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University of South Carolina ECON 221 Chapter 19-Economic-Development (Fwk Rittenmacro

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Chapter 19 Economic Development Multiple Choice 1. Which of the following statements is true? According to the World Bank, A) in 2005 about 1.4 billion people, about a quarter of the population of... developing countries was poor, defined as living on less than $1.25 a day, the international poverty line. B) between 1980 and 2005, the number of people living below the international poverty line, defined as living on less than $1.25 a day, has decreased significantly. C) poverty reduction in sub-Saharan Africa has been phenomenal over the last 25 years. D) the majority of the world’s poor are in the Indian sub-continent and in China. Topic: Start Up: Being Poor in a Poor Country 2. In which of the following regions has poverty reduction been minimal in over the past 25 years? A) East Asia B) sub-Saharan Africa C) Latin America D) North China and Tibet Topic: Start Up: Being Poor in a Poor Country 3. In 2000, the international community adopted and concretely specified developments goals, the progresses of which are to be monitored by the World Bank. Of the goals included here, which goal is least likely to be achieved by their target dates, mostly 2015? A) reducing the absolute poverty rate by half B) increasing primary school enrolment C) promoting gender equality D) reducing deaths from measles and AIDS Topic: Start Up: Being Poor in a Poor Country 1 4. The World Bank, an international organization designed to support economic development, classifies countries according to their levels of per capita gross national income. Countries with per capita incomes of $935 or less in 2007 were classified as A) under-developed countries. B) low-income countries. C) impoverished countries. D) middle-income countries. Topic: The Nature and Challenge of Economic Development 5. The World Bank, an international organization designed to support economic development, classifies countries according to their levels of per capita gross national income. Countries with per capita incomes of more than $936 but less than $11,455 in 2007 were classified as A) less-developed countries. B) transitional countries. C) developing countries. D) middle-income countries. Topic: The Nature and Challenge of Economic Development 6. The World Bank, an international organization designed to support economic development, classifies countries according to their levels of per capita gross national income. Countries with per capita incomes of $11,456 or more in 2007 were classified as A) industrialized countries. B) advanced developed countries. C) high-income countries. D) western industrialized countries. Topic: The Nature and Challenge of Economic Development 7. According to the World Bank’s classification of countries’ levels of per capita gross national income, in 2007 the majority of the world’s population lived A) in middle-income countries. B) in low-income countries. C) below the international poverty line of $1.25 a day. D) in the African continent. Topic: The Nature and Challenge of Economic Development 8. According to the World Bank’s classification of countries’ levels of per capita gross national income, A) about one-third of the world’s population lived in high-income countries in 2007. B) less than 20% of the world’s population lived in high-income countries in 2007. C) the percentage of the world’s population living in high-income countries increased significantly between 1997 and 2007. D) the percentage of the world’s population migrating from middle-income to high-income countries has been increasing since 2000. Topic: The Nature and Challenge of Economic Development 9. A developing country, sometimes referred to as a third-world country, is a country A) that is a low- or middle-income country. B) that is a low-income country but not a middle-income country. C) where at least 40% of its population live below the international poverty line. D) characterized by a higher rate of population growth. Topic: The Nature and Challenge of Economic Development 10. Those countries not among the high-income nations of the world are considered A) dependent nations. B) backward economies. C) developing countries. D) under-developed countries. Topic: The Nature and Challenge of Economic Development 11. One way by which the World Bank converts gross national income (GNI) figures to dollars is to take the GNI in a local currency and convert using the exchange rate, averaged over a three-year period in order to smooth out the effects of currency fluctuations. Which of the following is a shortcoming of this method for international comparisons of standards of living? A) Currency exchange rates may fluctuate drastically from year-to-year. B) A country could have a relatively high standard of living but, for a variety of reasons, a low exchange rate. C) This method cannot be applied to countries that have fixed exchange rates. D) The method does not take into account trade conducted on the basis of barter. Topic: The Nature and Challenge of Economic Development 3 12. Comparing incomes across countries based on per capita GNP figures that have been converted to dollars using the exchange rate A) is considered to be the best way to compare living standards across countries. B) is a method of comparison that takes into account unequal distribution of income in a country. C) accurately