Deck 17: Development Economics

Question 1

In order to encourage domestic saving, it is necessary to have:

A) a laissez faire economy.
B) a balanced fiscal budget.
C) a large number of government subsidies.
D) a stable system of property rights.
E) a highly developed banking system.

Answer 1

a stable system of property rights.

Question 2

It is generally true that per capita GNP is:

A) negatively correlated with labor productivity.
B) positively correlated with the standard of living.
C) negatively correlated with the life expectancy rate.
D) uncorrelated with the literacy level.
E) positively correlated with the rate of population growth.

Answer 2

positively correlated with the standard of living.

Question 3

Which of the following is an obstacle to economic growth?

A) Political instability
B) Government support for private industry
C) Slow population growth
D) Enforcement of private property rights
E) The inability of special interest groups to block changes in economic policy

Answer 3

Political instability

Question 4

The Third World consists of _____.

A) all communist countries
B) the nations in the Southern Hemisphere
C) all former British colonies
D) all non-English-speaking countries
E) all less-developed countries

Question 5

Which of the following is a basic human need?

A) Transportation
B) Healthcare
C) Money for gas
D) College level education
E) Savings

Question 6

In absolute terms, poverty is measured as:

A) a specific value on the quality-of-life index.
B) the ratio of family income to family size.
C) the ratio of family size to family food consumption.
D) the ratio of total population to national income.
E) a specific value of per capita GNP.

Question 7

Which of the following is considered a political obstacle to economic growth?

A) Few government subsidies
B) Low foreign investment
C) Lack of entrepreneurial talent
D) Explosive population growth
E) Insecure property rights

Question 8

Why is the fear of expropriation an obstacle to economic growth?

A) Without research and development, no technological advances can be made.
B) Large government spending causes negative externalities.
C) Powerful special interest groups have too much control.
D) No foreign investment comes to the country, because of the lack of guarantees.
E) The fear of expropriation causes too many resources to be devoted to military spending which is a highly unproductive sector.

Question 9

Which of the following is a reason for the slow economic growth in former colonial nations?

A) Inadequate foreign aid
B) A communist system of government
C) Lack of skilled officials
D) Religious extremism
E) High entrepreneurial skills

Question 10

A key reason for low foreign direct investment in developing nations is:

A) the presence of tariff and non tariff barriers on imports.
B) the fear of exploitation of domestic resources by foreign owners.
C) the lack of government-operated enterprises.
D) the high interest rate charged on loans.
E) the fear of falling inflation rates.

Question 11

As of 2008, which of the following countries had a female literacy rate of less than 50%?

A) India
B) Greece
C) Finland
D) Ethiopia
E) Namibia

Question 12

Compared to First World countries, developing countries would have _____.

A) a higher life expectancy
B) higher productivity rates
C) lower education levels
D) lower birthrates
E) a higher rate of private investment

Question 13

Which of the following statements about the Third World is true?

A) Except for Latin America, most Third World citizens live in urban areas.
B) The culture, politics, and geography of the Third World countries are very similar.
C) Third World economies are largely dependent on manufacturing industries.
D) The Third World is made up of non-communist developing countries.
E) About 80 percent of the population of the Third World countries live in China and India.

Question 14

For most Third World countries, the key source of capital accumulation is _____.

A) internal debt
B) foreign direct investment
C) domestic business spending
D) domestic saving
E) foreign aid

Question 15

A narrowly conceived physical quality-of-life index attempts to measure:

A) the gross national income.
B) absolute poverty levels.
C) the level of social injustice.
D) the level of technological progress.
E) living standards.

Question 16

Which of the following is an example of the First World?

A) The West European countries
B) The Middle East countries
C) The South Asian countries
D) The African countries
E) The Latin American countries

Question 17

As of 2010, the World Bank classified a country as a low-income economy when its domestic per capita GDP fell below _____.

A) $1000
B) $995
C) $675
D) $530
E) $475

Question 18

Which of the following is the common link among developing countries?

