Deck 22: The Economics of Developing Countries

Question 1

$$\begin{array} { | c | c | } \hline \text { Country } & \text { Per Capita Income, } 2017 \\\hline A & \$ 621 \\\hline B & 14,894 \\\hline C & 31,555 \\\hline D & 3,498 \\\hline E & 2,005 \\\hline\end{array}$$ Refer to the table. If per capita income increases by 10 percent over ?ve years in each of the nations shown, the per capita income gap between country C and country A

A) will remain the same.
B) will rise from $30,934 to $34,027.
C) may rise or fall depending on the rate of population growth.
D) will rise from $31,555 to $34,710.

Answer 1

will rise from $30,934 to $34,027.

Question 2

Which of the following is not inversely related to per capita income?

A) mortality rates for children under five years of age
B) adult illiteracy rates
C) per capita energy consumption
D) population growth rates

Answer 2

per capita energy consumption

Question 3

Examples of low-income developing countries are

A) Switzerland, New Zealand, and Australia.
B) Germany, Austria, and Italy.
C) Chad, Bangladesh, and Democratic Republic of the Congo.
D) Mexico, South Korea, and Brazil.

Answer 3

Chad, Bangladesh, and Democratic Republic of the Congo.

Question 4

If two nations have different per capita income levels and their rates of economic growth are identical, then the absolute per capita income differential

A) will remain constant.
B) may either widen or diminish.
C) will diminish.
D) will widen.

Question 5

Which of these sets of nations consists of high-income economies?

A) Brazil, Thailand, and South Africa
B) China, India, and Russia
C) Canada, Switzerland, and France
D) United States, South Korea, and Mexico

Question 6

The very poorest low-income DVCs typically have relatively

A) low rates of economic growth and relatively high rates of population growth.
B) high rates of economic growth and relatively low rates of population growth.
C) low rates of both population growth and economic growth.
D) high rates of both population growth and economic growth.

Question 7

$$\begin{array} { | c | c | } \hline \text { Country } & \text { Per Capita Income, } 2017 \\\hline A & \$ 621 \\\hline B & 14,894 \\\hline C & 31,555 \\\hline D & 3,498 \\\hline E & 2,005 \\\hline\end{array}$$ Which of the given nations would be low-income developing countries (DVCs), according to the World Bank?

A) country A only
B) countries A, D, and E
C) countries A and E
D) countries A, B, D, and E

Question 8

Which of these sets of nations consists of low-income developing nations?

A) Brazil, Australia, and South Africa
B) Burundi, Madagascar, and Sierra Leone
C) Canada, Switzerland, and France
D) Germany, South Korea, and Mexico

Question 9

According to the United Nations, approximately what percentage of the world's income is received by the richest one-fifth of the world's population?

A) 24 percent
B) 38 percent
C) 60 percent
D) 75 percent

Question 10

In 2017, the GDP of the United States was approximately

A) $9 trillion less than the GDP of the 135 DVCs in that year.
B) $9 trillion more than the GDP of the 135 DVCs in that year.
C) twice the GDP of the 135 DVCs in that year.
D) the same as the GDP of 135 DVCs in that year.

Question 11

In 2017, the United States had about ___ percent of the world's population and produced about ___ percent of the world?s output.

A) 20; 30
B) 3.6; 31
C) 10; 28
D) 4.4; 24

Question 12

The exports of the DVCs consist largely of

A) high-technology goods.
B) raw materials and farm products.
C) manufactured goods.
D) services and financial capital.

Question 13

Most of the world's population lives in

A) North America.
B) the DVCs.
C) Western Europe.
D) the IACs.

Question 14

$$\begin{array} { | c | c | } \hline \text { Country } & \text { Per Capita Income, } 2017 \\\hline A & \$ 621 \\\hline B & 14,894 \\\hline C & 31,555 \\\hline D & 3,498 \\\hline E & 2,005 \\\hline\end{array}$$ Refer to the table. Which of the following might reduce the per capita income gap between countries A and E?

A) faster population growth in country A than in country E
B) greater investment relative to GDP in country E than in country A
C) more rapid improvement in literacy and education in country A than in country E
D) increased capital ?ight from country A relative to that from country E

Question 15

Which of the following does not correlate positively with economic growth?

