Chapter 1 : Patterns of Development MULTIPLE CHOICE 1. While working in the Japanese electronics factory in Penang, Rachmina Abdullah: a. saved money to provide herself with a better future. b. became a wealthy urbanite who sought after the better amenities of life. c. decided to permanently settle in Japan and become a citizen of that country. d. grew accustomed to spending most of her wages on cosmetics and luxury items. ANS: A MSC: Factual
DIF: Easy
REF: 3
TOP: Malaysia
2. Which of the following empirical statements about low-income countries is NOT a valid generalization about changes since 1990? a. Infant mortality rates have fallen substantially. b. Rapid population growth has more than offset GNP growth. c. Manufacturing has increased as a share of total output. d. Primary school enrollment rates have risen sharply. ANS: B MSC: Factual
DIF: Medium
REF: 3
TOP: Malaysia
3. ________ has experienced unprecedented rates of economic growth, which has dramatically changed the lives of its population. a. Paraguay c. Mongolia b. Malaysia d. North Korea ANS: B MSC: Factual
DIF: Medium
REF: 3
TOP: Malaysia
4. The primary economic activities for three-quarters of Ethiopians are: a. tending livestock and building computer chips. b. growing crops and tending livestock. c. telemarketing and trade. d. none of the above. ANS: B MSC: Factual
DIF: Medium
REF: 5
TOP: Ethiopia
5. Which indicator is inversely related (meaning that it falls as per capita income rises) to per capita income? a. adult illiteracy rate b. infant mortality rate c. share of the population living in rural areas d. all of the above ANS: D MSC: Factual
DIF: Difficult
REF: 5
TOP: Ethiopia
6. Viktor and Yulia’s country comes from which of the following groups of countries? a. South c. transitional
b. sub-Saharan Africa ANS: C MSC: Factual
DIF: Medium
d. third world REF: 6
TOP: Ukraine
7. Which of the following statements is true about globalization? a. It is a term used by different people to mean different things. b. It covers more than just economics. c. It is not a new phenomenon. d. All of the above. ANS: D DIF: Easy TOP: Development and Globalization
REF: 8 MSC: Factual
8. Among the nations of the developing world, new technologies have primarily been responsible for: a. eliminating the need for travel. b. an obesity epidemic among children under 18. c. increased electrical and energy problems. d. creating jobs. ANS: D DIF: Medium TOP: Development and Globalization
REF: 8 MSC: Factual
9. All of the following reasons have contributed to the enhancement of economic development among the developing nations of the world EXCEPT for: a. the information revolution. c. lower transport costs. b. the globalization of culture. d. the spread of democracy. ANS: B DIF: Difficult TOP: Development and Globalization
REF: 8 MSC: Factual
10. The poorest nations in the world, representing 12 percent of humanity, are primarily located in: a. Southeast Asia. c. sub-Saharan Africa. b. Eastern Europe. d. Latin America. ANS: C MSC: Factual
DIF: Easy
REF: 10
TOP: Rich and Poor Countries
11. By the World Bank’s classification system, Malaysia, Iran, and Brazil are: a. low-income countries. c. industrial economies. b. upper-middle-income countries. d. backward economies. ANS: B MSC: Factual
DIF: Easy
REF: 10
TOP: Rich and Poor Countries
12. According to Simon Kuznets, the key characteristic of the epoch of modern economic growth is: a. expansion of heavy industry. b. a rapid decline in population growth rates. c. high rates of saving and investment. d. the application of science to problems of economic production. ANS: D MSC: Factual
DIF: Easy
REF: 13
TOP: Growth and Development
13. For a country where income per capita is growing by 2 percent per year, how many years will it take for average incomes to double? a. 35 years c. 14 years b. 96 years d. 180 years ANS: A DIF: Easy REF: 15 TOP: Diversity in Development Achievements
MSC: Applied
14. What method in the 1970s failed to gain popularity as a key to development? a. income redistribution c. providing basic human needs to the poor b. labor-intensive techniques d. decreased sales tax ANS: D MSC: Factual
DIF: Medium
REF: 16
TOP: Approaches to Development
15. If a country achieves a rapid increase in per capita income by discovering new oil reserves, it is experiencing: a. growth but not development. c. both growth and development. b. development but not growth. d. neither growth nor development. ANS: A DIF: Medium REF: 18 TOP: The Study of Development Economics
MSC: Applied
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Economic growth, economic development ANS: Answer will vary 2. Modern economic growth, modernization ANS: Answer will vary 3. Low-income countries, middle-income countries ANS: Answer will vary 4. North, South ANS: Answer will vary 5. Newly industrializing economy, transitional economy
ANS: Answer will vary 6. GDP, per capita income ANS: Answer will vary 7. Rich-poor dichotomy, World Bank ANS: Answer will vary 8. Import substitution, export promotion ANS: Answer will vary 9. LDCs, diseases ANS: Answer will vary 10. Institutions, economic development ANS: Answer will vary
Chapter 2 : Measuring Economic Growth and Development MULTIPLE CHOICE 1. GNP or GDP divided by total population provides a measure of: a. the wellness index. c. per capita income. b. the gap between the rich and poor. d. the poverty index. ANS: C DIF: Easy TOP: Measuring Economic Growth
REF: 24 MSC: Factual
2. More than three-quarters of Angola’s national income is derived from: a. cotton. c. rubber trees. b. oil. d. tourism. ANS: B DIF: Easy TOP: Measuring Economic Growth
REF: 24 MSC: Factual
3. In 2009, Bangladesh’s GNP was 9 percent higher than its GDP; this occurred due to the fact that: a. large numbers of Bangladeshi men and women work abroad. b. Bangladesh is rich in ore and mineral deposits. c. Bangladesh is subject to frequent and unpredictable changes in weather patterns. d. foreign investment has been robust in the country. ANS: A DIF: Easy TOP: Measuring Economic Growth
REF: 24 MSC: Factual
4. A country’s nominal GNP for a given year is defined as the total market value of: a. labor plus capital plus technical change. b. all final goods and services produced. c. all final plus intermediate goods and services produced. d. all final goods and services consumed. ANS: B MSC: Factual
DIF: Medium
REF: 25
TOP: Measuring GDP
5. One of the problems in measuring GDP is that family farm production of food for personal consumption is not included; this is illustrated by the problem of calculating Cambodia’s GDP where unpaid family workers represent: a. 75 percent of the labor force. c. 33 percent of the labor force. b. 57 percent of the labor force. d. 9 percent of the labor force. ANS: C MSC: Factual
DIF: Easy
REF: 25
TOP: Measuring GDP
6. In some nations, illegal activities may even be included when calculating GDP; this is most notable in Afghanistan where the GDP includes: a. military expenses. c. money laundering. b. child trafficking. d. poppy production. ANS: D MSC: Factual
DIF: Easy
REF: 25
TOP: Measuring GDP
7. A criticism of using GDP to measure growth is that it does not include “social bads”; these include all of the following EXCEPT: a. crime. c. inflation. b. pollution. d. congestion. ANS: C MSC: Applied
DIF: Medium
REF: 25
TOP: Measuring GDP
8. In order to effectively compare levels of GDP per capita across countries, it is necessary to convert GDP per capita into a: a. common currency. b. series of stocks and bonds. c. time-line series illustrating business cycles. d. GNP per capita. ANS: A DIF: Easy REF: 27 TOP: Exchange-Rate Conversion Problems
MSC: Factual
9. Most economists agree that an effective way of comparing income levels between countries around the world is through the use of: a. employment statistics. c. foreign investment. b. GDP divided by GNP. d. purchasing power parity. ANS: D DIF: Medium REF: 27 TOP: Exchange-Rate Conversion Problems
MSC: Factual
10. The human development index is a composite of three basic measures of human welfare. Which of the following is NOT a component of the human development index? a. life expectancy c. infant mortality rate b. dollars of income d. years of schooling ANS: C DIF: Medium REF: 27 TOP: Exchange-Rate Conversion Problems
MSC: Applied
11. When world GDP (2009) is calculated by converting each nation’s GDP into a common currency using market exchange rates, world output by low- and middle-income economies account for: a. 17 percent. c. 58 percent. b. 29 percent. d. 67 percent. ANS: B DIF: Medium REF: 27 TOP: Exchange-Rate Conversion Problems
MSC: Factual
12. For which of the following countries is the divergence between GNP per capita measured at official exchange rates and at purchasing power parity (PPP) likely to be largest? a. Japan c. Brazil b. United States d. Ethiopia ANS: D DIF: Medium REF: 32 TOP: Economic Growth Around the World
MSC: Applied
13. Based on Maddison’s research, with an annual world income growth rate of 1.3 percent, average income doubles in:
a. 21 years. b. 30 years.
c. 55 years. d. 90 years.
