Deck 23: Growth and the Less Developed Countries

Question 1

Which of the following is most important if the living standards of people residing in a country are going to improve?

A) growth of population
B) growth of per capita GDP
C) growth of the money supply
D) growth of government expenditures as a share of GDP

Answer 1

B

Question 2

Describe in general terms four or five characteristics of less-developed countries.

Answer 2

Less-developed countries have high populations and high birth and death rates, have low standards of living as measured by per capita GDP, and rely on technology and other needed inputs from the developed countries. More than half of their populations are engaged in agricultures where productivity is low. These countries make poor use of their labor and underemployment abounds. They have high illiteracy rates and a low percentage of their populations in school at any level. Life expectancy is low; people suffer from malnutrition and disease and have few health-care opportunities.

Question 3

The economies of most less-developed countries (LDCs) are based on:

A) agriculture.
B) manufacturing.
C) services.
D) oil.

Answer 3

A

Question 4

Suppose real GDP in a country called Gambria is increasing by 5% annually and the population of Gambria is increasing by 2% annually. Then, :

A) Gambria's population must be declining.
B) Gambria will have to export more than it imports.
C) the general level of prices in Gambria must be increasing.
D) Gambria's per capita real GDP will be increasing.

Question 5

Which of the following represents a problem with using per capita GDP to compare standard of living between less-developed and industrially advanced countries?

A) G DP per capita does not take into account differences in population between countries.
B) GDP is particularly difficult to measure in industrially advanced countries because a much larger percentage of economic activity occurs outside of officially measured market activity than in less-developed countries.
C) GDP per capita will overstate the prevailing standard of living for the average person in countries with extreme levels of income inequality.
D) GDP per capita and other quality of life measures are not correlated.

Question 6

According to the classification in the text, which of the following is not an industrially advanced country (IAC)?

A) United Arab Emirates
B) Israel
C) Greece
D) Luxembourg

Question 7

The poorest regions in the world, as measured by GDP per capita, are:

A) Latin America and the Caribbean.
B) the Middle East and North Africa.
C) Sub-Saharan Africa and South Asia.
D) Australia and New Zealand.

Question 8

Real GDP per capita and other alternative measures of the quality of life are:

A) independent.
B) directly correlated.
C) poorly correlated.
D) inversely related.

Question 9

Which of the following statements is the best justification of the use of GDP per capita to compare welfare between nations?

A) GDP per capita is commonly used as a measure of welfare so it must be a valid measure.
B) GDP per capita is independent of the country's currency so it is not subject to change due to variations in exchange rates.
C) GDP per capita is calculated in a consistent and reliable way so it is not subject to measurement errors.
D) GDP per capita is highly correlated with alternative measures of quality of life .

Question 10

GDP per capita is a relatively good measurement of:

A) the distribution of income.
B) purchasing power.
C) household production.
D) the standard of living.

Question 11

Which of the following statements about real GDP per capita is correct?

A) Real GDP per capita is inversely related to quality of life measures such as productivity and life expectancy.
B) Real GDP per capita is more accurately recorded in IACs than in LDCs.
C) Countries with higher real GDP per capita have lower per capita energy consumption.
D) Real GDP per capita in the United States is about seven times larger than in Ethiopia.

Question 12

An industrially advanced country (IAC) is defined as a country with a GDP per capita among the top ____ countries in the world.

A) 10
B) 27
C) 39
D) 50

Question 13

Which of the following is not evidence of the lower standard of living among less-developed countries?

A) high per capita real GDP
B) high percentage of households headed by females
C) high infant mortality rate
D) low life expectancy

Question 14

Which of the following is a problem when comparing GDPs per capita between nations?

A) GDP per capita only measures income distribution.
B) Fluctuations in exchange rates affect differences in GDP per capita.
C) GDP per capita is subject to greater measurement errors for IACs compared to LDCs.
D) GDP per capita is likely overstated in LDCs due to families producing goods and services outside of the pricing system.

Question 15

When per capita real GDP is increasing, real output is growing:

A) more rapidly than prices.
B) more rapidly than population.
C) less rapidly than prices.
D) less rapidly than population.

Question 16

Which of the following is not a common characteristic of IACs?

A) market-based economies
B) large stocks of technologically advanced capital
C) well-educated labor
D) low per capita energy consumption

Question 17

If a country is characterized by low life expectancy, low adult literacy, and low per capita energy consumption, it is likely:

A) an IAC.
B) an LDC.
C) neither an IAC nor an LDC.
D) either an IAC or an LDC.