A) output per capita
B) life expectancy
C) the percentage of the population engaged in agriculture
D) the literacy rate

Question 16

$$\begin{array} { | c | c | } \hline \text { Country } & \text { Per Capita Income, } 2017 \\\hline A & \$ 621 \\\hline B & 14,894 \\\hline C & 31,555 \\\hline D & 3,498 \\\hline E & 2,005 \\\hline\end{array}$$ Which of the given nations would be high-income countries (IACs), according to the World Bank?

A) country C only
B) countries B, C, and D
C) countries B, C, D, and E
D) countries B and C

Question 17

To be classified as a low-income developing country, annual per capita income in 2017 needed to be

A) $995 or less.
B) $628 or less.
C) $2,018 or less.
D) $800 or less.

Question 18

Approximately what percentage of the world's income is received by the poorest one-fifth of the world's population?

A) 2
B) 5
C) 7
D) 10

Question 19

$$\begin{array} { | c | c | } \hline \text { Country } & \text { Per Capita Income, } 2017 \\\hline A & \$ 621 \\\hline B & 14,894 \\\hline C & 31,555 \\\hline D & 3,498 \\\hline E & 2,005 \\\hline\end{array}$$ Which of the given nations would be middle-income developing countries (DVCs), according to the World Bank?

A) country E only
B) countries A, D, and E
C) countries D and E
D) country D only

Question 20

Which of the following includes only examples of industrially advanced countries (IACs)?

A) the United States, Canada, and Mexico
B) Pakistan, India, and China
C) Japan, South Korea, and China
D) Canada, Australia, and New Zealand

Question 21

For DVC per capita incomes to rise, birth rates must first be reduced. This statement describes the

A) human capital view of population growth.
B) traditional view of population growth.
C) capricious universe view.
D) demographic transition view of population growth.

Question 22

The DVCs are

A) located primarily in Northern Europe.
B) located primarily in Western Europe.
C) located primarily in Africa, Asia, and Latin America.
D) more or less evenly distributed over the various continents.

Question 23

If the real GDP of a DVC increases from $600 billion to $630 billion and its population increases from 200 million to 216 million, its real per capita GDP will

A) increase by about $83.
B) decrease by about $83.
C) remained unchanged.
D) decrease by about $19.

Question 24

Rapid population growth can be an obstacle to economic development

A) because it can translate a relatively large increase in real output into a small increase in real output per capita.
B) because more investment will be required to simply maintain the quantity of capital goods per person.
C) because it may lead to the overutilization and therefore ecological degradation of farmland.
D) for all of these reasons.

Question 25

Assume a DVC has a real per capita output of $1,000 as compared to $20,000 for an IAC. If both nations realize a 4 percent growth of their real per capita outputs, after one year the absolute real
Per capita output gap will

A) remain unchanged at $19,000.
B) increase by $760.
C) decrease by $1,000.
D) increase by $19,760.

Question 26

Over the next 15 years, ___ out of every 10 people added to the world's population will be born in developing countries.

A) 6
B) 7
C) 8
D) 9

Question 27

Population growth remains high in most DVCs

A) because religious and sociocultural considerations favor large families.
B) because children may provide economic security for aging parents.
C) because children provide agricultural labor in rural areas.
D) for all of these reasons.

Question 28

In recent decades,

A) all countries classified as DVCs have had little or no economic growth.
B) some nations classified as DVCs have grown rapidly, while others have grown very slowly or not at all.
C) all countries classified as DVCs have experienced rapid economic growth and rising living standards.
D) all countries classified as low-income DVCs have had declining per capita GDPs.

Question 29

If population is expanding at the same rate as real output,

A) real per capita output will increase.
B) real per capita output will decrease.
C) real per capita output will remain unchanged.
D) living standards will increase.

Question 30

The absolute income gap between the IACs and the DVCs has

A) remained constant over time.
B) increased over time.
C) decreased over time.
D) increased in nominal terms but decreased in real terms.

Question 31

The demographic transition view alleges that

A) the DVCs must first accept the use of birth control techniques to increase their standards of living.
B) population growth will decline only if mortality rates exceed birth rates.
C) if incomes first rise, population growth will then decline.
D) population growth has no bearing on a nation's per capita income.

