Question 1

The end of ISI significantly contributed to what?

Accepted Answer

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

Question 2

Which economist was most closely associated with ISI?

Accepted Answer

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

Question 3

Briefly describe dependency theory.

Accepted Answer

Dependency theory is a concept that originated in the context of the economic development of countries, particularly in Latin America in the 1950s and 1960s, as a response to modernization theory. It is a theoretical framework that suggests that the economic development of nations is a structured and interconnected process influenced by the historical context of colonialism and imperialism.

According to dependency theory, the world is divided into two sets of states: the core (or developed countries) and the periphery (or developing countries). The core countries are the industrialized nations that control wealth and have strong, diversified economies. In contrast, the periphery countries are those with less developed economies that are often reliant on the export of a limited range of commodities, such as raw materials or agricultural products, to the core countries.

The theory posits that the economic progress of peripheral countries is limited by the unfavorable terms of trade established by the core countries. This exploitative relationship results in the transfer of capital from the periphery to the core, leading to a situation where the periphery is dependent on the core for capital, technology, and access to markets. This dependency traps the peripheral countries in a cycle of underdevelopment and makes it difficult for them to achieve economic growth and diversification on their own terms.

Dependency theorists argue that this unequal relationship is maintained through various mechanisms, including economic sanctions, political pressure, and cultural influence. They also suggest that the international economic system is designed in such a way that it benefits the core countries at the expense of the periphery.

The theory calls for a restructuring of the international economic order to allow for more equitable development and to enable peripheral countries to break free from their dependent status. This might involve strategies such as import substitution industrialization (ISI), where countries aim to reduce their dependency on imports by developing their own industries, or more radical approaches that challenge the global capitalist system itself.

Overall, dependency theory provides a critique of the global economic system and offers an explanation for the persistent inequality between nations. It has influenced various development policies and continues to be a relevant perspective in discussions about global inequality and the challenges faced by developing countries.

Question 4

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

Accepted Answer

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 5

Under ISI, industry in Latin America tended to be:

Accepted Answer

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

Question 6

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

Accepted Answer

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

Question 7

The argument for implementing ISI was related to:

Accepted Answer

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

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

The answer of Why did Prebisch (and others) conclude that...

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

The answer of Briefly describe how SOEs, financial repression, tariffs,...

Question 13

How was international trade policy used to support ISI?

Accepted Answer

The answer of How was international trade policy used to...

Question 14

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

Accepted Answer

The answer of Describe the ideas of comparative advantage and...

Question 15

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

Accepted Answer

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

Question 16

How did ISI contribute to informality in Latin America?

Accepted Answer

The answer of How did ISI contribute to informality in...

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

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

Accepted Answer

The answer of Explain how a global downturn could cause...

Question 20

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

Accepted Answer

The answer of What is dependence theory? How was it...

Exam 6: Import Substitution in Latin America