A) Low poverty
B) Low unemployment
C) Low trade deficits
D) Minimum government interference
E) Low per capita GDP

Question 19

Which of the following is least likely to be included in a definition of basic human needs?

A) A minimal level of clothing
B) A minimal level of health care
C) A minimal level of savings
D) A minimal level of shelter
E) A minimal level of calorie intake

Question 20

Which of the following is least likely to be a reason for the difficulty in measuring poverty across countries?

A) Different currencies
B) Different customs
C) Different living arrangements
D) Different trade balances
E) Limited data

Question 21

In many less-developed countries, per capita GDP falls even though real GDP rises, because:

A) output grows at a slower rate than the population.
B) the GDP measures in developing countries are always inaccurate.
C) consumption spending exceeds investment spending.
D) these countries face an acute trade deficit.
E) prices increase faster than an increase in actual output level.

Question 22

Which of the following refers to a shift in government spending from the country's infrastructure to education and health care?

A) Capital shallowing
B) Expropriation
C) Liberalization
D) Investment diversion
E) Import substitution

Question 23

Which of the following stands true of corruption?

A) Payment of money or gifts in order to receive a government service or benefit is a widespread practice only in less-developed countries.
B) Corruption reduces growth most directly through government investment in projects with high productivity.
C) Corrupt governments spend less on capital goods than governments that are less corrupt.
D) The more competitive a country's markets are, the fewer the opportunities for corruption.
E) Private investment is relatively higher in countries in which government expenditure is very high.

Question 24

Quotas are designed to:

A) restrict export of domestic goods to foreign markets.
B) protect domestic producers from higher sales tax.
C) increase foreign demand for domestic products.
D) increase domestic demand for foreign products.
E) protect domestic producers from foreign competition.

Question 25

Which of the following is a primary product?

A) Tomato sauce
B) Chocolate bars
C) Salt
D) Breakfast cereal
E) A desk

Question 26

When a country follows an inward-oriented strategy, it tends to produce:

A) only tertiary goods.
B) goods in which it has an absolute advantage.
C) only labor-intensive goods.
D) goods for which no export barriers exist.
E) goods that replace foreign manufactured products.

Question 27

Rapid population growth leads to age dependency which refers to:

A) a reduction in the amount of capital per worker, which lowers the productivity of labor.
B) shifts in government expenditures from the country's infrastructure to education and health care.
C) a large number of dependent children whose consumption requirements lower the ability of the economy to save.
D) high mortality rates of middle-aged workers that reduces the average amount of investment spending.
E) survival of the elderly who are dependent on government welfare support.

Question 28

Less-developed countries are experiencing rapid population growth because _____.

A) birthrates are rising at a slower rate than mortality rates
B) birthrates are falling while mortality rates are rising
C) both birthrates and mortality rates are falling
D) birthrates are rising while mortality rates are falling
E) birthrates are constant and mortality rates are rising

Question 29

A product in the first stage of production is defined as a(n):

A) basic need.
B) investment.
C) environmental product.
D) primary product.
E) transitory product.

Question 30

The reason why public subsidization of industries in less-developed countries causes slow economic growth is that:

A) when companies face no competition, there is no incentive for them to improve their production.
B) too much of the taxpayer's money is spent in these programs.
C) consumers tend to develop an aversion for the purchase of subsidized goods and services.
D) subsidies tend to create too much competition for products.
E) subsidization creates shortage in the product market.

Question 31

If rapid population growth reduces the amount of capital per worker, thereby lowering labor productivity, it is referred to as:

A) age dependency.
B) capital budgeting.
C) investment diversion.
D) capital disinvestment.
E) capital shallowing.

Question 32

Which of the following holds true if a country is said to have a comparative advantage in the production of wheat?

A) The country can produce more wheat than any other nation.
B) The opportunity cost of producing wheat is the lowest in the country.
C) The price of wheat is the lowest in that country.
D) Domestic wheat is of the best quality in the world.
E) The country can produce only wheat.

