Deck 21: The Economic Problems of Less-Developed Economies

Question 1

Most less-developed countries have a very low percentage of population under the age of 15.

Answer 1

False

Question 2

Per capita GDP measures both market and nonmarket production.

Answer 2

False

Question 3

The big-push strategy of development relies mainly on private incentives and a laissez- faire government policy.

Answer 3

False

Question 4

The big-push approach to economic development requires little government intervention.

Question 5

The unbalanced development strategy for economic development requires little government intervention.

Question 6

Per capita real GDP is the measure most frequently used to compare international living standards.

Question 7

Food production has grown faster than the population in Kenya for the last 60 years.

Question 8

The critical human capital investments that are essential to economic development are not made in the LDCs to the extent that economists believe they should be because the payoffs, although large, are only realized in the long run.

Question 9

LDC is an acronym for locally-developed country.

Question 10

Big-push development projects normally require government funding because private sources are unwilling, and often unable, to support such large projects.

Question 11

Forward linkages are the demands created by new supply capacities.

Question 12

Backward linkages are the demands created by new supply capacities.

Question 13

The one thing that all less-developed countries have in common over the past 25 years is virtually zero or negative economic growth.

Question 14

If population grows faster than income, then per capita income must fall.

Question 15

Investments in human capital include spending on health care.

Question 16

A big-push strategy for economic development relies heavily on government-sponsored and financed investments.

Question 17

The opportunity cost of human capital augmentation is future gross domestic product (GDP).

Question 18

A "big-push" strategy for economic development refers to marginal but sustained patterns of investment and economic development over time, i.e., small increments that are consistent over a long time period.

Question 19

Infrastructure development is not the problem in LDCs, the overriding issue is the low level of opportunity costs for development activity.

Question 20

Per capita income is calculated by

A) income growth - population growth
B) income growth × population growth
C) income growth/population growth
D) income/population
E) income growth + population growth

Question 21

Per capita income growth is measured by

A) income growth - population growth
B) income growth × population growth
C) income growth/population growth
D) income/population
E) income growth + population growth

Question 22

Most less-developed countries are characterized by

A) inadequate manpower
B) a high proportion of the population under the age of 15
C) unfertile and uncultivable land
D) an extensive infrastructure
E) low total productivity but high per capita productivity

Question 23

A high proportion of the population under the age of 15 undermines economic growth because

A) the young require more infrastructure than older people
B) the young require more capital goods than older people
C) they present such a huge increase in human capital
D) the young consume but they do not produce
E) they increase per capita income

Question 24

To build growth into its economy, a less-developed country must not

A) invest in human capital because the fruits of that investment is long run
B) focus on the infrastructure that has been its problem
C) shift resources out of the production of consumer goods and into the production of
Capital goods because a healthy worker is a productive worker
D) shift resources out of the production of capital goods and into the production of
Consumer goods because they need capital to increase labor productivity
E) engage in curbing population because more workers means more output

Question 25

-Exhibit GG-1 on the previous page depicts the production possibility curve of the nation of Padia. If Padia is a less-developed country, it is most likely to be located at point

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

Question 26

-Exhibit GG-1 depicts the production possibility curve of the nation of Padia. Theoretically, the point that would produce the highest rate of growth would be

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

Question 27

-Exhibit GG-1 depicts the production possibility curve of the nation of Padia. Why can't Padia pick a position on the curve that generates a high rate of economic growth? Because at that position,

A) too much food would be produced and too few machines.
B) the consumption goods produced may be insufficient to sustain the population.
C) there would be too much investment in human capital and too little in infrastructure development.
D) there are not enough people to produce this quantity of capital goods.
E) there would be no investment in human capital.

Question 28

The LDCs don't invest in capital goods, thereby reducing output potential, increasing poverty, and making future costs of capital investment even higher. This tendency has been referred to as the

A) circular flow
B) circle of poverty
C) investment cycle
D) business cycle
E) economic dualism

Question 29

China's strategy of breaking the vicious circle of poverty focused on

A) transforming itself into a market-based economy
B) reducing the resources devoted to infrastructure development
C) refusing to trade with foreign countries
D) reducing population growth by stringent restrictions on family size
E) developing more traditional and labor-using production techniques

Question 30

Human capital refers to

A) the use of resources to improve the productivity of workers through better health, education, and housing
B) making workers capable of performing tasks that were once performed by a machine
C) the adoption of labor-using techniques of production
D) the replacement of workers with machines
E) the replacement of older workers with younger workers

Question 31

Investment in education is a clear example of

A) human capital augmentation
B) poverty reduction
C) short-term poverty programs
D) national debt reduction
E) the poverty circle

Question 32

Which of the following would represent an investment in human capital?