reflects differences in purchasing power across countries. D) may not accurately reflect differences in purchasing power across countries. Topic: The Nature and Challenge of Economic Development 13. To facilitate an international comparison of standards of living, the World Bank A) uses a weighted index of exchange rates to convert local currency. B) converts currencies to dollars on the basis of purchasing power. C) assigns more weight to agricultural production than to manufacturing since most low-income countries tend to be agrarian economies. D) converts currencies to U.S. dollars using an exchange rate, averaged over a three-year period in order to smooth out the effects of currency fluctuations, Topic: The Nature and Challenge of Economic Development 14. To facilitate an international comparison of standards of living, the World Bank compares incomes and converts currencies to dollars on the basis of purchasing power. This measure is reported in A) U.S. dollars. B) a trade-weighted dollar. C) international dollars. D) real U.S. dollars, that is, adjusted for inflation. Topic: The Nature and Challenge of Economic Development 15. Which of the following statements is true about an international dollar? A) It has the same purchasing power as does a rupee in India. B) One international dollar has a greater purchasing power in the United States than in India. C) One international dollar has a lower purchasing power in the United States than in India. D) It is not possible to compare the purchasing power of one international dollar without information on the prices of goods and services in different countries. Topic: The Nature and Challenge of Economic Development 16. Compared to middle- and high- income countries, low-income countries are often characterized by A) higher rates of population growth. B) greater government control by large, relatively poor groups. C) a smaller share of income used for consumption. D) a smaller proportion of the labor force in agriculture. Topic: The Nature and Challenge of Economic Development 17. Which of the following characterize low-income nations, compared to middle-income and high-income countries? I. II. III. IV. lower rates of population growth greater income inequality a larger proportion of the labor force in agriculture a smaller share of income used for consumption V. higher rates of unemployment A) all of the above B) II, III, IV, and V only C) II, III, and IV only D) II, III, and V only Topic: The Nature and Challenge of Economic Development 18. Which of the following characterize low-income nations, compared to middle-income and high-income countries? I. II. III. IV. higher rates of population growth higher rates of migration from rural to urban sectors higher unemployment in the rural sector compared to the urban sector lower level of potential output V. higher rates of unemployment A) all of the above B) I, II, IV, and V only C) I, II, III, and IV only D) I, III, IV, and V only Topic: The Nature and Challenge of Economic Development 5 19. Compared to middle- and high-income countries, low-income countries are often characterized by A) higher rates of poverty. B) less income inequality. C) a smaller share of income used for consumption. D) a smaller proportion of the labor force in agriculture. Topic: The Nature and Challenge of Economic Development 20. Which of the following is true about low-income countries? A) They face high levels of potential output, largely because of the size of their population. B) They tend to have low levels of potential output and are producing well below their potential. C) They face high levels of potential output, but tend to produce well below their potential because of high illiteracy rates. D) They face high levels of potential output, but tend to produce well below their potential because of political instability. Topic: The Nature and Challenge of Economic Development 21. Which of the following statements is true about the agricultural sector in low-income nations? A) The agricultural sector has been decreasing in size because its productive workers prefer to migrate to urban areas. B) The agricultural sector is by far the largest producer and the most productive sector in lowincome countries. C) Although the agricultural sector is the largest employer, labor’s productivity in this sector is very low. D) The agricultural sector has been increasing in size and in terms of labor productivity as rural farmers increasingly start to mechanize. Topic: The Nature and Challenge of Economic Development 22. The process that produces sustained and widely shared gains in per capita GDP is called A) economic growth. B) economic transition. C) economic development. D) economic advancement. Topic: The Nature and Challenge of Economic Development 23. The text defines economic development as A) a sustained increase in real GDP per person. B) an increase in the general standard of living resulting from the real process of economic growth. C) a process that produces sustained gains in per capita GDP. D) a process that produces sustained and widely shared gains in per capita real GDP. Topic: The Nature and Challenge of Economic Development 24. Economic development is the process by which a nation’s _______ increases and is widely shared by the population over a long period of time. A) real total output B) real total income C) per capita real GDP D) per capita nominal GDP Topic: The Nature and Challenge of Economic Development 25. Over a 10-year