Deck 6: Import Substitution in Latin America

Question 1

The argument for ISI was rooted in what idea?

A) dependency theory
B) fiscal policy
C) monetary policy
D) financial repression
E) currency substitution

Answer 1

A

Question 2

The argument for ISI states that the traditional theory of _____ does not work for developing countries?

A) comparative advantage
B) dependence theory
C) structuralist economics
D) balance of payments
E) financial repression

Answer 2

A

Question 3

What global event contributed to the end of ISI?

A) the Great Depression
B) WW II
C) the oil shocks of the 1970s
D) the Lost Decade
E) the Cold War

Answer 3

C

Question 4

Due to the fact that most Latin American nations are oil ____, the price increase of oil in the 1970s led to trade ____.

A) exporters, deficits
B) exporters, surpluses
C) importers, deficits
D) importers, surpluses
E) producers, surpluses

Question 5

In the view of dependency theory, the countries of the center are viewed as the _____.

A) victim of poverty
B) solution to the problem of poverty
C) cause of the problem of poverty
D) center of agricultural problems
E) none of the above

Question 6

The price of exports divided by the price of imports is known as:

A) industrial structure
B) terms of trade
C) portfolio capital
D) structure of protection
E) GDP per capita

Question 7

A country imports goods in which it has a _______, and exports goods in which it has a ________.

A) comparative advantage, comparative disadvantage
B) comparative disadvantage, comparative advantage
C) comparative advantage, comparative advantage
D) comparative disadvantage, comparative disadvantage
E) low comparative cost, high comparative cost

Question 8

The most famous proponent of ISI in Latin America was:

A) Raul Prebisch.
B) Sebastian Edwards.
C) Carlos Diaz-Alejandro.
D) Ricardo Hausman.
E) none of the above

Question 9

Which economist was most closely associated with ISI?

A) Adam Smith
B) David Ricardo
C) Raul Prebisch
D) Sebastian Edwards
E) Carlos Diaz-Alejandro

Question 10

Under ISI, industry in Latin America tended to be:

A) labor intensive.
B) capital intensive.
C) human capital intensive.
D) R&D intensive.
E) none of the above

Question 11

Which of the following was used to support ISI industries?

A) high tariffs
B) quotas
C) targeted lending
D) all of the above
E) none of the above

Question 12

The argument for implementing ISI was related to:

A) structuralism.
B) dependency theory.
C) Raúl Prebisch.
D) all of the above
E) none of the above

Question 13

Which of these policies is not associated with ISI?

A) the protection of domestic industry
B) artificially low exchange rates
C) availability of cheap credit
D) creation of SOEs
E) liberal trade policy

Question 14

Which of the following would not be associated with ISI?

A) high tariffs
B) fixed exchange rates
C) floating exchange rates
D) SOEs
E) exchange controls

Question 15

Under ISI, Latin American governments attempted to invest in ______ industries.

A) labor intensive
B) capital intensive
C) commodity intensive
D) capital non-intensive
E) oil based

Question 16

What kind of unemployment occurs as labor and capital shift from one sector of the economy to another?

A) seasonal unemployment
B) frictional unemployment
C) structural unemployment
D) cyclical unemployment
E) unintentional unemployment

Question 17

Exchange rate shocks are accompanied by ____ rates of inflation and ____ real GDP.

A) low, low
B) low, high
C) high, high
D) high, low
E) low, moderate

Question 18

In the event of an exchange rate shock, what happens to the cost of imports?

A) decrease slightly
B) decrease significantly
C) increase slightly
D) increase significantly
E) remain unaffected

Question 19

Supporters of ISI believed that prices of _____ were _____ relative to the price of manufactures over the long run.

A) commodities, increasing
B) commodities, decreasing
C) commodities, remaining the same
D) services, increasing
E) services, decreasing

Question 20

Center vs. Periphery is associated with:

A) commodity exports.
B) dependency theory.
C) imports of manufactured goods.
D) none of the above
E) all of the above

Question 21

Financial repression has been known to result in the misallocation of:

A) interest rates
B) commodities
C) government spending
D) capital
E) labor

Question 22

What two phenomena are related to financial repression in Latin America?

A) government spending, comparative advantage
B) budget surpluses, comparative disadvantage
C) capital flight, currency substitution
D) inflation, budget deficits
E) capital flight, declining terms of trade

Question 23

Which Latin American country has had some success with SOEs, specifically in the oil and aeronautics industries?

A) Brazil
B) Peru
C) Columbia
D) Argentina
E) Mexico

Question 24

Government policies that influence the savings and investment decisions of individuals and financial institutions is known as:

A) fiscal policy
B) financial repression
C) monetary policy
D) currency substitution
E) industrial policy

Question 25

The policy of the central bank with respect to the growth rate of the money supply and interest rates is known as:

A) industrial policy
B) fiscal policy
C) monetary policy
D) structuralist economics
E) currency substitution

Question 26

One of the legacies of ISI in Latin America is the prevalence of:

A) low tariffs.
B) floating exchange rate.
C) unrestricted labor markets.
D) large firms.
E) low levels of inequality.

Question 27

The end of ISI significantly contributed to what?

A) the Golden Age
B) the Lost Decade
C) the Great Depression
D) WW I
E) WW II

Question 28

Briefly describe dependency theory.

Question 29

What is dependence theory? How was it used to argue for ISI?

Question 30

Why did Prebisch (and others) conclude that trade was harming the economic interests of Latin America?

Question 31

Explain how a global downturn could cause balance of payment problems in a country that exports commodities.

Question 32

Describe the ideas of comparative advantage and comparative disadvantage. How did these ideas affect the outcome of ISI?

Question 33

List and briefly describe the collection of policies that made ISI "work".

Question 34

What are the terms of trade? Describe the argument that if the terms of trade are declining, then a country should import less. How did this argument relate to the development of ISI?

Question 35

How was international trade policy used to support ISI?

Question 36

Briefly describe how SOEs, financial repression, tariffs, and quotas were used to develop K-intensive industries in a L-abundant area.

Question 37

List and briefly describe the results of ISI in Latin America.

Question 38

How did ISI contribute to informality in Latin America?