A) firing workers and replacing them with machines
B) developing a new machine that will not require as much worker training
C) inoculating the population against a viral infection
D) using a snow blower instead of a snow shovel
E) using a snow shovel instead of a snow blower

Question 33

Investments in human capital are often opposed because

A) investments in plant and machinery are more important
B) the increase in productivity occurs over a considerable time period
C) investments in plant and machinery will have greater pay-offs
D) it rarely leads to economic growth
E) they are not necessary for growth

Question 34

Which of the following is an example of a backward linkage?

A) A car industry creates a need for car dealerships.
B) A compact disc industry creates a need for CD players.
C) The development of a shoe industry creates a demand for a leather industry.
D) An increase in the population increases the demand for food.
E) New educational facilities improve the literacy rate of the population.

Question 35

Which of the following is an example of a forward linkage?

A) A government spending program reduces the nation's level of unemployment.
B) A compact disc industry creates a demand for CD players.
C) The development of a shoe industry creates a demand for a leather industry.
D) An increase in the population increases the demand for food.
E) New educational facilities improve the literacy rate of the population.

Question 36

Which of the following characteristics of Exland, a less-developed country, is not typical?

A) high illiteracy
B) economic dualism
C) modern technology
D) traditional ways of production
E) high population growth

Question 37

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

A) poor health and nutrition
B) shortages of unskilled labor
C) economic dualism
D) low labor productivity
E) low life expectancy

Question 38

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

A) high rates of illiteracy
B) low levels of technology
C) predominately agricultural
D) low savings and investment rates
E) low infant mortality rates

Question 39

What is the economic criterion most often used to compare living standards among countries?

A) real GDP
B) unemployment rate
C) incidence of AIDS
D) rate of population growth
E) real per capita GDP

Question 40

Many economists believe that in less-developed countries,

A) families tend to be smaller than in developed countries, because of the higher infant mortality rate
B) families tend to be larger than in developed countries, because children are a source of labor
C) families tend to be larger in urban areas
D) family members tend to live longer than in developed countries because of lack of stress
E) family members tend to live longer than in developed countries because of lack of pollutants

Question 41

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

A) high per capita income
B) high death rates
C) high infant mortality rate
D) low life expectancy
E) high birth rate

Question 42

Which of the following does not hinder economic development?

A) low birth rates
B) low saving
C) lack of infrastructure
D) low levels of technology
E) the importance of tradition

Question 43

Less-developed countries are poor for all of the following reasons except

A) their technology is less than modern
B) labor productivity is low
C) investment funds flow into agriculture projects
D) relatively little investment in human capital
E) the labor force is too small

Question 44

The population explosion in many LDCs is best explained by

A) rising death rates and high birth rates
B) declining marriage rates
C) declining death rates and stable birth rates
D) women who marry at a later age
E) low dependency ratios

Question 45

If the death rate and the birth rate both fall, then

A) the population growth rate falls
B) the population growth rate rises
C) per capita GDP rises
D) per capita GDP falls
E) the effects on population or GDP growth cannot be determined from the information

Question 46

Investment in health, education, and skills is called investment in

A) human capital
B) infrastructure
C) modern social technology
D) real social capital
E) physical and mental capital

Question 47

All of the following are ways in which government can promote economic development except

A) investing in human capital
B) nationalizing industries to create efficiency
C) encouraging competition
D) providing an infrastructure
E) promoting saving and investment

Question 48

Which of the following is not an obstacle to development for many less-developed countries?

A) lack of industry
B) lack of infrastructure
C) interest rate ceilings
D) traditional skills
E) high savings rate

Question 49

The big-push strategy, if successful, triggers

A) capital flight
B) a cluster of interrelated investments
C) an entrepreneurial surge in the economy
D) forward linkage
E) arbitrage

Question 50

Big-push economists argue that an interlocking, balanced set of infrastructure and development investments can only be initiated, financed, and managed by

A) government
B) private sector entrepreneurs
C) foreign multinationals
D) the World Bank
E) the International Monetary Fund

Question 51

Many LDCs remain poor even though their income grows because

A) they tend to spend it on human capital instead of on physical capital, such as machinery, factories, and modern technology
B) they prefer services to goods
C) their income was too small to begin with
D) the growth rate is smaller than the growth rate of industrialized nations
E) it does not grow faster than population

Question 52

Among the prerequisites to economic development is

A) stability, which is provided by a traditional way of doing things
B) economic dualism, which allows people choice between the modern and nonmodern sectors
C) nonscientific perceptions of the world, which reflect the LDCs psychological and cultural values
D) the development of infrastructure such as roads and electricity
E) the development of infrastructure such as forward and backward linkages