ANS: C DIF: Easy REF: 32 TOP: Economic Growth Around the World
MSC: Factual
14. According to Maddison, rapid economic growth in the world’s per capita income as we know it began around the year: a. 1000. c. 1820. b. 1492. d. 1914. ANS: C DIF: Medium REF: 32 TOP: Economic Growth Around the World
MSC: Factual
15. The 1980s are often referred to as “the lost decade” in: a. Asia. c. Scandinavia. b. the Middle East. d. Latin America. ANS: D DIF: Easy TOP: Economic Growth: 1970–2010
REF: 36 MSC: Factual
16. Since the year 2000, economic performance in sub-Saharan Africa has improved; this can be attributed to all of the following reasons EXCEPT for: a. improved economic policies and management. b. more democratic and accountable governments. c. a return to state-directed economic policies. d. new technologies. ANS: C DIF: Medium TOP: Economic Growth: 1970–2010
REF: 36 MSC: Factual
17. According to economists, the objective of economic growth is to: a. increase happiness. c. increase development. b. provide more choices. d. decrease corruption. ANS: B DIF: Medium REF: 38 TOP: What Do We Mean by “Economic Development”?
MSC: Factual
18. The total number of Millennium Development Goals established in the year 2000 were: a. 5. c. 10. b. 8. d. 18. ANS: B DIF: Easy TOP: Millennium Development Goals
REF: 46 MSC: Factual
19. All of the regions will meet Target 1 (to halve the number of poor) EXCEPT: a. Europe and Central Asia. c. sub-Saharan Africa and South Asia. b. the Middle East and North Africa. d. South America. ANS: C DIF: Easy TOP: Millennium Development Goals
REF: 46 MSC: Factual
20. The Easterlin paradox concerns itself with the study of:
a. b. c. d.
wealth. happiness. environmental damage caused by development. the demise of the developed nations at the expense of the rapidly developing ones.
ANS: B DIF: Easy TOP: Is Economic Growth Desirable?
REF: 50 MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Gross national product (GNP), gross domestic product (GDP) ANS: Answer will vary 2. Exchange rate conversion method, nontraded goods ANS: Answer will vary 3. GNP, net economic welfare ANS: Answer will vary 4. Economic development, capabilities ANS: Answer will vary 5. HDI, GNP per capita ANS: Answer will vary 6. MDGs, economic progress ANS: Answer will vary 7. Happiness, economic growth ANS: Answer will vary 8. Sen, Easterlin ANS:
Answer will vary
Chapter 3 : Economic Growth: Concepts and Patterns MULTIPLE CHOICE 1. Countries with slow growth include all of the following EXCEPT: a. Madagascar. c. Kenya. b. Nigeria. d. Venezuela. ANS: A DIF: Easy REF: 56 TOP: Divergent Patterns of Economic Growth Since 1960
MSC: Factual
2. Countries with rapid growth include all of the following EXCEPT: a. Indonesia. c. Botswana. b. South Korea. d. Chile. ANS: D DIF: Easy REF: 56 TOP: Divergent Patterns of Economic Growth Since 1960
MSC: Factual
3. Which of the following is NOT much of a problem in Botswana? a. unemployment c. inequality b. HIV/AIDS d. corruption ANS: D DIF: Medium REF: 56 TOP: Divergent Patterns of Economic Growth Since 1960
MSC: Factual
4. Economists think that economic growth depends fundamentally on all of the following EXCEPT: a. factor accumulation. c. efficiency. b. inequality. d. technological change. ANS: B DIF: Medium REF: 60 TOP: Factor Accumulation, Productivity, and Economic Growth MSC: Factual 5. In the Solow model, investment comes from: a. outside lenders. b. the government.
c. saving. d. the capital stock.
ANS: C DIF: Medium REF: 64 TOP: Saving, Investment, and Capital Accumulation
MSC: Factual
6. Diminishing returns to capital means that as you add more capital: a. output falls. b. the additional contribution to output eventually declines. c. labor usage falls. d. output rises. ANS: B MSC: Factual
DIF: Medium
REF: 66
TOP: Sources of Growth Analysis
7. A country’s labor force grows 1.2 percent and its capital stock grows 3 percent. Assume that labor share of output is 0.25. If the economy grows 4.55 percent, how much does total factor productivity grow?
a. 0.5 percent b. 1 percent ANS: D MSC: Applied
c. 1.5 percent d. 2 percent DIF: Difficult
REF: 66
TOP: Sources of Growth Analysis
8. Economists Barry Bosworth and Susan Collins found that capital accumulation accounted for about two-thirds of total growth in: a. South America. c. East Asia. b. sub-Saharan Africa. d. Eastern Europe. ANS: C MSC: Factual
DIF: Medium
REF: 66
TOP: Sources of Growth Analysis
9. Since 1980, GDP per capita has grown more than sevenfold in: a. India. c. Egypt. b. China. d. Uruguay. ANS: B MSC: Factual
DIF: Medium
REF: 66
TOP: Sources of Growth Analysis
10. Economist Stephen Radelet has demonstrated that, by stabilizing economic and political problems in the mid-1990s, 17 sub-Saharan African countries experienced an annual average total factor productivity growth rate of: a. 0.25 percent. c. 2.75 percent. b. 1.5 percent. d. 7.75 percent. ANS: B MSC: Factual
DIF: Easy
REF: 66
TOP: Sources of Growth Analysis
11. While Robert Solow established the model for the study of modern economic development, this economist’s research in the early 1990s had set the contemporary stage for explaining the variance in growth across countries: a. Milton Friedman. c. Ayn Rand. b. Walter Williams. d. Robert Barro. ANS: D DIF: Medium REF: 74 TOP: Characteristics of Rapidly Growing Countries
MSC: Factual
12. Between 1990–2002, this nation’s growth and development performance was the worst in the world at –7.2 percent: a. Democratic Republic of the Congo. c. Argentina. b. Mexico. d. Benin. ANS: A DIF: Easy REF: 75 TOP: Macroeconomic and Political Stability
MSC: Factual
13. Malaysia’s growing life expectancy over the past generation can be largely attributed to: a. new hybrid crops. b. a serious reduction in the incidence of malaria. c. the widespread production and consumption of organic foods. d. the eradication of tuberculosis.
ANS: B DIF: Easy REF: 77 TOP: Investment in Health and Education
MSC: Factual
14. In order for sustained economic growth to be successful, the centerpiece to the growth process in most countries must be its: a. agricultural policies. c. industrial production methods. b. export policies. d. military strength. ANS: A DIF: Easy REF: 82 TOP: Favorable Environment for Private Enterprise
MSC: Factual
15. The empirical relationship between trade and growth is: a. strong. b. weak. c. strong for natural resource-based exports only. d. nonexistent. ANS: A DIF: Easy TOP: Trade, Openness, and Growth
REF: 83 MSC: Factual
16. Being landlocked means that: a. growth is impossible. b. there will be great challenges in the development of external trade. c. foreign aid is needed. d. new advances in technology are not beneficial. ANS: B MSC: Factual
DIF: Easy
REF: 84
TOP: Favorable Geography
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Thailand, Zambia ANS: Answer will vary 2. Botswana, natural resources ANS: Answer will vary 3. Factor accumulation, productivity growth ANS: Answer will vary 4. Saving, Solow model
ANS: Answer will vary 5. Total factor productivity (TFP), growth accounting ANS: Answer will vary 6. Institutions, growth ANS: Answer will vary 7. Geography, growth ANS: Answer will vary 8. China, India ANS: Answer will vary 9. Tropics, HIV/AIDS ANS: Answer will vary 10. Bostwana and Uganda, Chad and Niger ANS: Answer will vary
Chapter 4 : Theories of Economic Growth MULTIPLE CHOICE 1. The father of modern growth theory is: a. David Ricardo. b. Thomas Malthus. ANS: C DIF: Easy TOP: Theories of Economic Growth
c. Robert Solow. d. Jeffrey Sachs. REF: 89 MSC: Factual
2. Growth depends on which two processes? a. accumulation of assets and making those assets more productive b. harnessing natural resources and marketing them to developed nations at a “fair trade” rate c. exploitation of the agricultural sector in order to advance industrialization d. engaging in free trade while subsidizing domestic agricultural and industrial production ANS: A DIF: Difficult TOP: Theories of Economic Growth
REF: 89 MSC: Factual
3. Every model of economic growth embodies: a. risk theory. b. aggregate production functions. c. an isoquant map. d. the basic theories of growth espoused by Adam Smith. ANS: B MSC: Factual
DIF: Medium
REF: 91
TOP: The Basic Growth Model
4. The capital-output ratio provides an indication of the: a. limits of growth. b. capital intensity of the production process. c. a country’s production function. d. the health and educational level of the population. ANS: B DIF: Medium REF: 96 TOP: The Capital-Output Ratio and the Harrod-Domar Framework MSC: Factual 5. Because of population growth, Ghana’s GNP must grow by 1.5 percent per year just to avoid a decline in average standards of living. With an ICOR of 6.0, achieving this minimum-growth target requires a saving rate of: a. 18 percent. c. 50 percent. b. 3 percent. d. 9 percent. ANS: D DIF: Medium REF: 96 TOP: The Capital-Output Ratio and the Harrod-Domar Framework MSC: Applied 6. Suppose the saving rate for a low-income country is given. If production becomes less capital intensive, the ICOR will ________ and the growth rate will _________. a. increase; increase c. decrease; decrease
b. decrease; increase
d. increase; decrease