period, country A has real GDP and population growth rates of 5% and 7%, respectively; country B has real GDP and population growth rates of 3% and 1%, respectively. All other things unchanged, per capita real GDP has increased A) more in country A. B) more in country B. C) about the same in both countries. D) in neither country. Topic: The Nature and Challenge of Economic Development 26. A country’s rate of real GDP growth is 3% per year. Its population is growing 4% per year. At what rate is its real GDP per capita changing? A) Real GDP per capita is increasing by 0.75%. B) Real GDP per capita is increasing by 7%. C) Real GDP per capita is decreasing by 1.33%. D) Real GDP per capita is decreasing by 1%. Topic: The Nature and Challenge of Economic Development 7 27. A country’s rate of GDP growth is 7% per year. If real GDP per capita increases by 3%, at what rate is its population changing? A) Population has increased by 10%. B) Population has increased by 4%. C) Population has decreased by 2.33%. D) Population has decreased by 4%. Topic: The Nature and Challenge of Economic Development 28. What is the difference between economic growth and economic development? A) Economic growth examines qualitative changes in the processes by which potential output increases over time, whereas economic development examines how a country moves from one point on its production possibility curve to another point on the curve. B) Economic growth implies qualitative changes in productive processes whereas economic development requires quantitative change in virtually every aspect of life. C) Economic growth implies quantitative changes in productive processes whereas economic development requires widespread structural changes in the way people live. D) There is no difference between the two terms. Topic: The Nature and Challenge of Economic Development 29. Economic growth implies _______________, whereas economic development requires ____________. A) qualitative changes in productive processes; quantitative changes in productive processes B) outward shifts of the production possibilities curve over time; movement from a point inside a curve to a point on the production possibilities curve C) widespread structural changes in the way people live; quantitative changes in productive processes D) quantitative changes in productive processes; qualitative change in virtually every aspect of life Topic: The Nature and Challenge of Economic Development 30. Economic development A) examines the process by which a country’s production possibilities curve shifts outward over time. B) focuses on how countries can move toward their level of potential output and achieve widely shared gains in GDP per capita. C) concentrates on how a country can increase its human capital and labor productivity to bring about changes in productive processes. D) requires reductions in a country’s population growth rate and at the same time, increases in real GDP. Topic: The Nature and Challenge of Economic Development Figure 19-1 31. Refer to Figure 19-1. The 20% of households with the lowest incomes in Cote d’Ivoire have A) the same share of their country’s total income as the poorest 20% of households in Guinea have. B) a larger share of their country’s total income than the poorest 20% of households in Guinea have. C) a smaller share of their country’s total income than the poorest 20% of households in Guinea have. D) a larger share of their country’s total income than the richest 20% of households in Guinea have. Topic: The Nature and Challenge of Economic Development 9 32. Refer to Figure 19-1. Based on the Lorenz curves, which of the two countries do you believe fits better the definition of development? A) Cote d’Ivoire, because its low income households have a higher per capita real GDP than low income households in Guinea. B) Guinea, because there are more high-income households in Guinea than in Cote d’Ivoire. C) Cote d’Ivoire, because its income distribution is comparatively more equal than Guinea’s which suggests that Cote d’Ivoire is coming closer to generating widely shared gains in per capita real GDP. D) Guinea, because its income distribution is comparatively more equal than Cote d’Ivoire’s which suggests that Guinea is coming closer to generating widely shared gains in per capita real GDP. Topic: The Nature and Challenge of Economic Development 33. Compared to the Lorenz curve for high-income countries, the Lorenz curve for developing countries generally A) is about the same. B) lies closer to the axes. C) lies closer to the 45-degree line. D) crosses the 45-degree line. Topic: The Nature and Challenge of Economic Development 34. In recent years, the United Nations has constructed measures incorporating dimensions of economic development that go beyond the level of per capita GDP. These measures include I. II. United Nations Standard of Living Index. Human and Real Growth Index. III. Human Development Index. IV. Human Poverty Index. A) all of the above B) II, III, and IV only C) II and III only D) III and IV only Topic: The Nature and Challenge of Economic Development 35. In recent years, the United Nations has constructed measures incorporating dimensions of economic development that go beyond the level of per capita GDP. These measures include I. II. Gender Development Index. International Standard of Living Index. III. Human Development Index. IV. Human Poverty Index. A) all of the above B) I, II, and IV only C) I, III, and IV only D) II, III, and IV only Topic: The Nature and Challenge of Economic Development 36. The United Nations has constructed a measure of economic development that goes beyond per capita GDP called the A) United Nations Standard of Living Index. B) Human and Real Growth Index. C) Human Development Index. D) UN Growth and Development Index. Topic: The Nature and Challenge of Economic Development 37. In addition to purchasing-power-adjusted per capita real GDP, the Human Development Index includes two dimensions related to the quality of life. What are these dimensions? A) life expectancy, educational attainment B) access to health care, nutrition C) life expectancy, infant mortality rate D) nutrition, life expectancy Topic: The Nature and Challenge of Economic Development 38. The United Nations’ Human Development Index does not include A) life expectancy. B) educational attainment. C) purchasing-power-adjusted per capita real GDP. D) an adjustment for gender inequality. Topic: The Nature and Challenge of Economic Development 11 39. The Gender Development Index (GDI) A) measures the percentage of women who are illiterate and living in poverty. B) uses the same variables as the Human Development Index but adjusts them downward to take into account the extent of gender inequality. C) measures the extent of income inequality between households headed by males and households headed by females. D) measures the difference in educational attainment between males and females. Topic: The Nature and Challenge of Economic Development 40. The gender development index (GDI) A) is an index that quantifies economic participation and decision-making by women. B) measures the differences between female and male participation in various sectors of economic productivity. C) measures how human development indices for longevity, knowledge, and standards of living are differentiated by gender. D) measures the share of a country’s GDP that is produced by females and female-headed business. Topic: The Nature and Challenge of Economic Development 41. The Human Poverty Index (HPI), measures human deprivation and includes all of the following indicators except such indicators as A) the percentage of people expected to die before age 40. B) the percentage of underweight children under age 5. C) the percentage of adults who are illiterate. D) the percentage of households headed by women. Topic: The Nature and Challenge of Economic Development 42. The greater the difference between the Human Poverty Index and the Gender Development Index of a country, A) the greater the disparity in achievement between males and females in the country. B) the greater a country’s ability to bridge the disparity in achievement between males and females. C) the smaller the disparity in achievement between males and females in the country. D) the greater the disparity in poverty experienced by the population in general and poverty experienced by households headed by women. Topic: The Nature and Challenge of Economic Development 43. The Gender Development Index is expressed as a value between 0 and 1. Consider two countries, Country A which has a GDI of 0.968 and Country B which has a GDI of 0.336. Which of the following statements is true? I. than II. than There is a greater disparity in achievement between males and females in Country A in Country B. There is a greater disparity in achievement between males and females in Country B in Country A. III. The rate of illiteracy among women is likely to be lower in Country A than in Country B. IV. The rate of illiteracy among women is likely to be lower in Country B than in Country A. A) I only B) II only C) I and III only D) I and IV only Topic: The Nature and Challenge of Economic Development 44. The Kuznets hypothesis, discussed in the Case in Point titled “(Growth and Development) or (Growth or Development),” argued that at low levels of per capita income, increases in income would likely A) increase income inequality in developing countries. B) reduce income inequality in developing countries. C) increase the rate of structural change in developing countries. D) reduce the rate of structural change in developing countries. Topic: Case in Point: (Growth and Development) or (Growth or Development)? 45. Simon Kuznets hypothesized that at low levels of per capita income, increases in income would lead to increases in income inequality because A) in less developed countries, the rich are able to save and invest and therefore enrich themselves, while the poor remain at essentially the same economic level. B) structural changes that often accompany early growth, such as rural–urban migration, occupational changes, and environmental degradation, disproportionately hurt poorer people. C) growth enhancing policies tend to favor middle-income and high-income households rather than poor households. D) development processes tend to be concentrated in the manufacturing sector and not in work in the agricultural sector which employs mostly low-income people. Topic: Case in Point (Growth and Development) or (Growth or Development)? 13 46. In general, economists believe that A) economic growth has a greater impact on people’s welfare in high-income countries than in low-income countries. B) in low-income countries, economic growth makes rich people richer and poor people poorer. C) economic growth makes most people, including most poor people, better off. D) economic growth worsens income inequality in the short-run but is successful at redistribution in the long run. Topic: Case in Point (Growth and Development) or (Growth or Development)? 