Question 33

Investment diversion is considered an obstacle to economic growth because:

A) it would be better to increase the mortality rate of the country, and thus have a higher per capita real GDP.
B) investment in health care is highly appreciated by the international community.
C) capital infrastructure automatically eliminates population problems.
D) the investments in health care affect only the poorest, the least productive inhabitants of a country.
E) there is no way for a country to build its industries without an increase in investment on infrastructure.

Question 34

Which of the following sentences about entrepreneurs stands true?

A) They tend to be risk-averse individuals.
B) They are more frequently found in societies that support social conformity.
C) They help achieve technological progress.
D) They are more frequently found in the local population of the developing countries.
E) They usually belong to the traditional elite class.

Question 35

Societies in which _____ produce more entrepreneurs.

A) the ratio of immigrants to the local population is high
B) culture supports individual achievements
C) individuals are self-interested
D) immigrants are allowed to hold government positions
E) immigrants are more intelligent than the local population

Question 36

The primary objective of inward-oriented strategies is:

A) to raise government revenue through tariffs and other import taxes.
B) to lower the domestic price of imports.
C) to replace imported manufactured goods with domestic goods.
D) to encourage imports through reduction of tariff and non-tariff barriers.
E) to encourage the production of those goods in which the country has an absolute advantage.

Question 37

Which of the following is most likely to be a reason for immigrants to become entrepreneurs in developing countries?

A) They usually hold government positions.
B) They are poorer than the domestic population.
C) They are risk-averse.
D) They have skills and experience that are lacking in poor nations.
E) They quickly assimilate to their new environment.

Question 38

Which of the following is a recommended strategy to increase productivity of the private sector?

A) A reduction in government subsidies to producers
B) An increase in business taxes
C) An increase in government investment in risky projects
D) An increase in the money supply
E) An increase in subsidy on goods and services

Question 39

An inward-oriented strategy is designed to:

A) expand a country's export capacity.
B) lower the production of capital goods.
C) develop the domestic manufacturing sector.
D) promote the consumption of imported goods.
E) improve productivity in the domestic service sector.

Question 40

Which of the following is true of import-substitution strategies?

A) They dominate the strategies of the developing world.
B) They focus on the production of goods not produced in developed countries.
C) They focus on the production of exportable goods.
D) These strategies lower the price of the domestically produced goods than the imported goods.
E) They generally require the removal of import barriers like tariffs or quotas.

Question 41

The replacement of foreign manufactured goods by domestically manufactured goods is called _____.

A) import swap
B) export substitution
C) primary production
D) import substitution
E) trade protectionism

Question 42

The economic development strategy aimed at exporting domestically manufactured goods is called a(n):

A) replacement strategy.
B) market-oriented strategy.
C) inward-oriented strategy.
D) outward-oriented strategy.
E) future-oriented strategy.

Question 43

A dual economy is characterized by:

A) rapid productivity growth in both the agricultural sector and the manufacturing sector.
B) uneven development trends in two economic sectors.
C) drastic differences in regional work ethics.
D) the nonexistence of the government and foreign trade sectors.
E) a manufacturing sector that does not depend on natural resource supplies for production.

Question 44

_____ is the purchase of securities, like stocks and bonds of foreign firms.

A) Short selling
B) Foreign direct investment
C) Future contracts
D) Portfolio investment
E) Reverse trading

Question 45

Foreign direct investment occurs when a company:

A) purchases foreign securities such as stocks and bonds.
B) establishes foreign operating units.
C) enters into a contractual agreement involving exchange of services and payments.
D) engages in international trade.
E) gives aid to a Third World country.

Question 46

The practice of imposing import restrictions to protect a newly developing domestic economy typically results in:

A) a rapid improvement in the standard of living.
B) expanded trade relations with other nations.
C) lower prices of domestic products.
D) allocation of resources away from the primary products.
E) greater cost efficiency in domestic production.

Question 47

Which of the following would encourage domestic producers to compete internationally?

A) Tax increases
B) Policies that make domestic sales more attractive
C) Cash payments
D) Expropriation
E) High-interest loans

Question 48

The Taiwanese government allows tax credits for domestic producers who compete with manufacturers in First World nations. This suggests that Taiwan engages in _____.