ANS: B DIF: Medium REF: 96 TOP: The Capital-Output Ratio and the Harrod-Domar Framework MSC: Applied 7. Consider the Harrod-Domar relationship for an economy: g = (s/v) – d Assume that the depreciation rate is 0. If the saving rate is 24 percent, the ICOR is 3, and the depreciation rate is 5 percent, the economy can be expected to grow: a. 8 percent. c. 3 percent. b. 19 percent. d. 2 percent. ANS: C DIF: Medium REF: 96 TOP: The Capital-Output Ratio and the Harrod-Domar Framework MSC: Applied 8. Consider the Harrod-Domar relationship for an economy: g = (s/v) – d Assume that the depreciation rate is 0. A country can only save 15 percent but wants to grow 15 percent. Assuming the ICOR is 3, the gap of ________ should be provided by foreign aid. a. 10 percent c. 5 percent b. 0 percent d. We cannot say without more information. ANS: A DIF: Medium REF: 96 TOP: The Capital-Output Ratio and the Harrod-Domar Framework MSC: Applied 9. If the investment rate in Indonesia is 29 percent of GDP, which of the following combinations is consistent with the Harrod-Domar growth model? a. ICOR = 15.4; GDP growth rate = 7.6 percent per annum b. ICOR = 2.86; GDP growth rate = 5.1 percent per annum c. ICOR = 50.6; GDP growth rate = 2.2 percent per annum d. ICOR = 1 percent; GDP growth rate = 22 percent per annum ANS: B DIF: Medium REF: 96 TOP: The Capital-Output Ratio and the Harrod-Domar Framework MSC: Applied 10. According to the Harrod-Domar model, what effect does an increase in the saving rate have on long-term growth? a. leads to an increase b. leads to a decrease c. the advent of hyperinflation d. difficult to determine because of the unknown level of corruption in government ANS: A DIF: Medium REF: 98 TOP: Strengths and Weaknesses of the Harrod-Domar Framework MSC: Factual
11. One of the problems of the Harrod-Domar framework is that its fixed-proportion production function does not allow for any: a. population growth. c. endogenous technical change. b. substitution between labor and capital. d. depreciation. ANS: B DIF: Medium REF: 98 TOP: Strengths and Weaknesses of the Harrod-Domar Framework MSC: Conceptual 12. From 1999–2007, Thailand’s economy experienced an annual growth rate of: a. 2.1 percent. c. 4.7 percent. b. 3.9 percent. d. 7.5 percent. ANS: B DIF: Easy TOP: Economic Growth in Thailand
REF: 101 MSC: Factual
13. Unlike isoquants for a fixed-coefficient production function, the isoquants for a neoclassical production function: a. take labor as well as capital into account. b. are L-shaped. c. are capital-intensive rather than labor-intensive. d. are curved. ANS: D DIF: Difficult REF: 103 TOP: The Neoclassical Production Function
MSC: Applied
14. According to the Solow model, the relationship between saving and growth is not linear because of: a. coordination failures between the banking sector and industry. b. business cycles that naturally occur in all economies. c. diminishing returns to capital in the production function. d. fluctuations in macroeconomic policy. ANS: C DIF: Medium REF: 104 TOP: The Basic Equations of the Solow Model
MSC: Conceptual
15. When an economy increases the amount of capital per worker, it is called: a. capital widening. c. labor widening. b. capital deepening. d. labor deepening. ANS: B DIF: Easy REF: 104 TOP: The Basic Equations of the Solow Model
MSC: Factual
16. In the Solow model, an increase in the population growth rate leads to: a. capital deepening. b. dynamic economic growth and development. c. the fulfillment of the Malthusian hypothesis. d. lower average income per worker. ANS: D DIF: Easy REF: 109 TOP: Changes in the Saving Rate and Population Growth Rate in the Solow Model MSC: Factual
17. The most unsettling conclusion of the Solow model is the conclusion that once the economy reaches its long-run potential level of income, economic growth simply: a. declines, leading to what is referred to as a “failed state.” b. matches population growth, with no chance for sustained increases in average income. c. causes a rapid inflation, leading to an erosion of gains made during the growth period. d. subsides, as socialism becomes an acceptable form of political economy for the people. ANS: B DIF: Medium REF: 113 TOP: Technological Change in the Solow Model
MSC: Conceptual
18. While there is no evidence of absolute convergence, there is strong evidence today of conditional convergence in which: a. countries sharing certain characteristics are able to achieve rapid growth and begin to catch up with the richer countries. b. by entering into the World Trade Organization, a nation implicitly and explicitly agrees to integrate into the global economy. c. countries all agree to play by “the rules of the game.” d. countries considered at the most advanced stage of capitalism begin to decline, while developing nations accelerate past them. ANS: A MSC: Factual
DIF: Medium
REF: 121
TOP: The Convergence Debate
19. Which of the following statements is true about new growth theories and the Solow and Harrod-Domar models? a. Both underline the importance of factor accumulation and productivity in the growth process. b. Both treat technology as endogenous. c. Both take externalities into account. d. Both assume increasing returns to scale. ANS: A DIF: Medium REF: 125 TOP: Beyond Solow: New Approaches to Growth
MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Level of output, rate of change ANS: Answer will vary 2. Savings, investment ANS: Answer will vary 3. Incremental capital-output ratio (ICOR), neoclassical production function
ANS: Answer will vary 4. Harrod-Domar equation, L-shaped isoquants ANS: Answer will vary 5. Solow model, isoquants ANS: Answer will vary 6. Labor force growth, depreciation ANS: Answer will vary 7. Endogenous technology, exogenous technology ANS: Answer will vary 8. Level effect, growth effect ANS: Answer will vary 9. Capital deepening, capital widening ANS: Answer will vary 10. Human capital, effective units of labor ANS: Answer will vary 11. Diminishing marginal product of capital, returns to scale ANS: Answer will vary 12. Unconditional convergence, conditional convergence ANS: Answer will vary
Chapter 5 : States and Markets MULTIPLE CHOICE 1. After David Ricardo and Karl Marx, economists shifted to trying to understand how markets worked, and economic growth was: a. taken for granted. b. taken to a higher level of research. c. suppressed as an area of research, as a reaction to the writings of Marx and Engels. d. assumed to have already been achieved by all nations in the world of that day. ANS: A MSC: Factual
DIF: Easy
REF: 129
TOP: States and Markets
2. Since the end of World War II, the debate in economic development has been organized around: a. suppressing worldwide communist revolution. b. a revival of the insights offered by John Stuart Mill. c. the proper role of government in development. d. creating a multipolar world. ANS: C MSC: Factual
DIF: Easy
REF: 129
TOP: States and Markets
3. The Harrod-Domar model placed investment and capital at the center of: a. exploitation of the masses. b. economic growth. c. enhancing a nation’s status among the community of nations. d. the tariff and quota debate. ANS: B DIF: Medium REF: 130 TOP: Development Thinking After World War II
MSC: Factual
4. In the 1960s, which economist developed the theory of the “two-model gap,” proposing that there was not just a savings gap but also a foreign exchange gap and that the latter was the major constraint on development? a. John Maynard Keynes c. Vinay Bhargava b. Milton Friedman d. Hollis Chenery ANS: D DIF: Medium REF: 130 TOP: Development Thinking After World War II
MSC: Factual
5. It is argued that the Marshall plan succeeded in rebuilding war-torn nations after World War II due to: a. the people’s knowledge and understanding of the role of government and government-created institutions. b. the directives laid out within the plan by Marshall and Truman. c. a desire to pursue corporatism an a new economic model. d. the influence of the Protestant work-ethic, as described by Max Weber. ANS: A DIF: Medium REF: 130 TOP: Development Thinking After World War II
MSC: Conceptual
6. Although aid to post-World War II nations was successful in helping them rebuild, similar aid to less-developed nations failed to produce the same results because: a. miscalculations of aid were based on per capita income in each nation. b. critical institutions within these governments were missing. c. countries refused to play by “the rules of the game.” d. of the problem of asymmetric information. ANS: B DIF: Medium REF: 130 TOP: Development Thinking After World War II
MSC: Conceptual
7. After World War II, many leaders of former British colonies, who had been educated at British universities, espoused: a. strong monarchical views. c. Fabian socialist views. b. Keynesian economic doctrines. d. Peronist economic and leadership values. ANS: C DIF: Easy REF: 130 TOP: Development Thinking After World War II
MSC: Factual
8. The Soviet Union was attractive to developing countries because: a. it was very effective at producing and supplying consumer goods. b. it had transformed a backward economy into an industrial powerhouse that defeated the strongest military in the world—Nazi Germany. c. Lenin’s Capitalism, the Highest Stage of Imperialism was a best-seller in their nations. d. the people were fascinated with the idea of becoming technocrats. ANS: B DIF: Easy REF: 130 TOP: Development Thinking After World War II
MSC: Factual
9. During the 1950s, all of the following countries were inspired by the Soviet model of development EXCEPT for: a. China. c. Ghana. b. India. d. Burma. ANS: D DIF: Easy REF: 130 TOP: Development Thinking After World War II
MSC: Factual
10. Raul Prebisch, based at the Economic Commission for Latin America and Hans Singer, based at the United Nations Industrial Development Organization, both provided the intellectual rationale for: a. import substituting industrialization. b. the rapid development of the service sector industry. c. free trade. d. liberation theology. ANS: A DIF: Medium REF: 130 TOP: Development Thinking After World War II
MSC: Factual
11. One of the criticisms of the growth policies of the 1960s was that too much attention was paid to the growth rate of GDP and not enough attention was paid to: a. the foreign exchange rate. b. monetary and fiscal policies. c. how the benefits of growth were distributed. d. General Agreement on Tariffs and Trade (GATT).