47. In 1798, An Essay on the Principle of Population was written by A) Adam Smith. B) Thomas Malthus. C) Karl Marx. D) David Ricardo. Topic: Population Growth and Economic Development 48. What is the fundamental argument in Malthus’ An Essay on the Principle of Population? A) Ultimately, population growth rate would outpace growth in real GDP leading to declining standards of living. B) Population growth tends to undermine global stability which is a stimulus for future wars and conflicts. C) Population would increase at a geometric rate and the food supply at an arithmetic rate and that this disharmony would lead to forced return to subsistence-level conditions. D) Population growth is the root cause of hunger, poverty, environmental destruction, disease, and social unrest. Topic: Population Growth and Economic Development 49. Empirical data on population growth and growth in real per capita GDP for more than 100 developing countries show that I. in most countries, agricultural production declined while population growth increased, leading to starvation and malnutrition. II. some countries had relatively rapid population growth, and had a rapid increase in per capita real GDP. III. many countries experienced both rapid population growth and negative changes in per capita real GDP. A) I only B) III only C) I and III only D) II and III only Topic: Population Growth and Economic Development 50. According to Thomas Malthus, the main reason why agricultural production cannot keep pace with population growth is A) lack of advancements in agricultural technology would eventually reduce yields to the point where there would be insufficient food to feed the world’s population. B) diminishing returns in agricultural production would eventually outstrip the ability of the land to generate enough food. C) rural-urban migration and the inability of governments to retain workers in the rural agricultural sector. D) environmental degradation which reduces the productivity of land. Topic: Population Growth and Economic Development 51. The Malthusian population theory A) was eventually dismissed for its pessimism and failure to take into account technological advances in agriculture and food production. B) failed because contrary to Malthus’ argument, agricultural production is not subject to diminishing returns. C) was not borne out in low-income countries because “population checks” (war, famine, etc.) kept population growth down while real GDP growth increased. D) states that the root cause of underdevelopment is unchecked population growth. Topic: Population Growth and Economic Development 52. The Malthusian trap refers to A) the point at which natural population checks such as disease and famine have kept population growth below its replacement rate. B) the point at which scarce natural resources have been depleted. C) the point at which the world is no longer able to meet food requirements of its population. D) the low-level equilibrium an economy is stuck at because productive resources have been exhausted. Topic: Population Growth and Economic Development 15 53. Which of the following is a flaw in Malthus’ population theory? A) His belief that growth in real GDP cannot exceed population growth real GDP despite technological advancements. B) His belief that any increase in income would boost population growth failed to take into account the fact that higher incomes increase this opportunity cost and therefore reduces the number of children people want. C) Rising incomes makes it more affordable for families to have more children and to educate their children so that they become productive members of society. D) He failed to take into account that over time, as countries develop, the agricultural shrinks, reducing the need for people to have large families to help out in the family farm. Topic: Population Growth and Economic Development 54. Which of the following explain why the Malthusian trap did not occur? I. II. rising agricultural productivity increases in the amount of capital per worker III. slower population growth worldwide IV. slower population growth in high-income countries A) all of the above B) I and II only C) I, II, and III only D) I, II, and IV only Topic: Population Growth and Economic Development 55. Malthus’ predictions do not match the experience of Western societies because his An Essay on the Principle of Population failed to take into account A) gains in output that could be achieved through increased use of capital. B) the more accurate relationship between population growth and income, which is that higher incomes tend to reduce the rate of population growth. C) dramatic decreases in productivity over time as labor moved out of the agricultural sector. D) increases in the supply of labor. Topic: Population Growth and Economic Development 56. The demographic transition refers to a shift from a period of A) declining food output per worker to a period of rising food output per worker due to advancements in agricultural technology. B) rising population caused by falling death rates to a period of stable population caused by a matching reduction in birth rates. C) rising infant mortality rate to a period of rising infant mortality rate caused by improved nutrition. D) rising population in the agricultural sector to a period of falling population in the agricultural sector caused by rural-urban migration. Topic: Population Growth and Economic