Question 32

The populations of the developing nations are growing

A) at about 5 percent per year.
B) at about the same rate as those of the industrially advanced nations.
C) slower than those of the industrially advanced nations.
D) faster than those of the industrially advanced nations.

Question 33

Underemployment occurs

A) when workers do not have jobs.
B) when farm workers become more productive.
C) when workers are working fewer hours than they desire or when they are working less productively than they are capable of.
D) in IACs but not in the DVCs.

Question 34

Which of the following is typically not a problem for low-income DVCs?

A) capital flight
B) "brain drain"
C) high saving rates that slow aggregate demand growth
D) poor infrastructure

Question 35

At the present time, the largest percentage of the national incomes of the low-income DVCs is used for

A) imports of the finished products of foreign industries.
B) food.
C) infrastructure.
D) industrial development.

Question 36

Increases in the total real output of many DVCs do not increase the nation's standard of living because

A) diminishing returns may be encountered in increasing total output.
B) population increases may dissipate the increase in real output.
C) disguised unemployment in agriculture will persist.
D) surplus farm labor may move from rural areas to industrial areas, causing unemployment.

Question 37

Per capita incomes must first grow for birth rates to decline. This statement describes the

A) human capital view of population growth.
B) traditional view of population growth.
C) capricious universe view.
D) demographic transition view of population growth.

Question 38

Which attitude or custom is the most conducive to long-term economic growth?

A) a focus on group contentment rather than individual achievement
B) the belief that there is little or no correlation between an individual's economic actions and her or his economic fortunes
C) the belief that there is a direct connection between individual efforts (including educational efforts) and economic rewards
D) the use of the majority of resources for religious structures and ceremonies

Question 39

If the real output of a DVC increases from $200 billion to $260 billion and its population increases from 100 to 120 million, its real per capita output will have

A) remained unchanged.
B) increased by about $167.
C) increased by about $55.
D) decreased by about $20.

Question 40

The demographic transition concept suggests that

A) effective birth control is the primary prerequisite of DVC income growth.
B) income growth must first occur before DVC birth rates will decline.
C) children are economic assets in the IACs but economic liabilities in the DVCs.
D) the IACs will have higher birth rates than the DVCs.

Question 41

All of the following contribute to low investment spending in DVCs except

A) low rates of saving.
B) inadequacy of public capital goods (infrastructure).
C) political instability.
D) expensive labor.

Question 42

Suppose that surplus labor in a Pakistani village is used to build a medical clinic and dig several wells. This is an illustration of

A) foreign aid.
B) capital-saving investment.
C) in-kind investment.
D) technological advance.

Question 43

If a technological advance expands output and requires a smaller investment in capital goods, this technological advance

A) is capital-using.
B) must involve nonfinancial investment.
C) is capital-saving.
D) must pertain to the infrastructure.

Question 44

An economy's infrastructure refers to its

A) public capital goods, such as roads, schools, and power facilities.
B) financial and banking institutions.
C) land and natural resources.
D) surplus supplies of unskilled labor.

Question 45

Infrastructure is best illustrated by

A) farm equipment.
B) school buildings and highways.
C) machinery and equipment for the production of consumer goods.
D) government tax revenues.

Question 46

The ability of the DVCs to use the technologies of the IACs is somewhat limited because

A) the IACs have patents on most of their technologies.
B) the IACs and the DVCs have much different resource endowments.
C) the technologies of the IACs rely heavily on unskilled labor.
D) IAC technologies are labor-intensive, while DVC technologies are capital-intensive.

Question 47

Investment in-kind refers to the possibility that

A) DVCs will invest for the purpose of becoming less dependent on world markets.
B) a DVC will overinvest in industries in which it has a comparative advantage, disrupting its development program.
C) newly established manufacturing firms may expand by reinvesting their profits.
D) surplus labor in, say, agriculture can be diverted to the production of simple capital goods such as earthen dams.

Question 48

Most of the DVCs find it difficult to accumulate capital goods because

A) the terms of trade prohibit the inflow of private capital from the advanced nations.
B) it is very difficult to restrict consumption and thus to free resources for capital goods production.
C) domestic monetary policies designed to achieve price stability result in low interest rates, thereby discouraging investment.
D) investment is interest inelastic in DVCs.