ANS: C DIF: Easy REF: 137 TOP: Fundamental Changes in the 1970s and 1980s
MSC: Factual
12. East Asia’s “four tigers” (Korea, Singapore, Hong Kong, and Taiwan) all achieved rapid industrial growth by: a. eliminating virtually all government interventions. b. heavily subsidizing exports, while prohibiting competing imports. c. imposing effective central planning. d. fostering a development strategy based on export of manufactures. ANS: D DIF: Easy REF: 137 TOP: Fundamental Changes in the 1970s and 1980s
MSC: Factual
13. The international organization responsible for helping developing countries design and finance structural adjustment programs with the aim of becoming more market-based is the: a. World Bank. b. Organization of Petroleum Exporting Countries. c. United Nations. d. International Monetary Fund. ANS: A DIF: Easy REF: 144 TOP: Structural Adjustment, the Washington Consensus, and the End of the Soviet Model MSC: Factual 14. Structural adjustment programs are designed to: a. promote the growth of industry rather than agriculture. b. assure that scarce foreign exchange is rationed in accordance with a five-year plan. c. dismantle controls that interfere with market allocation and efficiency. d. stop inflation. ANS: C DIF: Medium REF: 144 TOP: Structural Adjustment, the Washington Consensus, and the End of the Soviet Model MSC: Factual 15. Compared to the situation in a competitive market, in a monopolistic market, firms generally: a. use more efficient technologies. b. sell a greater share of output in parallel markets. c. produce less, while charging higher prices. d. are more likely to succeed in response to infant industry protection. ANS: C DIF: Easy REF: 148 TOP: Soviet Command Model to Market Economies
MSC: Conceptual
16. Which of the following is NOT one of the five elements needed to support a well-functioning market system? a. holding the exchange rate fixed b. achieving a relatively stable macroeconomic environment c. allowing relative prices to reflect relative scarcities d. establishing competition ANS: A DIF: Medium REF: 148 TOP: Soviet Command Model to Market Economies
MSC: Factual
17. The essence of a big bang approach to economic reform is: a. letting economic conditions get so bad that reforms are welcomed as a relief. b. imposing high tax rates to finance government expenditures. c. instituting the full range of structural and stabilization reforms over a short period of time. d. restoring growth through heavy military spending. ANS: C DIF: Medium REF: 148 TOP: Soviet Command Model to Market Economies
MSC: Factual
18. China and Vietnam are examples of formerly planned economies that: a. adopted the shock-therapy approach to liberalization. b. began their reform programs by privatizing large state-owned industrial enterprises. c. suffered severe economic contraction during the transition to a market system. d. managed the transition to a market economy in gradual steps. ANS: D DIF: Easy REF: 148 TOP: Soviet Command Model to Market Economies
MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Government intervention, non-government intervention ANS: Answer will vary 2. Big push, backward linkages ANS: Answer will vary 3. General Agreement on Tariffs and Trade (GATT), World Trade Organization (WTO) ANS: Answer will vary 4. West Pakistan, East Pakistan ANS: Answer will vary 5. Pareto optimality, aid to the poor ANS: Answer will vary 6. South Korea, Taiwan ANS:
Answer will vary 7. Dual price system, unified market-price system ANS: Answer will vary 8. Shock therapy, gradualist approach ANS: Answer will vary 9. Washington Consensus, post-Washington Consensus ANS: Answer will vary 10. Structural adjustment, economic distortions ANS: Answer will vary 11. Hard governments, soft governments ANS: Answer will vary
Chapter 6 : Inequality and Poverty MULTIPLE CHOICE 1. The single most important variable explaining the number of people in poverty in a given country is: a. the literacy rate. c. per capita income. b. the HDI. d. population. ANS: C MSC: Factual
DIF: Easy
REF: 165
TOP: Inequality and Poverty
2. Elements of a pro-poor development strategy would contain all of the following EXCEPT: a. encouraging rapid economic growth. b. improving basic health and education. c. designing social safety nets for vulnerable groups. d. encouraging zero population growth through free access to all forms of birth control. ANS: D MSC: Factual
DIF: Medium
REF: 165
TOP: Inequality and Poverty
3. Most frequency distributions of income have the following shape: a. rectangular. c. lognormal. b. normal. d. none of the above. ANS: C MSC: Applied
DIF: Medium
REF: 166
TOP: Measuring Inequality
4. To draw a Lorenz curve showing the distribution of income by household, one should first rank all households according to: a. household size. c. wage level. b. age of head of household. d. income or consumption level. ANS: D MSC: Applied
DIF: Medium
REF: 166
TOP: Measuring Inequality
5. If everyone in a country had the same level of income, then the value of the Gini concentration ratio would be: a. 1.0. c. 0.5. b. 0.0. d. infinity. ANS: B MSC: Applied
DIF: Medium
REF: 166
TOP: Measuring Inequality
6. Kuznets speculated on the relationship between growth and inequality, arguing that inequality rose when: a. industrialization and urbanization rose. b. everyone remained in the agriculture sector. c. service sector jobs reigned supreme as a model for job expansion. d. people failed to live by the premise found within It Takes a Village. ANS: A MSC: Factual
DIF: Easy
REF: 174
TOP: Growth and Inequality
7. According to W. Arthur Lewis’s surplus labor model, inequality is not just a necessary effect of economic growth; it is a. the cause of human suffering and exploitation. b. a cause of growth. c. an unintended consequence of modern developmental economics. d. the leading cause of falling wages. ANS: B MSC: Factual
DIF: Medium
REF: 174
TOP: Growth and Inequality
8. High levels of inequality tend to be associated with: a. communalism. c. countries with poor infrastructures. b. personal and political violence. d. the rate of infectious diseases. ANS: B MSC: Factual
DIF: Medium
REF: 178
TOP: Why Inequality Matters
9. Based on recent estimates of 2005 purchasing power parity (PPP) dollars, developmental economists now estimate living in extreme poverty as living below: a. $1.00 a day. c. $1.57 a day. b. $1.25 a day. d. $4.95 a day. ANS: B MSC: Factual
DIF: Easy
REF: 186
TOP: Why $1.25 a Day?
10. According to the World Bank, 64 million people were recently pushed into “extreme poverty” due to: a. civil war in the Sudan. b. global warming and its impact on agriculture. c. the collapse of the Soviet Union. d. the financial crisis of 2008. ANS: D MSC: Factual
DIF: Easy
REF: 192
TOP: Poverty Today
11. A small subsidy to the poorest of the poor will leave which of the following unchanged? a. headcount index c. income distribution b. poverty gap d. none of the above ANS: A DIF: Medium REF: 200 TOP: Sometimes Growth May Not Be Enough
MSC: Factual
12. Major components of the Washington Consensus are: a. macroeconomic stability and economic openness. b. the promotion of peace and justice. c. exploiting the agricultural sector to fund urban industrial development. d. combating international piracy and terrorism. ANS: A MSC: Factual
DIF: Easy
13. Trade can help the poor by:
REF: 201
TOP: Pro-Poor Growth
a. b. c. d.
increasing the employment of unskilled workers. increasing productivity which will increase growth. decreasing the price the poor pay for goods and services. all of the above.
ANS: D MSC: Conceptual
DIF: Easy
REF: 201
TOP: Pro-Poor Growth
14. The design of social safety nets differs from income transfers in that the former: a. recognize that poverty is often transitory and not permanent. b. do not always go to poor people. c. are expensive to administer and lack public support. d. none of the above. ANS: A DIF: Easy TOP: Income Transfers and Safety Nets
REF: 206 MSC: Conceptual
15. Recent studies show that global inequality is significantly higher than: a. what the Lorenz curve portrays. b. the Club of Rome anticipated. c. population-weighted international inequality. d. the latest UN data suggested. ANS: C DIF: Easy REF: 208 TOP: Global Inequality and the End of Poverty
MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Lorenz curve, Gini coefficient ANS: Answer will vary 2. National poverty line, global poverty line ANS: Answer will vary 3. Head-count index, poverty gap ANS: Answer will vary 4. $1.00 a day, $1.25 a day ANS: Answer will vary
5. Washington Consensus, 1990 World Development Report ANS: Answer will vary 6. Income transfers, social safety nets ANS: Answer will vary 7. Inequality and weighted population, inequality and unweighted population ANS: Answer will vary 8. Kuznets, Lewis ANS: Answer will vary 9. Trade liberalization, anti-globalization ANS: Answer will vary
Chapter 7 : Population MULTIPLE CHOICE 1. By 2008, Finland had reached the fourth stage of its demographic transition, in which its population growth had fallen close to: a. 5 percent. c. 0 percent. b. 2.2 percent. d. –7.5 percent. ANS: C MSC: Factual
DIF: Easy
REF: 220
TOP: The Demographic Transition
2. In 2009, approximately what percentage of the population lived in low-income countries? a. 15 percent c. 70 percent b. 50 percent d. 84 percent ANS: D DIF: Easy TOP: The Demographic Situation Today
REF: 224 MSC: Factual
3. Which of the following statements are true about total fertility rates over the past 40 years? a. Higher rates of population growth are strongly associated with lower rates of economic growth. b. Low-income countries have low dependency ratios. c. Low-income countries have higher rates of population growth. d. All of the above. ANS: C MSC: Factual
DIF: Easy
REF: 225
TOP: Total Fertility Rates
4. World population will continue to grow over the next 50 years for all of the following reasons EXCEPT: a. the desire for large families. b. the failure to achieve desired amount of children. c. population momentum. d. total fertility rates in all countries will remain above their replacement levels. ANS: D MSC: Conceptual
DIF: Medium
REF: 227
TOP: The Demographic Future
5. One direct implication of the view that childbearing decisions are influenced by economic benefits and costs is that: a. people will not have additional children unless they can earn a profit from doing so. b. social factors do not affect childbearing decisions. c. compulsory education will increase fertility by raising each child’s prospective earnings. d. fertility should fall with improved opportunities for women to work in jobs outside the home. ANS: D MSC: Conceptual