Development 57. Demographic transition is a process in which population growth A) falls with a rise in death rates and then rises with a reduction in birth rates B) rises with a rise in death rates and then falls with an increase in death rates C) rises with a fall in death rates and then falls with a reduction in birth rates D) falls with a fall in death rates and then rises with an increase in death rates Topic: Population Growth and Economic Development 58. Which of the following statements is true about the process of demographic transition? A) Demographic transition is complete in the world’s low-income countries. B) Demographic transition is complete in high-income countries. C) Demographic transition is not complete in high-income countries. D) Demographic transition is complete in high-income European countries but not in highincome Asian countries. Topic: Population Growth and Economic Development 59. Which of the following statements is true about population growth rates? A) Overall, the rate of population growth has decreased sharply among high-income nations, and increased modestly among low-income nations. B) In both developed and less-developed countries, the rate of population growth has decreased sharply among rich and middle-income people, and increased modestly among poor people. C) In less-developed countries, the rate of population growth has decreased sharply among the wealthy but has increased among middle- and low-income people. D) In less-developed countries, the rate of population growth has slowed modestly among lowincome nations at all income levels. Topic: Population Growth and Economic Development 17 60. Between 1965 and 1980, the world population grew at an annual rate of 2%. Using the rule of 72, population is expected to double in A) 144 years. B) 36 years. C) 24 years. D) 18 years. Topic: Population Growth and Economic Development 61. The World Bank predicts that world population growth during the 2005 to 2015 period will be _______ than growth during the 1965 to 1980 period, leading to a ______ doubling time. A) slower; longer B) slower; shorter C) faster; longer D) faster; shorter Topic: Population Growth and Economic Development 62. China is an example of a country that has achieved a very low rate of population growth and a very high rate of growth in per capita GNP. Which of the following policies did the Chinese government adopt to bring about this dramatic drop in the population growth rate? I. The government started and enforced a “one-child family” policy which included mandatory birth control and forced sterilization. II. Couples who opted to have only one child were rewarded with special benefits such as compensation for mothers who follow China’s birth policies. III. fines, Couples who opted to have more than one child were dealt punishments such as loss of employment and confiscation of property. A) I only B) II only C) I and III only D) I, II, and III Topic: Case in Point: China Curtails Population Growth 63. All of the following are consequences of China’s “one-child family” policy except A) Local officials in charge of monitoring births may have an incentive to underreport the number of births to avoid punishment by the government. B) China’s cultural preference for sons has led to a large number of incidences of female infanticide. C) China’s policy succeeded in lowering its birth rate and, despite the absolute size of its total population, led to a net decrease of its population. D) There were political consequences: the United States, as well as many other countries, have publicly expressed their disapproval with Chinese leaders for their sterilization policies. Topic: Case in Point: China Curtails Population Growth 64. Economic systems that have achieved the highest levels of development have been A) market systems. B) centrally planned systems. C) socialist systems. D) command economies. Topic: Keys to Economic Development 65. One reason why low-income countries lack physical capital is A) due to the lack of financial institutions where savers can deposit funds and earn interest on their funds. B) that poor countries have a hard time generating much domestic savings, since living standards are so low. C) because the bulk of savings is invested in military equipment to fight political unrest. D) because of the high rate of corruption in government. Topic: Keys to Economic Development 66. All of the following contributes to economic development except A) high saving and investment rates. B) low population growth rate. C) the existence of a socialist economic system to ensure that a country’s output is fairly distributed. D) investment in infrastructure. Topic: Keys to Economic Development 19 67. All of the following contributes to economic development except A) high saving and investment rates. B) low population growth rate. C) the existence of a market economy. D) abundant exportable natural resources. Topic: Keys to Economic Development 68. Which of the following is a common of feature of economies such as South Korea, Taiwan, Hong Kong, Singapore, Chile that have achieved significant gains in economic growth? A) abundant exportable natural resources B) the existence of a market economy C) a low degree of government involvement in the provision of housing, health care, and education D) heavy reliance on foreign investments Topic: Keys to Economic Development 69. Which of the following is prerequisite of successful market economies? A) the existence and enforcement of