A) trade protectionism
B) export substitution
C) foreign exchange market intervention
D) import substitution
E) voluntary export restrictions

Question 49

Which of the following is a common argument against allowing a foreign firm to operate a business in a developing country?

A) The foreign firm may gain control over national resources.
B) Foreign productive expertise may outdistance domestic labor skills.
C) The foreign firm may reduce domestic competition.
D) Technology may be transferred from industrial countries to the developing countries.
E) The foreign firm may reduce dependency on domestic imports.

Question 50

What is measured by the ratio of export prices to import prices?

A) The terms of trade
B) The productivity ratio
C) The trade standards
D) The gains from trade
E) The balance of trade

Question 51

The deteriorating-terms-of-trade-argument is based on an assumption that the value of ____ will fall over time.

A) labor inputs
B) capital inputs
C) technology
D) manufactured goods
E) primary products

Question 52

Assume that initially country A exchanges three barrels of oil for one ton of steel from country B. Later the arrangement changes to four barrels of oil for one ton of steel. This indicates that:

A) the terms of trade for country B have improved.
B) country A has a comparative advantage in the production of steel.
C) the relative price of steel in terms of oil has fallen.
D) the terms of trade for country A have improved.
E) country B has an absolute advantage in the production of oil.

Question 53

Which of the following is an argument in favor of outward-oriented strategy?

A) It leads to a fall in government deficit spending.
B) It leads to a fall in domestic prices of imported goods.
C) It helps the economy to grow more rapidly by encouraging exports.
D) It leads to an increase in the price of exported goods in the foreign markets.
E) It leads to an increase in the supply of goods and services in the domestic market.

Question 54

An inefficient manufacturing base is likely to result when:

A) only those goods are produced in which the domestic economy has a comparative advantage.
B) a newly developing economy has no international trade controls.
C) competitive foreign imports are restricted.
D) the economy produces only those goods in which it has technical expertise.
E) producers compete solely on the basis of low cost.

Question 55

What is the main reason for the failure of import-substitution strategies to generate rapid economic growth?

A) Deteriorating terms of trade
B) Scarce natural resources
C) Inefficient allocation of resources
D) Lack of self-interested behavior by entrepreneurs
E) Insufficient subsidies to domestic producers

Question 56

International trade financing is dominated by:

A) the U.S. Agency for International Development.
B) private export-import agencies.
C) the World Bank.
D) the IMF.
E) commercial bank syndicates.

Question 57

To follow an outward-oriented strategy, a country that has scarce natural resources and abundant labor supplies should _____.

A) export primary goods and import manufactured products
B) export manufactured goods and impose import restrictions on primary goods
C) export both primary and manufactured products
D) export primary goods and impose trade restrictions on manufactured goods
E) export manufactured products and import primary goods

Question 58

The existence of dual economies support the argument for _____.

A) developing domestic exports
B) reducing quotas on foreign goods
C) a more active monetary policy
D) the free movement of resources
E) imposing trade restrictions

Question 59

Which of the following is not an argument in favor of inward-oriented strategies?

A) A newly developing economy needs protection from foreign competition.
B) Government restrictions are necessary to maximize the rate of economic growth.
C) Deteriorating prices of primary products in relation to manufactured goods expose developing countries to increasingly unfavorable terms of trade.
D) Developing countries should compete on the basis of comparative advantage.
E) Economic growth requires rapid industrialization and a shift away from primary products.

Question 60

A tariff imposed on foreign imports will cause _____.

A) demand for imports to increase
B) domestic prices of imported goods to rise
C) market supply of importable goods to increase
D) domestic prices of imported goods to fall
E) market supply of domestic goods to decline

Question 61

Which of the following is not a probable consequence of food aid to developing countries?

A) Increased domestic food prices
B) Declining domestic output
C) Misallocation of food supplies
D) Increased dependency on foreign food supplies
E) Increased starvation of the needy

Question 62

Which of the following limit the direct creation of new jobs through foreign investment?