DIF: Medium
REF: 233
6. Gary Becker’s pioneering work was actually directed at: a. understanding the impact of HIV/AIDS on Africa.
TOP: Why Birth Rates Decline
b. understanding the impact of the cold war on population momentum. c. understanding declining fertility levels in the United States and other high-income economies. d. understanding the impact of religious beliefs on population growth. ANS: C MSC: Factual
DIF: Easy
REF: 233
TOP: Why Birth Rates Decline
7. Most analysts still believe which of the following positions? a. Most developing countries remain underpopulated because of the enormous gains in productivity made possible by modern science. b. Slower population growth would permit per capita income to rise more rapidly in nearly all developing countries. c. High rates of population growth benefit economic development. d. There is no economic rationale for government intervention in population growth because individuals properly balance costs and benefits when making decisions about family size. ANS: B DIF: Easy TOP: Population and Accumulation
REF: 237 MSC: Factual
8. The total fertility rate in Nigeria was 5.7 in 2009. This means that: a. there were 5.7 live births per 100 women of childbearing age. b. there were 5.7 live births per 100 women. c. there were 5.7 live births per 100 people. d. given prevailing age-specific fertility rates, the average woman in Nigeria bears 5.7 children during her reproductive years. ANS: D DIF: Easy REF: 239 TOP: Population Growth, Age Structure, and Dependency Ratios MSC: Factual 9. Which of the following is NOT considered a “school of thought” on population and development? a. population optimism c. population pessimism b. population revisionism d. population reactionism ANS: D MSC: Factual
DIF: Medium
REF: 241
TOP: Population and Productivity
10. Personalized family planning was initiated in the Matlab region of Bangladesh in the late 1970s; 20 years later, the region experienced all of the following EXCEPT: a. fewer children with greater spacing between them. b. healthier children. c. greater prosperity. d. greater difficulty in conceiving children. ANS: D MSC: Factual
DIF: Medium
REF: 246
TOP: Family Planning
11. The three reproductive norms promoted in China’s wan xi shao program after 1971 included which of the following elements? a. Families should plan for longer spacing between births. b. Families should continue bearing children until a male child is born and then stop. c. China can care for all children because it has achieved the Marxist-Leninist utopia.
d. Having no children is best. ANS: A MSC: Factual
DIF: Easy
REF: 249
TOP: Authoritarian Approaches
12. China’s decline in population over the past generation can be attributed to all of the following EXCEPT: a. government population policies. b. increased urbanization. c. rapid economic growth. d. the revival of the principles of Confucius and “social responsibility.” ANS: D MSC: Factual
DIF: Medium
REF: 249
TOP: Authoritarian Approaches
13. Which of the following is NOT a lesson learned from China’s family planning policy? a. Economic growth at the same time helps decline in population growth. b. Though successful, family planning policies may have long-term consequences. c. Gender imbalance may result. d. Other nations can replicate China’s policies. ANS: D MSC: Factual
DIF: Medium
REF: 249
TOP: Authoritarian Approaches
14. By missing women, economists mean: a. orphaned women. b. females who were not born because of preference for males. c. women who are missing from households because they are working in fields. d. women not accounted for by nationwide census. ANS: B DIF: Medium TOP: Missing Girls, Missing Women
REF: 251 MSC: Factual
15. According to United Nations’ medium projections, population growth in the developing nations of the world will number some 2 billion more over the next: a. 20 years. c. 50 years. b. 40 years. d. 100 years. ANS: B DIF: Easy REF: 253 TOP: Population Issues for the Twenty-First Century
MSC: Factual
16. As the twenty-first century moves forward, many nations in which area of the world will continue to face high fertility and the burdens (and opportunities) of a young population? a. Latin America c. sub-Saharan Africa b. Southeast Asia d. Central Europe ANS: C DIF: Medium REF: 253 TOP: Population Issues for the Twenty-First Century SHORT ANSWER IDs and Paired-Concept Questions
MSC: Factual
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Crude birth rate, total fertility rate ANS: Answer will vary 2. Crude death rate, demographic transition ANS: Answer will vary 3. Dependency ratio, asset accumulation ANS: Answer will vary 4. Rate of natural increase, decline in fertility ANS: Answer will vary 5. Infant death rate, life expectancy ANS: Answer will vary 6. Coale-Hoover model, capital widening ANS: Answer will vary 7. New household economics, child quality ANS: Answer will vary 8. Family planning, state versus personal choice ANS: Answer will vary 9. Implicit costs of children, explicit costs of children ANS: Answer will vary 10. China, India ANS: Answer will vary
Chapter 8 : Education MULTIPLE CHOICE 1. Grade survival rates estimate: a. how many children actually complete a certain grade level. b. how many children die from disease and malnutrition at each grade level. c. how many grades of school the country can afford to offer. d. whether the grades earned continue to be valid, due to rampant grade inflation. ANS: A MSC: Factual
DIF: Easy
REF: 259
TOP: Stocks and Flows
2. The greatest gains in secondary education, measured by gross secondary school enrollment rising from 38 percent in 1975 to 90 percent in 2005, have occurred in: a. Southeast Asia. c. sub-Saharan Africa. b. Latin America. d. the Middle East. ANS: B MSC: Factual
DIF: Easy
REF: 259
TOP: Stocks and Flows
3. Which education indicator refers to enrollments of those in the relevant age group? a. gross enrollment rates c. grade survival rates b. net enrollment rates d. learning outcomes ANS: B MSC: Factual
DIF: Medium
REF: 259
TOP: Stocks and Flows
4. Using standard methods to measure benefits and costs, the private rate of return on education cannot be less than the social rate of return because: a. benefits of education accrue to the individual, not to society. b. individuals otherwise would choose not to go to school. c. social costs include public-sector outlays as well as private costs of schooling. d. all of the above. ANS: C MSC: Applied
DIF: Difficult
REF: 259
TOP: Stocks and Flows
5. In the past 50 years, what has happened to the gender gap in education? a. It has been declining. b. It has been rising. c. It has stayed the same. d. It has had a mixed response, first declining, then rising. ANS: A MSC: Factual
DIF: Easy
REF: 263
TOP: Boys Versus Girls
6. The goal of the Programme for International Student Assessment is to assess how well 15-year-olds, who are approaching the end of their compulsory schooling year, can: a. read and write at a fourth-grade level. b. successfully acquire a paying job at home or abroad. c. meet the challenges of today’s societies.
d. be willing and able to move onto the next level of education. ANS: C MSC: Factual
DIF: Easy
REF: 264
TOP: Schooling Versus Education
7. In low-income countries, the demand for education: a. remains high across all segments of the population. b. is confined mostly to urban areas. c. is confined mostly to social elites, both urban and rural. d. is not very strong, due to poverty and hopelessness. ANS: A MSC: Factual
DIF: Easy
REF: 267
TOP: Education as an Investment
8. For the students’ families in developing countries, the main implicit cost of secondary education is: a. required school fees. b. earnings or work at home forgone when the student attends school. c. the cost of textbooks. d. incidental costs like school uniforms and transportation. ANS: B MSC: Conceptual
DIF: Difficult
REF: 267
TOP: Education as an Investment
9. In low-income countries, the social rate of return generally is highest for investment in: a. university education. c. vocational education. b. primary education. d. adult education. ANS: B MSC: Factual
DIF: Easy
REF: 273
TOP: First-Generation Estimates
10. The social return to educating women may exceed that of educating men for all of the following reasons EXCEPT: a. educating women reduces child mortality. b. educating women reduces fertility. c. educating women reduces the spread of HIV/AIDS. d. educating women leads them to earn a higher income than men. ANS: D MSC: Conceptual
DIF: Medium
REF: 273
TOP: First-Generation Estimates
11. Rates of return on schooling depend on what happens in: a. the demographics of marriage in the country. b. secondary and tertiary educational outcomes. c. both school and the labor market after students graduate. d. regard to the average student’s body mass index by 18 years of age. ANS: C DIF: Medium REF: 281 TOP: Making Schooling More Productive
MSC: Factual
12. High unemployment rates among school leavers, including graduates of universities, often reflect failures in promoting economic growth rather than failure in schools—this is especially true in nations such as: a. Argentina and Egypt. c. India and Korea.
b. Costa Rica and China.
d. Brazil and Singapore.