Question 18

Investments in both physical and human capital enhance economic growth because they:

A) increases consumption during the current period.
B) makes it possible for individuals to produce more goods and services per hour worked.
C) encourages firms to expand output by employing more low-productivity workers.
D) encourages workers to unionize and, thereby, fight for higher wages.

Question 19

Which of the following is not a characteristic of less-developed countries?

A) high rates of illiteracy
B) high unemployment
C) low infant mortality rates
D) low savings and investment rates

Question 20

Compared to IACs, LDCs are often characterized by:

A) higher life expectancy.
B) higher adult literacy rates.
C) higher daily calorie supply.
D) lower per capita energy consumption.

Question 21

To grow and prosper, less-developed countries must not :

A) invest in human capital.
B) build a strong infrastructure.
C) shift resources out of the production of consumer goods and into the production of capital goods.
D) shift resources out of the production of capital goods and into the production of consumer goods

Question 22

The nation of Exland is considered a less-developed country and has the following characteristics. Which one is not typical of a less-developed country?

A) high illiteracy
B) high unemployment
C) rapid growth of technology
D) rapid population growth

Question 23

Which of the following would be most likely to encourage capital formation in a less-developed country?

A) the expectation of sustained high inflation
B) the expectation that property rights will be highly secure in the years ahead
C) the imposition of high tariffs and other restraints limiting imports
D) higher personal and corporate tax rates

Question 24

Which of the following can be a barrier to an LDC's economic growth and development?

A) low population growth
B) a low level of human capital
C) faster capital accumulation
D) too much infrastructure

Question 25

Which of the following is true ?

A) Nations achieve high rates of economic growth primarily because of their natural resource endowments.
B) Human and physical capital investments are largely irrelevant to economic growth.
C) Poor nations grow slowly because they do not have access to modern technology.
D) A favorable political environment attracts more investment in human and physical capital.

Question 26

The recent growth records of Japan and Hong Kong during the last 50 years indicate that a nation can grow rapidly without:

A) securely defined property rights.
B) adopting modern technology.
C) significant capital formation.
D) abundant domestic natural resources.

Question 27

Which of the following is infrastructure?

A) IBM computer plant
B) training and education
C) services of doctors
D) airports

Question 28

Which of the following helps low-income countries grow rapidly relative to high-income countries?

A) Low-income countries are in a better position to save a larger share of their income.
B) Low-income countries can employ technologies and practices that have been successful in high-income countries.
C) Low-income countries generally have legal systems that protect property rights and enforce contracts in a more evenhanded manner.
D) Low-income countries generally have more favorable weather conditions.

Question 29

The "Four Tigers" of East Asia are the newly industrialized countries of Taiwan, South Korea, Hong Kong, and:

A) Japan.
B) Singapore.
C) the Philippines.
D) Vietnam.

Question 30

Which of the following is correct ?

A) Economic development is more quantitative than economic growth.
B) A country cannot achieve economic growth with a limited base of natural resources.
C) Infrastructure is capital provided by the private sector.
D) Economic development in LDCs is low because of many of them lack saving, infrastructure, and a political environment favorable to growth.

Question 31

If an economy's population grows at 3 percent and real GDP grows at 2 percent, then:

A) per capita real GDP is declining.
B) the economy's standard of living is increasing.
C) per capita real GDP is negative.
D) per capita real GDP is growing.

Question 32

Which of the following characterizes the IACs?

A) high per capita GDP growth and high population growth
B) low per capita GDP growth and low population growth
C) low per capital GDP growth and high savings rate
D) low human capital investment

Question 33

Which of the following provides the best explanation of why low-income countries generally remain poor?

A) Their political environment and policies often discourage productive activity and reduce the potential gains from specialization and exchange.
B) They are oppressed by developed nations that benefit from the cheap goods available from countries with low wage rates.
C) They are poorly endowed with natural resources, which are essential for long-term rapid growth.
D) When the average income level is low, workers have little incentive to earn higher incomes.

Question 34

An outward shift of an economy's production possibilities curve is not caused by:

A) an increase in capital.
B) an increase in labor.
C) an advance in technology.
D) a decrease in unemployment.

Question 35

Economic growth is

A) cannot be illustrated by the shift of a production possibilities curve, while economic development can.
B) includes improvements in the quality of life, while economic development considers only GDP per capita.
C) defined qualitatively, while economic development is more quantitative in nature.
D) defined quantitatively, while economic development is more qualitative in nature.