Question 49

The low per capita outputs of the DVCs are explained by

A) insufficient saving and investment.
B) overinvestment in human capital.
C) slow population growth.
D) excessively rapid technological advance.

Question 50

It is sometimes difficult to transfer the advanced technologies of the industrialized nations to the DVCs because

A) the technologies of the IACs are frequently based on relatively expensive labor and relatively abundant capital.
B) the resource endowments of the IACs and the DVCs are highly similar.
C) international patent laws prohibit such transfers.
D) the technologies of the IACs are frequently based on relatively cheap labor and relatively expensive capital.

Question 51

The "brain drain" problem in the DVCs refers to the fact the best-educated workers

A) are reluctant to become entrepreneurs.
B) are concentrated in rural areas where their skills are underutilized.
C) often immigrate to industrialized countries.
D) are reluctant to work in the public sector.

Question 52

Which of the following is characteristic of DVCs?

A) A large percentage of the labor force is in agriculture.
B) There are high levels of saving and investment.
C) They have high labor productivity.
D) There are high levels of training.

Question 53

Capital flight is a problem to DVCs because it

A) causes the value of a DVC's currency to appreciate.
B) reduces the volume of DVC investment.
C) reduces the flow of foreign aid from the IACs.
D) causes inflation in the DVCs.

Question 54

When economists refer to capital flight, they are speaking of an

A) outflow of financial capital from a certain country.
B) outflow of real capital from a certain country.
C) outflow of financial and real capital from a certain country.
D) outflow of human capital from a certain country.

Question 55

The "brain drain" problem in the DVCs refers to the fact that the best-educated workers

A) are concentrated in the public, rather than the private, sector.
B) are concentrated in the private, rather than the public, sector.
C) are concentrated in urban, rather than rural, areas.
D) have emigrated from the DVCs to the IACs.

Question 56

Which of the following is not part of a nation's infrastructure?

A) communications facilities
B) roads, highways, and bridges
C) the electrical power system
D) industrial plants and equipment

Question 57

Capital flight from the DVCs may be caused by

A) a fear of government privatization efforts.
B) slow domestic inflation.
C) low rates of domestic taxation.
D) risks of severe fluctuations in exchange rates.

Question 58

In the DVCs, underemployment frequently takes the form of

A) factory workers who are working longer hours than they would prefer.
B) workers who are employed inefficiently in small industry when they could be highly productive in agriculture.
C) farmers whose productivity is very low.
D) craft workers and artisans who are replaced by simple machinery and equipment.

Question 59

Capital flight refers to

A) the tendency of large corporations of IACs to build new plants in the DVCs because labor is cheaper.
B) DVC citizens accumulating or investing their savings in the IACs.
C) the high international mobility of speculative funds caused by variations in exchange rates.
D) the tendency of DVCs to overinvest in commercial aircraft.

Question 60

The demographic transition view of population growth argues that, on average (and as perceived by parents), the opportunity

A) benefits of extra children are larger in IACs than in DVCs.
B) costs of extra children are lower in IACs than in DVCs.
C) costs of extra children are larger in IACs than in DVCs.
D) benefits of extra children are the same in DVCs and IACs.

Question 61

A highly active role by government may be needed to promote economic growth in low-income DVCs because of

A) a lack of infrastructure.
B) rigid law enforcement in the country.
C) excessive local entrepreneurship.
D) all these reasons.

Question 62

In 2005,

A) the G8 nations canceled $55 billion in debt owed by developing nations.
B) both direct private investment and government-provided foreign aid to the DVCs increased.
C) both direct private investment and government-provided foreign aid to the DVCs decreased.
D) direct private investment to the DVCs decreased, and government-provided foreign aid increased.

Question 63

In 2017, foreign aid from the IACs was

A) less than one-quarter of 1 percent of their collective output.
B) about 1 percent of its output.
C) about 3 percent of its output.
D) about 5 percent of its output.

Question 64

An example of direct foreign investment is

A) a U.S. bank granting a loan to a Guatemalan firm.
B) General Motors building an auto production facility in China.
C) a U.S. government foreign aid grant to Bangladesh.
D) the purchase of debt issued by the Panamanian government.