property rights B) a tax system that redistributes income from the rich to the poor C) the ability of the government to appropriate economic profits beyond a certain amount to ensure equality in income distribution D) a military presence to ensure political freedom Topic: Keys to Economic Development 70. Roads, telephone lines, power facilities, and schools are examples of a nation’s A) technostructure. B) infrastructure. C) physiostructure. D) sociostructure. Topic: Keys to Economic Development 71. In 1974, the poorest nations among the developing nations introduced into the United Nations a Declaration on the Establishment of a New International Economic Order. What is the main idea of this program? A) It called upon the less developed countries to cut ties with the more economically developed countries, and follow self-reliant, socialist systems. B) It called for greater commitment from rich nations to invest in infrastructure development in poor countries, otherwise the latter are doomed to remain economically disadvantaged. C) It called upon the rich nations to help them reduce the growing gap in real per capita income levels between the developed and developing nations. D) It called for developed nations to involve economic leaders of poor countries in the formers’ decision making processes to facilitate a greater degree of knowledge transfer. Topic: Keys to Economic Development 72. Dependency theory posits that A) the lack of free trade between developed countries and poor countries has hurt the poor countries. B) the cause of the low levels of development in poor countries is caused by their reliance and dependence on developed countries. C) all countries follow the same predetermined paths to development, starting from import substitution strategy to export-led growth. D) rich nations that are not endowed with natural resources are dependent on poor resource-rich countries for the former’s consumption goods. Topic: Keys to Economic Development 73. The proposal to provide different and special treatment in international trade to developing nations is espoused by adherents to the A) neo-classical growth theory. B) preferential trade theory. C) convergence theory. D) dependency theory. Topic: Keys to Economic Development 21 74. Advocates of dependency theory assert that A) poor countries are hampered from participating in free trade because of a lack of transportation infrastructure. B) the high rate of poverty in poor countries is attributed to underdeveloped markets and the lack of property rights. C) trade based on comparative advantage benefits developed countries at the expense of poor countries. D) the key reason why poor nations have been slow to industrialize is because of persistent misallocation of resources. Topic: Keys to Economic Development 75. Dependency theory assumes that export industries in a poor country have small multiplier effects throughout the rest of the economy. Which of the following is a policy implication of this assumption? A) Trade based on comparative advantage cannot benefit poor nations. B) Governments of poor nations should take whatever steps are necessary to prevent the repatriation of profits earned by multinational corporations operating in their countries. C) Production should be undertaken by the public sector and not the private sector. D) These countries should pursue policies of self-reliance such as import-substitution policies rather than export-led policies. Topic: Keys to Economic Development 76. A strategy of restricting imports and substituting domestic production of those goods is called A) trade restraint strategy. B) import substitution strategy. C) trade blockage strategy. D) export substitution strategy. Topic: Keys to Economic Development 77. Which of the following is required for a country to successfully pursue an importsubstitution strategy? A) imposition of protective tariff B) policies to encourage foreign investment in order to facilitate rapid technology transfer C) a flexible exchange rate system D) a liberal immigration policy to increase the size of the labor force Topic: Keys to Economic Development 78. All of the following are obstacles in a country’s ability to rely on a general strategy of import substitution in its development efforts except A) a shortage of managerial talent and skilled labor. B) a corrupt bureaucracy. C) a lack of capital goods. D) a lack of natural resources. Topic: Keys to Economic Development 79. Which of the following is an obstacle poor countries face in seeking development finance funds from foreign savers? A) Governments of many rich countries impose restrictions on capital flows to poor countries. B) Many poor countries impose restrictions on the inflow of foreign funds. C) The difficulty of repaying loans denominated in foreign currency. D) The difficulty of taxing the interest income earned by foreigners on loans to poor countries. Topic: Keys to Economic Development 80. The newly industrializing economies of the Pacific Rim that have experienced rapid economic growth include A) North Korea, Burma, Vietnam, and Cambodia. B) Japan, Thailand, Laos, and New Zealand. C) Malaysia, Philippines, Indonesia, and China. D) South Korea, Taiwan, Singapore, and Hong Kong. Topic: Keys to Economic Development 81. The common traits shared by the newly industrializing economies of the Pacific Rim that have experienced rapid economic growth include A) export-oriented strategies and subsidized private production of most goods and