Question 36

Exhibit 23-1 Nation of Padia

Exhibit 23-1 shows the production possibility curve of the nation of Padia. Based only on this information, the point which would produce the highest rate of growth would be:

A) I
B) II
C) III
D) IV

Question 37

Which of the following would be most likely to cause the per capita income of less-developed countries to rise?

A) development of strong labor unions
B) more rapid population growth
C) investment expenditures that enhance the human capital of labor force participants
D) an international minimum wage law

Question 38

Which of the following is most likely to be a major source of growth in per capita GDP?

A) a high investment / GDP ratio
B) a high rate of inflation
C) rapid population growth
D) rapid growth in the money supply

Question 39

Which of the following would be most likely to improve the standard of living of the residents of a less-developed country?

A) the development of strong labor unions
B) a sharp increase in the legal minimum wage
C) an increase in expenditures on education and capital investment
D) rapid growth rate of the money supply

Question 40

Domestic law and order, the infrastructure, and the climate of international trade are all aspects of a country's:

A) natural resources endowment.
B) human resources investment.
C) capital investment.
D) political environment.

Question 41

Exhibit 23-1 Nation of Padia

Exhibit 23-1 shows the production possibilities curve of the nation of Padia, an LDC. With foreign investment, which of the following changes that was not previously possible would become possible?

A) a move from V to III
B) a move from IV to II
C) a move from III to a point beyond the production possibilities curve
D) a move from III to I

Question 42

Explain why the LDCs are unable to invest much in capital goods and human capital.

Question 43

Suppose an LDC is producing on its production possibilities frontier such that it produces a subsistence level of consumption goods and enough capital goods just to replace the existing capital that depreciates. Foreign investment can lead to economic growth for this LDC in which of the following ways?

A) The LDC uses the investment to control inflation.
B) The mere presence of more money in the economy will lead to economic growth.
C) The LDC invests in consumption goods to move beyond the subsistence level this year.
D) The LDC invests in additional capital such that the rate of capital formation exceeds the value of capital depreciated.

Question 44

Which of the following makes short-term conditional low-interest loans to LDCs?

A) World Bank
B) Agency for International Development (AID)
C) Agency for International Finance (AIF)
D) International Monetary Fund (IMF)

Question 45

Which of the following statements draws a false conclusion?

A) Life expectancy in an average African country is lower than in an average European country; therefore Europeans can expect to outlive Africans.
B) Nations that currently produce no capital goods, and whose inhabitants are hungry, risk famine with internally funded capital investments.
C) Some African nations have substantially more food and capital investment than others; therefore, their standard of living is higher.
D) Population reduction policies, if effective, can improve the nation's wealth by increasing real per capita GDP.

Question 46

How much of the U.S. federal budget is spent on foreign aid?

A) about 1 percent
B) about 5 percent
C) about 25 percent
D) about 50 percent

Question 47

Which of the following statements explains the vicious circle of poverty?

A) By investing in education and infrastructure at the same time, the country can overcome the problems of poverty.
B) Poverty arises out of the lack of investment, but countries cannot invest because they are poor.
C) A nation can shift its production possibilities curve inward by shifting more resources into the production of capital goods.
D) A nation can shift its production possibilities curve outward by shifting more resources into the production of consumer goods.

Question 48

Which of the following makes long-term low-interest loans to LDCs?

A) Agency for International Development (AID)
B) World Bank
C) International Monetary Fund (IMF)
D) New International Economic Order (NIEO)

Question 49

Which of the following is in charge of U.S. aid to foreign countries?

A) Agency for International Development (AID)
B) World Bank
C) International Monetary Fund (IMF)
D) New International Economic Order (NIEO)

Question 50

"Countries are poor because they cannot afford to save and invest" is called the:

A) vicious circle of poverty.
B) savings-investment trap.
C) LDC trap.
D) cycle of insufficient credit.

Question 51

Describe the vicious cycle of poverty . What are the consequences of this cycle?

Question 52

Less-developed countries are poor for all of the following reasons except one. Which one?

A) The labor force is too small.
B) Labor productivity is low.
C) Investment funds tend to flow abroad
D) Investment in human capital is very low.

Question 53

Which of the following is not a way for IACs to help LDCs achieve economic growth?

A) private investment
B) aid
C) loans
D) intervention in politics

Question 54

If national real GDP grows at twice the rate of population growth,

A) real per capita GDP growth will be positive .
B) eventually there will be too much GDP.
C) real per capita GDP will double each year.
D) real per capita GDP will be reduced by half each year.

Question 55

What role does population growth play in economic development?