Question 65

The idea that a person's productive efforts and his or her economic rewards are unrelated

A) is the neocolonialism view of economic development.
B) describes the vicious circle of poverty.
C) is the surplus labor theory of economic development.
D) is the capricious universe view.

Question 66

Successful foreign aid programs

A) enhance a DVC's resources and therefore shift its production possibilities curve to the left.
B) enhance a DVC's resources and therefore shift its production possibilities curve to the right.
C) move the DVC from a high-investment-low-consumption position to a low-investment-high- consumption position on its stable production possibilities curve.
D) cause a DVC's exchange rate to depreciate.

Question 67

Small loans to entrepreneurs and small business owners in DVCs are referred to as

A) human capital development projects.
B) microcredit.
C) capital flight promotion systems.
D) incubator lending.

Question 68

Foreign aid to the DVCs has been criticized

A) because it may generate economic dependence on the IACs.
B) because it encourages the centralization of government power over the economy.
C) because government corruption in the DVCs causes aid to be misused.
D) for all of these reasons.

Question 69

Many countries remain poor because they currently are poor. This statement summarizes the

A) infrastructure problem.
B) vicious circle of poverty.
C) demographic transition problem.
D) problem of capital flight.

Question 70

Economic growth may hinge on whether individuals and institutions within a nation want growth badly enough to change their traditional ways of doing things. This statement refers to

A) in-kind investment.
B) the capricious universe view.
C) human capital investment.
D) the will to develop.

Question 71

Which of the following is generally not an effective strategy to promote DVC growth?

A) microlending
B) human capital development
C) fighting wars against neighbors to obtain resources and stimulate aggregate demand through arms spending
D) controlling inflation

Question 72

In recent years, the industrially advanced nations as a group have provided foreign aid amounting to about what percentage of their aggregate outputs?

A) 0.25 percent
B) 0.7 percent
C) 1 percent
D) 2 percent

Question 73

The World Bank

A) is also known as the International Monetary Fund (IMF).
B) lends money to developing nations for basic infrastructure projects such as dams, irrigation, health and sanitation, communications, and transportation.
C) is an affiliate of the World Trade Organization (WTO).
D) provides subsidies to private firms so they can improve their wages and working conditions.

Question 74

Which of the following describes the vicious circle of poverty?

A) Government spending for public goods is inflationary, and this undermines incentives to save and invest.
B) Higher incomes increase consumption at the expense of capital accumulation, which causes income to fall.
C) Low per capita incomes cause low levels of saving and investment, which mean low productivity and therefore low incomes.
D) A growing national income increases the demand for money, which increases the interest rate and reduces investment.

Question 75

The international agency that lends money to DVCs for economic development projects is the

A) World Bank.
B) International Monetary Fund (IMF).
C) World Trade Organization (WTO).
D) World Credit Union.

Question 76

The primary function of the International Finance Corporation (IFC) is to

A) provide U.S. surplus food to low-income countries.
B) provide short-term loans to poor countries to finance international trade deficits.
C) make infrastructure loans, that is, loans for highways, schools, communication facilities, and so forth.
D) make loans to private enterprises in the DVCs.

Question 77

A large portion of government-provided foreign aid to developing countries

A) has averaged about 1 percent of the IACs' GDP each year.
B) has increased sharply and steadily since 1995.
C) has dwarfed the size of foreign direct investment to the DVCs in recent years.
D) is distributed on the basis of political and military considerations.

Question 78

The capricious universe view indicates that

A) in the long run, "acts of God" have contained population growth and thus contributed to economic development.
B) DVCs will obtain biological and chemical weapons and force the redistribution of world wealth.
C) there is little or no correlation between one's efforts and the rewards he or she receives.
D) international and civil wars have been the primary impediment to growth.

Question 79

The World Bank

A) provides military assistance to those nations interested in improving national defense.
B) makes and guarantees loans for basic development projects such as the construction of dams, roads, and schools.
C) provides gold for DVCs that want to go on the gold standard.
D) provides short-term loans to DVCs that are incurring balance of payments deficits.

Question 80

An increasing share of the private capital flows to DVCs in recent years has been in the form of

A) interest-free government loans.
B) educational and training assistance.
C) direct foreign investment.
D) bank loans.