ANS: A DIF: Medium REF: 281 TOP: Making Schooling More Productive
MSC: Factual
13. When the private rate of return on education is much higher than the social rate of return: a. it is not economically efficient to expand education to the point of fully satisfying private demand. b. school tuition charges need to be raised. c. funds should be reallocated from other types of investment to more investment in education. d. the market wage exceeds the shadow price of labor. ANS: A MSC: Conceptual
DIF: Difficult
REF: 282
TOP: Misallocation
14. Which of the following is NOT true concerning the deworming study in Kenya? a. Deworming is more cost-effective than free school uniforms. b. Deworming increased attendance. c. Deworming increased student learning as measured by test scores at the time of treatment. d. Deworming increased student concentration levels when they were in school. ANS: C MSC: Factual
DIF: Medium
REF: 290
TOP: Inefficient Use of Resources
15. The introduction of textbooks improved reading scores for all students in: a. Jamaica. c. Kenya. b. the Philippines. d. all of the above. ANS: A MSC: Factual
DIF: Easy
REF: 290
TOP: Inefficient Use of Resources
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Theodore Schultz, human capital investment ANS: Answer will vary 2. Stocks, flows ANS: Answer will vary 3. Gross enrollment rates, Millennium Development goals (MDG) ANS:
Answer will vary 4. Gender gap, gender parity ANS: Answer will vary 5. Social rate of return, educated unemployment ANS: Answer will vary 6. Explicit costs of schooling, implicit costs of schooling ANS: Answer will vary 7. Uniforms, students ANS: Answer will vary 8. Health, education ANS: Answer will vary 9. Deworming, attendance ANS: Answer will vary 10. Programme for International Student Assessment (PISA), Organisation for Economic Co-Operation and Development (OECD) ANS: Answer will vary
Chapter 9 : Health MULTIPLE CHOICE 1. The World Health Organization (WHO) defines health as: a. the absence of illness or disability that prevents one from engaging in normal functions. b. a condition of physical well-being, consistent with the standards of one’s national culture. c. a state of complete physical, mental, and social well-being. d. the absence of a serious need for medical attention. ANS: C MSC: Factual
DIF: Easy
REF: 302
TOP: What Is Health?
2. The WHO defines health as a state of complete mental, physical, and social well-being and not merely the absence of disease. However, this construct or formula, in this end, is: a. obsolete. b. proving all former measurement of health as faulty. c. being discounted and rendered worthless by the World Bank. d. more difficult to measure. ANS: D MSC: Conceptual
DIF: Medium
REF: 302
TOP: What Is Health?
3. Which of the following measures rates of disease or illness? a. mortality c. life expectancy b. morbidity d. none of the above ANS: B MSC: Factual
DIF: Easy
REF: 302
TOP: What Is Health?
4. Health-adjusted life expectancy (HALE) reduces life expectancy by years spent: a. in an unhappy marriage. c. working in high-risk occupations. b. remaining single. d. with disabilities. ANS: D MSC: Factual
DIF: Easy
REF: 302
TOP: What Is Health?
5. In developing countries, major gains in life expectancy have been achieved primarily by reducing mortality rates for which population group? a. the elderly c. the very young b. rural workers d. women of childbearing age ANS: C DIF: Medium TOP: The Epidemiologic Transition
REF: 308 MSC: Factual
6. As societies age and health improves, the pattern of disease and causes of death also shift in a generally predictable pattern; this shift in disease pattern is known as the: a. epidemiologic transition. c. diminishing returns to health. b. survival deficit. d. Hippocratic paradox. ANS: A DIF: Medium TOP: The Epidemiologic Transition
REF: 308 MSC: Factual
7. With a few exceptions, famine no longer seems to be a threat in Asia; however, this country marks a clear exception to that premise: a. China. c. North Korea. b. Vietnam. d. Laos. ANS: C DIF: Easy REF: 310 TOP: The Determinants of Improved Health
MSC: Factual
8. Health has improved worldwide due to all the following major reasons EXCEPT: a. improved advances in food distribution. b. improvements in education. c. vaccine development for tropical diseases. d. public health discoveries. ANS: C DIF: Medium REF: 310 TOP: The Determinants of Improved Health
MSC: Factual
9. Increased income allows people, particularly the poor, to buy more of the following EXCEPT: a. clothing and apparel. c. food. b. better housing. d. health care. ANS: A DIF: Medium REF: 310 TOP: The Determinants of Improved Health
MSC: Factual
10. According to a famous study on the impact of rising incomes on health, a 10 percent increase in income is associated with which percent decline in child mortality rates? a. 2–4 percent c. 15–20 percent b. 8–10 percent d. 100 percent ANS: A MSC: Factual
DIF: Medium
REF: 314
TOP: Income and Health
11. Higher life expectancy translates into greater economic growth later: a. at the same rate. b. first at the same rate but then later at a diminished rate. c. at no time because of the costs involved. d. only for developed countries. ANS: B MSC: Factual
DIF: Difficult
REF: 319
TOP: Health and Productivity
12. Which of the following statements about the Panama Canal construction is NOT true? a. Yellow fever was eradicated. b. Malaria was eradicated. c. Both yellow fever and malaria were transmitted through mosquitos. d. Before the United States had the right to build the canal, many workers died from yellow fever and malaria. ANS: B DIF: Medium REF: 322 TOP: Malaria, Yellow Fever, and the Panama Canal
MSC: Factual
13. HIV/AIDS is different from other diseases because: a. it attacks primarily young adults, an economically active segment of the population. b. its therapy need not rely on political and economic initiatives. c. the international community was slow to respond to the growing crisis. d. it is a chronic disease. ANS: A MSC: Conceptual
DIF: Medium
REF: 323
TOP: HIV/AIDS
14. Almost one-fifth of the deaths in children under five in Africa are from: a. malaria. c. tuberculosis. b. HIV/AIDS. d. none of the above. ANS: A MSC: Factual
DIF: Easy
REF: 329
TOP: Malaria
15. This continent suffers from 91 percent of the world’s malaria deaths: a. Africa. c. Asia. b. South America. d. Europe. ANS: A MSC: Factual
DIF: Easy
REF: 329
TOP: Malaria
16. Research by economists John Gallup and Jeffrey Sachs concluded that the presence of a high malaria burden in a nation reduces its economic growth by: a. 0.7 percent. c. 5.8 percent. b. 1.3 percent. d. 15.7 percent. ANS: B MSC: Factual
DIF: Medium
REF: 329
TOP: Malaria
17. Vaccines for illnesses that afflict the poor countries of the world are slow to be researched and developed by the private sector because: a. there is a severe backlog in the research and development sector of pharmaceutical companies. b. there is little financial incentive because the nations with these diseases are poor. c. the emphasis in disease prevention is undergoing a transition from vaccines to medical patches and sprays. d. most scientists believe all diseases mutate, and cures will never be truly found. ANS: B DIF: Medium TOP: Making Markets for Vaccines
REF: 330 MSC: Conceptual
18. Health statistics on morbidity refer to the: a. incidence of mental-health problems. b. incidence of disease and illness. c. fraction of deaths caused by preventable disease. d. incidence of unnatural death due to accidents, crime, and war. ANS: B DIF: Easy TOP: Preventing HIV/AIDS in Thailand
REF: 336 MSC: Factual
19. Which of the following was NOT an important aspect of preventing the spread of HIV/AIDS in Thailand? a. The use of condoms was mandatory in brothels. b. Health officials provided free boxes of condoms. c. Local police held meetings with brothel owners and sex workers. d. A program encouraged teens and young adults to use condoms in noncommercial sex. ANS: D DIF: Medium TOP: Preventing HIV/AIDS in Thailand
REF: 336 MSC: Factual
20. The last reported case of polio in the Americas occurred in 1991 in the nation of: a. Canada. c. Paraguay. b. Nicaragua. d. Peru. ANS: D DIF: Easy REF: 338 TOP: Eliminating Polio in Latin America
MSC: Factual
21. Oral rehydration therapy (ORT) is a simple and inexpensive treatment that can prevent most deaths from: a. drowning. c. malaria. b. diarrhea. d. roundworm parasites. ANS: B DIF: Easy REF: 340 TOP: Preventing Deaths from Diarrheal Disease
MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Morbidity, mortality ANS: Answer will vary 2. Life expectancy, double burden of disease ANS: Answer will vary 3. Health, income ANS: Answer will vary 4. Market failure, diseases ANS: Answer will vary 5. Productivity, health as investment
ANS: Answer will vary 6. HIV/AIDS, antiretroviral drugs (ARVs) ANS: Answer will vary 7. Tuberculosis (TB), directly observed treatment short course (DOTS) ANS: Answer will vary 8. Diarrhea, oral rehydration therapy ANS: Answer will vary 9. Panama Canal, control efforts ANS: Answer will vary 10. Epidemiologic transition, developing countries ANS: Answer will vary
Chapter 10 : Investment and Savings MULTIPLE CHOICE 1. In an economy with a 9 percent interest rate, the present value of $1,000 that you will receive three years from now is: a. $772. c. $917. b. $1,295. d. $1,090. ANS: A MSC: Applied
DIF: Difficult
REF: 351
TOP: Present Value
2. The net present value of a project is the: a. sum of the project’s cash flow from each year. b. project’s total cash flow divided by the current interest rate. c. sum of the present value of the project’s cash flow from each year. d. project’s total cash flow, less its start-up costs. ANS: C MSC: Factual
DIF: Medium
REF: 351
TOP: Present Value
3. The opportunity cost of cotton: a. is considered a negative opportunity cost in the analysis of public projects. b. is considered a positive opportunity cost in the analysis of public projects. c. can be considered a negative or a positive opportunity cost in the analysis of public projects, depending on whether the cotton could have been used as an export or an import. d. holds the same considerations for both the public and private sectors. ANS: C MSC: Applied
DIF: Difficult
REF: 355
TOP: Opportunity Costs
4. When a private firm undertakes investment analysis, it conducts: a. risk aversion strategy. c. a random walk. b. commercial project appraisal. d. asymmetric information analysis. ANS: B MSC: Factual
DIF: Medium
REF: 355
TOP: Shadow Prices
5. Welfare weights should: a. be used with caution so that they do not become arbitrary. b. never be used because they are unreliable. c. be used for every project because they are as reliable as the discount rate. d. only be used for small projects. ANS: A MSC: Factual
DIF: Easy
REF: 356
TOP: Welfare Weights
6. When welfare weights are introduced or shadow prices are further adjusted to reflect social goals, the process is known as: a. Fabian socialism. c. consumption coordination. b. social project appraisal. d. chain-weighted social-welfare benefit.
