead these economies to inflation and poor economic performance. 
C) a banking system may lead these economies to inflation and poor economic performance. 
D) well-developed bond markets may lead these economies to inflation and poor economic performance.

Question 9

In most developing countries, an effective fiscal policy is:

Accepted Answer

A) easier to conduct than in developed economies because there are fewer institutional checks and balances. 
B) easier to conduct than in developed economies because politicians tend to be more socially-minded. 
C) harder to conduct because taxes are difficult to collect. 
D) harder to conduct because fiscal policy is discretionary in developing countries, unlike developed countries. 
A) easier to conduct than in developed economies because there are fewer institutional checks and balances. 
B) easier to conduct than in developed economies because politicians tend to be more socially-minded. 
C) harder to conduct because taxes are difficult to collect. 
D) harder to conduct because fiscal policy is discretionary in developing countries, unlike developed countries.

Question 10

A regime change is a change in:

Accepted Answer

A) one aspect of government policy. 
B) monetary policy. 
C) fiscal policy. 
D) the entire atmosphere within which the government and the economy interact. 
A) one aspect of government policy. 
B) monetary policy. 
C) fiscal policy. 
D) the entire atmosphere within which the government and the economy interact.

Question 11

Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pounds in Britain and that 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.

Question 12

Developing countries do:

Accepted Answer

A) not compete with one another for foreign investment because they lack the infrastructure to attract it in the first place. 
B) not compete with one another for foreign investment because they have sufficient domestic saving to finance their investment needs. 
C) compete with one another for foreign investment, but this competition is beneficial to developing countries because it insures a more efficient allocation of resources. 
D) compete with one another for foreign investment, and this competition reduces the benefits from foreign investment. 
A) not compete with one another for foreign investment because they lack the infrastructure to attract it in the first place. 
B) not compete with one another for foreign investment because they have sufficient domestic saving to finance their investment needs. 
C) compete with one another for foreign investment, but this competition is beneficial to developing countries because it insures a more efficient allocation of resources. 
D) compete with one another for foreign investment, and this competition reduces the benefits from foreign investment.

Question 13

The macroeconomic policy choices of developing countries like Zambia and Namibia:

Accepted Answer

A) are similar to those of developed countries because their institutions are similar. 
B) differ from those of developed countries even though their institutions are similar. 
C) are similar to those of developed countries even though their institutions differ. 
D) are different from those of developed countries because their institutions are different. 
A) are similar to those of developed countries because their institutions are similar. 
B) differ from those of developed countries even though their institutions are similar. 
C) are similar to those of developed countries even though their institutions differ. 
D) are different from those of developed countries because their institutions are different.

Question 14

If the government cuts taxes, then it has undertaken:

Accepted Answer

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

Question 15

In developing countries, the government's revenues are:

Accepted Answer

A) limited because the tax base is too large and the government lacks the institutional ability to collect taxes. 
B) limited because even though the government can readily collect taxes, the tax base is too small. 
C) limited because of the small tax base and the government's inability to collect taxes. 
D) no more limited than in developed economies. 
A) limited because the tax base is too large and the government lacks the institutional ability to collect taxes. 
B) limited because even though the government can readily collect taxes, the tax base is too small. 
C) limited because of the small tax base and the government's inability to collect taxes. 
D) no more limited than in developed economies.

Question 16

If a developing country wants to limit the ability of its citizens to purchase foreign assets but does not want to restrict other international transactions, it would offer:

Accepted Answer

A) full convertibility. 
B) convertibility on the current account. 
C) convertibility on the capital account. 
D) not allow convertibility of domestic currency into foreign currency. 
A) full convertibility. 
B) convertibility on the current account. 
C) convertibility on the capital account. 
D) not allow convertibility of domestic currency into foreign currency.

Question 17

The central banks of many developing countries choose to pursue policies that generate high levels of inflation because the benefits of doing so seem to exceed the costs.

Accepted Answer

A) True 
 B)False

Question 18

In the early 2000s, Chinese policy indicted members of a forgery syndicate that sold several hundred diplomas of 19 universities, colleges, and junior colleges to high school graduates who needed the diplomas to take employment tests.This situation, where having the certificate of knowledge is more important than the knowledge itself is known as:

Accepted Answer

A) credentialism. 
B) certification. 
C) the brain drain. 
D) human capital. 
A) credentialism. 
B) certification. 
C) the brain drain. 
D) human capital.

Question 19

In the early 2000s, Ecuador replaced its currency, the sucre, with the U.S.dollar as its official currency to solve its inflation problem.As long as Ecuador maintains the U.S.dollar as its official currency, what will happen to the monetary policy of Ecuador?

Accepted Answer

A) it will become both more powerful and more flexible 
B) it will become more powerful but less flexible 
C) it will become less powerful but more flexible 
D) it effectively will cease to exist 
A) it will become both more powerful and more flexible 
B) it will become more powerful but less flexible 
C) it will become less powerful but more flexible 
D) it effectively will cease to exist

Question 20

According to most economists, the development of markets is:

Accepted Answer

A) neither a necessary nor a sufficient condition for development. 
B) a necessary condition for development but not a sufficient condition. 
C) a sufficient condition for development but not a necessary condition. 
D) both a necessary and a sufficient condition for development. 
A) neither a necessary nor a sufficient condition for development. 
B) a necessary condition for development but not a sufficient condition. 
C) a sufficient condition for development but not a necessary condition. 
D) both a necessary and a sufficient condition for development.

Exam 38: Macro Policy in Developing Countries

Limited capital account convertibility provides:

In the late 1990s, Thailand, Malaysia, and Indonesia all experienced sharp declines in the value of their currencies that resulted in economic instability and crisis.The collapse in the values of their currencies undermined their development by:

If government expenditures exceed tax receipts in a developing country, the government is most likely to:

Malthus predicted that:

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

Proponents of using the inflation tax to finance government budget deficits argue that:

When considering activist fiscal policy in developing countries, these governments:

In countries such as El Salvador or Ghana, the tax revenue is extremely limited due to the lack of an adequate tax-collection agency.These countries most likely will issue bonds and sell them to the central bank in order to cover government expenditures.Thus, the lack of:

In most developing countries, an effective fiscal policy is:

A regime change is a change in:

Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pounds in Britain and that 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:

Developing countries do:

The macroeconomic policy choices of developing countries like Zambia and Namibia:

If the government cuts taxes, then it has undertaken:

In developing countries, the government's revenues are:

If a developing country wants to limit the ability of its citizens to purchase foreign assets but does not want to restrict other international transactions, it would offer:

The central banks of many developing countries choose to pursue policies that generate high levels of inflation because the benefits of doing so seem to exceed the costs.

In the early 2000s, Ecuador replaced its currency, the sucre, with the U.S.dollar as its official currency to solve its inflation problem.As long as Ecuador maintains the U.S.dollar as its official currency, what will happen to the monetary policy of Ecuador?

According to most economists, the development of markets is:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

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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