A) Availability of large number of unemployed workers
B) Nature of the industries in which investment is allowed
C) Low cost of setting up the capital-intensive industries
D) High percentage of youth in the country's population
E) Regulation on technology transfer

Question 63

What is a trade credit?

A) A credit card purchase
B) A government loan for exporters
C) The extension of a period of time before which an importer must pay for goods and services purchased
D) An IMF loan to meet trade deficit and liabilities for hard currencies
E) The time it takes for franchisees to pay for the products they obtain from the main franchiser

Question 64

Poverty is usually defined by economists in relative terms.

Question 65

Which of the following can be categorized as multilateral aid?

A) The U.S. providing funds to Haiti
B) World Bank providing financial assistance in the form of flood relief funds to Brazil
C) Pakistan requesting financial assistance for earthquake relief from the developed world
D) France promising funds to the Philippines against duty-free imports of French products
E) USAID relieving Nepal of the outstanding debt the latter owes to the organization

Question 66

A quality-of-life index measures absolute poverty levels.

Question 67

The host country's balance-of-payments problem tends to worsen when foreign firms:

A) invest solely in capital-intensive industries.
B) repatriate their profits to the headquarters from the host country.
C) acquire the foreign operations in order to diversify corporate investment holdings.
D) refuse to share technological expertise with the host country.
E) export all products to other countries.

Question 68

Generally, there is a strong positive correlation between per capita GNP and other measures of human development.

Question 69

Higher per capita GNP always means higher quality of life.

Question 70

Which of the following is an example of a bilateral aid?

A) A U.S. commercial bank loan to a Mexican investor
B) The establishment of a Brazilian subsidiary by a German firm
C) U.S. humanitarian aid to Somalia
D) A trade credit extended to Morocco for the purchase of Iranian oil
E) A World Bank loan to Kenya

Question 71

Which of the following is likely to be a benefit of foreign investment in a developing country?

A) Domestic firms are subjected to foreign competition
B) Labor-intensive industries grow quickly
C) New technology is adapted
D) The natural rate of unemployment falls to zero
E) The rate of inflation declines

Question 72

The First World is made up of communist nations.

Question 73

Which of the following statements is true?

A) Multinational firms tend to reduce the flow of technology between countries.
B) Most foreign direct investment is found in labor-intensive industries.
C) Multinationals do not always help to reduce the trade deficit of the host country.
D) Foreign firms contribute to a significant increase in the host country's unemployment rate.
E) Foreign direct investment reduces the stock of capital of the domestic country.

Question 74

Per capita GNP and quality-of-life are the only ways to determine a country's level of economic development.

Question 75

The predominant source of multilateral aid is:

A) the European Community.
B) the United Nations.
C) the Agency for International Development.
D) the World Bank.
E) the British government.

Question 76

Because of the absolutism concept of poverty, a poor family in the United States will fall within the same category as a poor family in Cuba.

Question 77

Which of the following sentences about the benefits of foreign investment is true?

A) Foreign investment is invited only in labor-intensive industries.
B) Foreign investment has more effect on employment in developing countries.
C) Most expenditures on research and development are made by the major developing countries.
D) The ability of foreign firms to utilize modern technology in a developing country depends on having a supply of engineers and technical personnel in the host country.
E) Foreign investment will improve balance of payments if the foreign investment is used to produce goods primarily for domestic consumption.

Question 78

A foreign aid that flows from one country to another is called a(n):

A) project aid.
B) emergency aid.
C) development aid.
D) bilateral aid.
E) multilateral aid.

Question 79

Which of the following groups would be most adversely affected by food aid?

A) Manufacturers in the country providing aid
B) Government in the country providing aid
C) Government in the country receiving aid
D) Citizens in the country providing aid
E) Farmers in the country receiving aid

Question 80

Which of the following coordinates and plans foreign aid programs and expenditures in the United Sates?

A) The Federal Reserve Board
B) The Federal Open Market Committee
C) The Agency for International Development
D) The Bureau of Economic Analysis
E) The U.S.Department of the Treasury