Question 53

Direct foreign investment in the LDCs

A) explains whatever economic growth the LDCs had in the last quarter of the 20th century
B) pushes the production possibilities curve inward toward the origin because resources are being diverted from the LDCs' own production activities
C) leads to substantial LDC debt to rich nations
D) cannot help the LDCs and can actually hinder their development because LDCs become reliant on it
E) can help the LDCs but cannot be a substitute for their own development efforts

Question 54

If you were a UN advisor to Sri Lanka and recommended the unbalanced development strategy, you would suggest

A) from beginning to end, massive government planning, financing, and administering the development process, similar to the big-push strategy
B) initial private investment because it is no real cost to the government but later rely on government's forward and backward linkages
C) initial UN aid in infrastructure but otherwise leaving the development process to government planning and financing
D) massive investment by the United Nations
E) initial government investment in infrastructure but otherwise leaving the development process to private sector entrepreneurs

Question 55

The vicious circle of poverty refers to a condition where

A) people are poor because they cannot invest in capital goods and they cannot invest in capital goods because they are poor
B) people who borrow money at high interest rates can never get out from under the indebtedness created
C) people invest in unprofitable projects and keep pouring loanable funds into those projects in the hope of salvaging them
D) people prefer consumption goods to capital goods so there are insufficient capital goods to propel the economy out of poverty
E) poverty is relative and poor people remain poor because the wealthy grow wealthier

Question 56

When you think about investments in capital goods, the one category that is most important and, at least in the long run, yields the highest returns is investment in

A) infrastructure
B) raw material extraction
C) factories
D) education and health
E) machinery

Question 57

Which of the following reflects an investment in human capital?

A) a new labor-saving technology
B) a new heath clinic
C) a new factory employing more workers
D) an increase in consumption per capita
E) an increase in fringe benefits, such as paid vacations and overtime pay

Question 58

How does the political system of a country affect its economic performance?

A) The political state dictates what will be produced and how it will be produced for many LDC countries and the success of their economies depends upon the success of the political leaders in mobilizing the resources of the economies.
B) Political revolution is creative in the same way that technological change is creative in the economic system, and these creativities spark the economy's economic performance.
C) The right to vote is equivalent to consumer sovereignty, which is the right to choose one's consumption and employment.
D) Political honesty, such as one law for all, helps the poor and they are the backbone of an economy's production.
E) Political stability is a prerequisite for long-term investment.

Question 59

Everyone working the land knows the usefulness of investing in land irrigation systems but those who work the land may choose not to invest in these profitable irrigation systems as long as

A) the investments are too expensive
B) the natural climate, such as abundant rain, makes the irrigation projects unnecessary
C) the dual economy persists
D) the government dictates choice of investment
E) their property rights, with respect to the land and water, are subject to change

Question 60

-If you had to demonstrate, using Exhibit GG-2, that people in Ronilla are better off than people in Magar, you would point to the fact that

A) Ronilla's opportunity cost of producing the seventh unit of per capita capital investment is lower than Magar's
B) Ronilla's opportunity cost of producing the seventh unit of per capita capital investment is higher than Magar's
C) at any level of per capita capital investment, Ronilla can produce more food than Magar
D) at 6 units of per capita capital investment, Ronilla has a higher per capita food production than Magar, 2 units compared to 1
E) at 6 units of per capita capital investment, there is unemployment (less being produced) in Magar than in Ronilla

Question 61

-In Exhibit GG-2, if it takes 5 units of food to provide a minimal standard of living, which economy, if any, faces a vicious circle of poverty (and why)?

A) Ronilla, because it ends up at position B, which generates 5 units of per capita capital investment
B) Magar, because it ends up at position A, which generates no capital goods
C) neither faces the vicious circle because they can both produce 5 units of per capita food
D) neither faces the vicious circle because they can both makes choices along their production possibilities curve
E) both face the vicious circle because at some point on their production possibilities curve, they produce a per capita capital investment that combines with less than 5 units of per capita food

Question 62

-In Exhibit GG-2, in order for the Magaran production possibilities curve to shift outward to equal the Ronillan curve, the Magarans must

A) shift people out of capital goods production to food production
B) shift people out of food production to capital goods production
C) add resources, such as doubling its population
D) double their per capita food production while leaving unchanged their capital goods production and population
E) double their per capita capital investment while leaving unchanged their food production and population

Question 63

-In Exhibit GG-2, you can explain Ronilla's superior economic performance by referring to all the following factors (not necessarily shown in the Exhibit) except

A) more advanced technology
B) better quality land
C) greater population
D) higher levels of human capital
E) more political stability

Question 64

-In Exhibit GG-2, suppose Ronilla's position ends up at point A. We know then that