ANS: B MSC: Factual
DIF: Easy
REF: 356
TOP: Welfare Weights
7. The majority of direct foreign investment in developing countries comes: a. equally from the private and public sectors. b. predominantly from the public sector. c. predominantly from the private sector. d. from multinational corporations. ANS: D MSC: Factual
DIF: Easy
REF: 364
TOP: FDI Patterns and Products
8. By 2010, half of all FDI in developing countries went to: a. 10 countries. c. 60 countries. b. 27 countries. d. 102 countries. ANS: A MSC: Factual
DIF: Easy
REF: 364
TOP: FDI Patterns and Products
9. Today, FDI is aimed primarily at all of the following broad categories EXCEPT: a. natural resource-based activities. b. alternative and “green energy” production. c. manufacturing and services aimed at the domestic market in the host country. d. labor-intensive manufacturing aimed for export on world markets. ANS: B MSC: Factual
DIF: Medium
REF: 364
TOP: FDI Patterns and Products
10. Multinational corporations: a. avoid spillovers whenever possible. b. often encourage horizontal spillover. c. often encourage vertical spillover. d. encourage both horizontal and vertical spillover. ANS: C DIF: Easy TOP: Benefits and Drawbacks of FDI
REF: 365 MSC: Factual
11. A positive relationship between FDI and growth can be seen when FDI is aimed at: a. manufactured projects for the domestic sector. b. natural resource-based industries. c. manufactured projects for export. d. all of the above. ANS: C MSC: Factual
DIF: Medium
REF: 369
TOP: FDI and Growth
12. Which of the following is an income tax incentive that exempts firms from paying taxes on corporate income, usually for three to six years? a. tax extension c. tax holiday b. tax subsidization d. tax shelter ANS: C DIF: Easy REF: 370 TOP: Policies Toward Foreign Direct Investment
MSC: Factual
13. Export-oriented, labor-intensive, “footloose” industries should: a. never be offered tax holidays. b. at times be offered tax holidays because they can be more readily influenced by such incentives, as their options are wider than other industries. c. at times be offered tax holidays because they are more likely to provide positive spillover. d. both b and c. ANS: D DIF: Easy REF: 370 TOP: Policies Toward Foreign Direct Investment
MSC: Conceptual
14. Which of the following is NOT a standard restriction placed on FDI by governments interested in capturing the benefits of that investment? a. performance requirements c. restrictions on profit repatriation b. labor requirements d. production schedules ANS: C DIF: Medium REF: 370 TOP: Policies Toward Foreign Direct Investment
MSC: Factual
15. According to the life-cycle model of household savings, when do savings rates tend to peak in a person’s working years? a. beginning c. end b. middle d. both b and c ANS: D DIF: Easy REF: 376 TOP: Household Saving and Consumption
MSC: Factual
16. The theory that, under certain circumstances, a change in taxes will have absolutely no effect on total domestic saving, is known as the: a. Ricardian equivalence. c. Marshall’s conundrum. b. Mill’s minimum. d. Keynesian nullification. ANS: A MSC: Factual
DIF: Easy
REF: 380
TOP: Government Saving
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Public investment, externality ANS: Answer will vary 2. Investment, growth ANS: Answer will vary
3. Cost-benefit analysis, net cash flow ANS: Answer will vary 4. Net present value, internal rate of return (IRR) ANS: Answer will vary 5. Economic project appraisal, shadow prices ANS: Answer will vary 6. Economic openness, investment ANS: Answer will vary 7. Foreign direct investment (FDI), multinational corporations (MNCs) ANS: Answer will vary 8. Income tax incentives, labor-intensive industries ANS: Answer will vary 9. FDI, growth ANS: Answer will vary 10. Positive spillover, negative spillover ANS: Answer will vary 11. Foreign savings, domestic savings ANS: Answer will vary 12. Dependent population, working population ANS: Answer will vary
Chapter 11 : Fiscal Policy MULTIPLE CHOICE 1. When governments raise expenditures or cut taxes on individuals and corporations so that they can raise their expenditures, such actions are referred to as: a. fiscal policy. c. indexing. b. monetary policy. d. regressive taxation. ANS: A MSC: Factual
DIF: Easy
REF: 391
TOP: Fiscal Policy
2. Developing country governments are more likely to focus on measures to increase investment for: a. profiteering and graft. b. health and education. c. overall growth. d. enhancing their ability to get more loans from the World Bank. ANS: C MSC: Factual
DIF: Medium
REF: 391
TOP: Fiscal Policy
3. The term public good refers to a good or service that: a. results in income and profit. b. is free and portable. c. has a value of zero. d. exhibits nonrival consumption and nonexcludability. ANS: D MSC: Factual
DIF: Easy
REF: 393
TOP: Government Expenditures
4. Investments that, in general, generate a stream of income or services into the future are known as: a. future markets. c. recurrent expenditures. b. public (development) expenditures. d. private (luxury) expenditures. ANS: B DIF: Medium REF: 394 TOP: Categories of Government Expenditures
MSC: Factual
5. In developing countries, borrowing domestically often means borrowing directly from the: a. World Bank. c. the IMF. b. central bank. d. other nations in the geographic region. ANS: B DIF: Easy REF: 394 TOP: Categories of Government Expenditures
MSC: Factual
6. Consumer subsidies are not unique to developing countries; although they are in many ways costly, governments are reluctant to eliminate them because such action typically leads to: a. deflation. b. neutral taxes. c. demonstrations or even riots against the government. d. the emergence of corporatism. ANS: C
DIF: Medium
REF: 394
TOP: Categories of Government Expenditures
MSC: Conceptual
7. Although taxes on foreign trade have fallen dramatically in recent decades, tax revenue structures in developing countries historically have been dependent on: a. import duties. c. overvaluing their currency. b. excise taxes. d. the exploitation of one resource. ANS: A DIF: Medium REF: 394 TOP: Categories of Government Expenditures
MSC: Factual
8. The primary difference between excise and sales taxes is that only excise taxes are: a. imposed on specifically enumerated items. b. paid by the consumer rather than the seller. c. progressive. d. revenue elastic. ANS: A MSC: Factual
DIF: Medium
REF: 402
TOP: Sales and Excise Taxes
9. As usually applied, the value-added tax (VAT) is a: a. form of excise tax. c. tax on consumption. b. tax on income. d. tax on domestic production. ANS: C MSC: Factual
DIF: Medium
REF: 402
TOP: Sales and Excise Taxes
10. Heavy taxes on alcohol and tobacco are favored because: a. they are progressive. b. they display a high price elasticity of demand. c. most governments want to discourage consumption of these items. d. all of the above. ANS: C MSC: Conceptual
DIF: Easy
REF: 402
TOP: Sales and Excise Taxes
11. High tax rates often encourage taxpayers to engage in illegal maneuvers to avoid paying taxes. The term used for this behavior is: a. revenue elasticity. c. tax evasion. b. tax avoidance. d. excess burden. ANS: C DIF: Easy REF: 404 TOP: Personal and Corporate Income Taxes
MSC: Factual
12. One of most significant changes that most developing nations could take to increase their tax revenue would be to: a. raise taxes. c. institute a strong corporate tax. b. reform tax administration. d. undertake radical land redistribution. ANS: B MSC: Factual
DIF: Easy
REF: 405
TOP: Fundamental Tax Reform
13. The value-added tax (VAT) form of the sales tax is preferred in many developing countries because:
a. b. c. d.
a large share of VAT revenue is collected prior to the retail level. the VAT can be levied at a higher rate. firms have no way to suppress information on their purchases and sales. there is no need to conduct periodic audits to ensure compliance.