services. B) agriculture-oriented growth strategies and government production of most goods and services. C) export-oriented growth strategies and limited the role of governments mainly to infrastructure and institutional development and enforcement of laws. D) emphasis on the quantity of output rather than the quality and a large public sector. Topic: Keys to Economic Development 23 82. According to most economists, A) the demand for political freedom increases as incomes rise, making the creation of democratic institutions a product of economic growth, not a cause of it. B) the lack of political freedom hinders economic growth in poor countries because it gives rise to bureaucratic corruption. C) economic development is impossible without democracy. D) democracy and economic development are incompatible at least in the initial stages of development; evidence shows that authoritarian regimes are better able to reap the benefits of economic development than democratic regimes. Topic: Case in Point: Democracy and Economic Development 83. If political freedom is a normal good, A) the demand for political freedom increases as its opportunity cost falls. B) the demand for political freedom increases as its opportunity cost rises. C) the demand for political freedom increases as incomes rise. D) the demand for political freedom decreases as incomes rise. Topic: Case in Point: Democracy and Economic Development True/False 84. Less developed countries tend to have substantial numbers of poor people. 85. Income inequality is usually lower in developing countries than in more industrialized countries. 86. Low-income countries are usually characterized by high rates of population growth and very high unemployment. 87. Economic development is more concerned with widely shared long-run increases in per capita real output than short-run changes in per capita real output. 88. Economic growth alone is an adequate yardstick for a country’s level of development. 89. Evidence shows that countries that have endorsed a policy of import substitution have been successful in its development efforts. 90. One dominant characteristic of poor countries is that too many people are engaged in the industrial sector and not enough people are in agriculture to produce badly needed food. 91. A primary source of growth in wealthy countries has been a shift out of agriculture into more productive sectors. 92. Economic development is defined as a process that produces sustained and widely shared gains in per capita real GDP. 93. The human development index is a more powerful alternative to GDP per capita as a summary measure of human well-being. 94. The human development index captures all the different dimensions of human development including political freedom and environmental sustainability. 95. The Malthusian population theory states that population growth directly causes poverty and underdevelopment because it impacts the environment in negative ways. 25 96. In his An Essay on Population Growth, Thomas Malthus argued that population would increase at a geometric rate and the food supply at an arithmetic rate and that this disharmony would lead to forced return to subsistence-level conditions. 97. A point at which the world is no longer able to meet food requirements is called the Marxian Trap. 98. A substantial increase in a nation’s per capita income can be expected to slow its rate of population growth. 99. The world’s low-income countries have completed the process of demographic transition. 100. Demographic transition is a process in which population growth initially rises with a fall in death rates and then falls with a reduction in birth rates. 101. One reason why low-income countries lack physical capital is that poor countries have a hard time generating much domestic savings, since living standards are so low. 102. Dependency theory asserts that high poverty in poor countries is primarily caused by their inability to free themselves from dependence on rich, industrialized nations. 103. Dependency theory argues that high income nations promote economic development in less developed nations. 104. The movement of Latin American countries such as Mexico and Chile to market systems is a rejection of dependency theory. 105. Grants in the form of foreign aid from the developed nations constitute the largest portion of funding for infrastructure development in poor countries. 106. A necessary condition for successful economic development is democracy. 107. Market economies with legal systems that provide for the reliable protection of property rights and enforcement of contracts tend to promote economic growth. Short Answer 108. What is economic development and how is it different from economic growth? Is it possible to have economic development without economic growth? Explain. 109. What is the fundamental argument in Malthus’ population theory? Explain how technological progress negates his argument. 110. Evaluate and discuss in detail the following statement: “It is impossible for a nation to grow or develop into a wealthy and productive nation without a very large natural resource base.” 111. Dependency theory holds that the industrialized nations control the destiny of the developing nations. Explain the rationale for this argument. 112. Discuss the positive role government can play in economic development. Can there be problems with government actions in developing countries? Discuss. 27 [Show More]

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