A) Ronilla's production possibilities curve shifted downward to equal Magar's
B) there is substantial unemployment or underemployment in Ronilla
C) Ronilla now faces a vicious circle of poverty
D) Ronilla's preferences shifted out of capital to food
E) Ronilla and Magar are both producing the same combinations of goods and both are at full employment

Question 65

-In Exhibit GG-2, for Magarans in the year 2000 (who look upon Ronillans with envy) shifting from point A to point B would

A) be impossible in 2000
B) require shifting resources from capital to food in 2000
C) require shifting resources from food to capital in 2000
D) create unemployment in 2000
E) requires a full employment economy in 2000

Question 66

A singular important link between politics and economics in LDCs is that

A) democracies are more productive than nondemocracies
B) democracies must constantly make difficult budgetary choices
C) political instability is incompatible with long-term private investment
D) conservatives prefer larger military budgets
E) liberals prefer higher education expenditures

Question 67

In LDCs, persistent poverty occurs because of preference for _______ , which results in ___________.

A) large families; low levels of capital goods production
B) more consumption today; less consumption tomorrow
C) high birth rates; high death rates
D) high birth rates; low death rates
E) culture; an absence of assimilation

Question 68

The big-push strategy relies on investments that are designed especially to

A) create production facilities
B) check the infrastructure that impedes development
C) combat infant mortality rates
D) develop human capital
E) create simultaneously a vast network of markets whose demands and supplies are created by the investments

Question 69

A potential drawback to the big-push strategy in LDCs is that

A) supply bottlenecks may occur that would undermine the all-at-once development process
B) there is a problem in choosing which sectors to develop first
C) private firms will avoid making the planned investment
D) it calls for vast movements of resources, including labor, which may not be possible because people are disinclined to move
E) it depends primarily on foreign aid which has proved to be an unreliable source of investment funding

Question 70

Why do some economists prefer government planning and financing of big-push development to private sector development? Because

A) private firms have a longer planning horizon than governments
B) governments have a longer planning horizon than private firms
C) private firms cannot collect taxes
D) it takes less initial start-up capital than any alternative development strategy
E) private firms create markets and government planning does not require market creation

Question 71

Big-push strategy investments are designed to

A) aid the rich landowners (who run the LDC governments) at the expense of the poor peasants
B) invite back successful colonial development into the LDCs
C) keep new forms of colonialism out of the LDCs
D) generate tax revenues for development
E) create the all-at-once development upon which private investment can flourish

Question 72

Big-push development strategies rely primarily on _________ for their financing.

A) government
B) domestic private investment
C) foreign private investment
D) foreign aid
E) ex-colonial centers

Question 73

The more modest alternative to the big-push approach, unbalanced development strategy investments, relies on

A) government planning and financing
B) domestic entrepreneurial talent and private investment
C) direct foreign aid and investment
D) indirect foreign aid and World Bank aid
E) forward and backward linkages to offset each other

Question 74

The unbalanced development strategy relies on

A) the government broadening its time horizon
B) economic dualism, that is, government and the private sector
C) the balancing effect of foreign aid and investment
D) investments creating new supply capacities, which create new demands, which stimulates investments in new supply capacities
E) incentives created by income disparity

Question 75

The unbalanced development strategy is preferred by many economists because

A) it relies on the vast resources of government rather than on the unreliable promises of private investment
B) it creates a dynamic chain reaction of economic development
C) it promotes economic dualism
D) it overcomes the obstacles created by forward and backward linkages
E) it favors demand-induced investments over supply-induced investments

Question 76

One reason unbalanced development strategies do not succeed is because they require a basic minimum ___________ that is not always in place.

A) of markets
B) of skilled work force
C) big-push investments
D) infrastructure
E) entrepreneurial incentive

Question 77

Direct foreign investment is considered an attractive investment because

A) it is usually focused on infrastructure
B) it initiates projects that are later taken over by domestic entrepreneurs
C) it only employs foreign workers so it doesn't interfere with domestic development planning
D) it typically involves bringing into the LDCs new expertise
E) it replaces domestic investment

Question 78

If national income grows at twice the rate of population growth,

A) population will reach a maximum and per capita income will be maximized at that population level
B) eventually the rates must equal
C) per capita income will double each year
D) per capita income will be reduced by half each year
E) per capita income growth will double each year

Question 79

Which continent best illustrates LDCs?

A) Australia
B) South America
C) North America
D) Antarctica
E) Europe

Question 80

-In Exhibit GG-3 (on the following page), which of the following LDCs experienced a positive per capita income growth rate from 1985-1995?

A) Ethiopia
B) Cameroon
C) South Africa
D) Mongolia
E) Zaire