ANS: A MSC: Conceptual
DIF: Easy
REF: 405
TOP: Fundamental Tax Reform
14. Which of the following statements best captures the textbook’s conclusions about using fiscal policy to promote equity in developing countries? a. Equity is not a proper goal for fiscal policy. b. Economic and administrative realities limit the scope for achieving income redistribution through the tax system. c. Highly progressive taxes can and should be used to promote equity and efficiency simultaneously. d. Tax policy is far more effective than expenditure policy as an instrument for income redistribution. ANS: B DIF: Medium REF: 414 TOP: Corporate Income and Property Taxes
MSC: Conceptual
15. A neutral tax system is one that: a. generates no excess burden. b. affects government savings and private sector investment decisions equally. c. balances the government budget. d. relies, as far as possible, on uniform tax rates. ANS: D MSC: Factual
DIF: Easy
REF: 418
TOP: Neutrality and Efficiency
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Fiscal policy, monetary policy ANS: Answer will vary 2. Development expenditures, recurrent expenditures ANS: Answer will vary 3. Tax rates, tax evasion ANS: Answer will vary 4. Excise tax, sales tax
ANS: Answer will vary 5. State-owned enterprises (SOEs), subsidies ANS: Answer will vary 6. Direct taxes, indirect taxes ANS: Answer will vary 7. Progressive tax, regressive tax ANS: Answer will vary 8. Personal tax, corporate tax ANS: Answer will vary 9. Neutral tax, efficient tax system ANS: Answer will vary 10. Tax incentives, tax shelters ANS: Answer will vary 11. Value-added tax (VAT), sales taxes ANS: Answer will vary 12. Effective taxes, luxury tax ANS: Answer will vary
Chapter 12 : Financial Development and Inflation MULTIPLE CHOICE 1. What, particularly in a developing country, is the most visible and vital component of the financial system (as acceptor of deposits and grantor of shorter-term credit)? a. investment banking c. foreign investors b. commercial banking d. hedge funds ANS: B DIF: Medium REF: 421 TOP: Financial Development and Inflation
MSC: Factual
2. Which of the following is NOT one of the basic roles essential for the smooth functioning of the financial system? a. a medium of exchange and store of value, called money b. a channel for mobilizing savings from numerous sources and channeling them to investors, called financial intermediation c. a means of transferring and distributing risk across the economy d. an efficient and comprehensive tax system, allowing more revenue for domestic governments ANS: D DIF: Medium REF: 423 TOP: The Functions of a Financial System
MSC: Factual
3. The narrowest measure in the money supply is represented by: a. M1. c. M3. b. M2. d. M4. ANS: A DIF: Easy TOP: Money and the Money Supply
REF: 423 MSC: Factual
4. Which of the following is NOT a liquid financial asset? a. currency in circulation c. demand deposits b. time deposits d. foreign aid ANS: D DIF: Medium TOP: Money and the Money Supply
REF: 423 MSC: Factual
5. Total liquid liabilities (M3), the broadest measure of money, is the sum of: a. currency in circulation outside banks plus demand deposits. b. currency in circulation outside banks plus demand deposits plus time and saving deposits. c. currency in circulation outside banks plus demand deposits plus time and saving deposits plus income taxes. d. currency in circulation outside banks plus demand deposits plus time and savings deposits plus liabilities of specialized institutions. ANS: D DIF: Medium TOP: Money and the Money Supply
REF: 423 MSC: Factual
6. During the period beginning in the 1950s and continuing into the 1980s (and even beyond), Argentina, Brazil, and Chile experienced: a. chronic inflation. c. runaway inflation.
b. acute inflation. ANS: A MSC: Factual
d. little to no inflation. DIF: Easy
REF: 428
TOP: Inflation Episodes
7. Why do developing countries have floating exchange rates? a. to insulate themselves from world inflation b. to stabilize government deficits c. to keep reserves low d. to keep their money value higher than the dollar ANS: A MSC: Conceptual
DIF: Easy
REF: 435
TOP: Sources of Inflation
8. A floating exchange rate allows developing countries to: a. insulate themselves from world inflation. b. appreciate their currency against the dollar. c. isolate themselves from trade with developed nations. d. risk rapid financial destabilization. ANS: A MSC: Conceptual
DIF: Easy
REF: 435
TOP: Sources of Inflation
9. Under a system of fixed exchange rates, a large increase in export revenues (without a corresponding jump in imports) has what effect on the domestic money supply? a. The money supply will increase. b. The money supply will decline. c. The money supply will not be affected. d. The answer depends on whether the central bank has imposed credit controls on the commercial banks. ANS: A MSC: Applied
DIF: Medium
REF: 435
TOP: Sources of Inflation
10. What is achieved by having an upward adjustment in reserve requirements? a. The money multiplier is increased, lowering inflation. b. It reduces the stock of money that can be supported by a given amount of reserves. c. The money multiplier is decreased. d. Both b and c, which may help moderate inflation. ANS: D MSC: Factual
DIF: Medium
REF: 439
TOP: Reserve Requirements
11. Which of the following is essential to a strategy of deep finance? a. avoiding a government budget deficit b. maintaining very high real interest rates c. avoiding strongly negative real interest rates d. all of the above ANS: C DIF: Easy REF: 443 TOP: Shallow Finance and Deep Finance
MSC: Factual
12. Policies for financial deepening seek to promote ________ in the real size of the financial system, while shallow finance promotes ________ in the real size of the financial system. a. growth; reduction c. stability; measured growth b. reduction; growth d. deflation; retraction ANS: A DIF: Medium REF: 443 TOP: Shallow Finance and Deep Finance
MSC: Factual
13. If a country wants to enact policies for growth in the real size of the financial system, financial deepening, it will require: a. a negative real interest rate. c. a positive real interest rate. b. a negative GDP. d. a decrease in inflation. ANS: C DIF: Medium REF: 443 TOP: Shallow Finance and Deep Finance
MSC: Factual
14. According to the box study “Does Micro Credit Reduce Poverty?,” what was the effect of opening micro credit branches in randomly selected slum neighborhoods as compared to slums without these additional branches? a. Slums with access to more mirco credit experienced a reduction in poverty within 18 months. b. Slums with access to Spandana loans opened 1.7% more businesses than those without access. c. There was a significant increase in total consumption expenditures between treatment and control areas. d. Spandana branches had an influx of borrowers, averaging a total of 70 percent of households taking out loans. ANS: B DIF: Easy REF: 451 TOP: Does Micro Credit Reduce Poverty?
MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Medium of exchange, M2 ANS: Answer will vary 2. Commercial banks, financial intermediation ANS: Answer will vary 3. Hyperinflation, government budget deficit ANS: Answer will vary
4. Inflation tax, negative real rates ANS: Answer will vary 5. Shallow finance, informal credit market ANS: Answer will vary 6. Financial assets, nonfinancial assets ANS: Answer will vary 7. Real interest rate, deep finance ANS: Answer will vary 8. Interest elasticity of savings, interest elasticity of demand for liquid assets ANS: Answer will vary 9. Pegged exchange rate, floating exchange rate ANS: Answer will vary 10. Open-market operations, moral suasion ANS: Answer will vary 11. International reserves, value of imports ANS: Answer will vary 12. Domestic credit expansion, credit ceilings ANS: Answer will vary 13. Economic collapse, runaway inflation ANS: Answer will vary 14. Fiscal policy, stimulus package ANS: Answer will vary
15. Deep finance, positive real interest rates ANS: Answer will vary
Chapter 13 : Foreign Debt and Financial Crises MULTIPLE CHOICE 1. The economic impact of debt flows is magnified by their effect on all of the following EXCEPT: a. macroeconomic stability. c. World Bank transparency. b. the exchange rate. d. government budgets. ANS: C DIF: Medium TOP: Foreign Debt and Financial Crises
REF: 455 MSC: Factual
2. From a national perspective, borrowing permits a country to invest more than it can save and: a. import more than it can export. b. engage in the pattern of “infant industry” development. c. export more than it imports. d. acquire more prestige in international bond markets. ANS: A DIF: Easy REF: 458 TOP: Advantages and Disadvantages of Foreign Borrowing
MSC: Factual
3. Foreign borrowing is consistent with development when: a. the additional investment and imports are put to productive use. b. it increases total imports. c. it increases total savings. d. a country can afford the debt service payments. ANS: A DIF: Medium REF: 458 TOP: Advantages and Disadvantages of Foreign Borrowing
MSC: Factual
4. At the simple level, a country’s debt sustainability depends on: a. its foreign exchange rate and openness to trade. b. how much it owes and its capacity to make the required payments. c. potential for facing adverse weather conditions. d. willingness to devaluate its currency. ANS: B MSC: Factual
DIF: Medium
REF: 459
TOP: Debt Sustainability
5. The amount due for principal and interest payments in a given year is known as: a. total revenue. c. debt service. b. economic profit. d. redundancy. ANS: C MSC: Factual
DIF: Easy
REF: 459
TOP: Debt Sustainability
6. Which of the following is NOT used as a debt sustainability indicator? a. NPV/GDP b. debt/exports c. short-term foreign debt/foreign exchange reserves d. number of illiquid borrowers ANS: D
DIF: Easy
REF: 460
TOP: Debt Indicators
MSC: Factual 7. The debt crisis of the 1980s saw a return to this problem that had been common in the nineteenth century: a. a military action against a neighboring country to stimulate the economy. b. sovereign defaults. c. leftist revolutions throughout the developing world. d. the return to Corn Laws. ANS: B DIF: Easy REF: 465 TOP: A Short History of Sovereign Lending Default
MSC: Factual
8. From 1980–1982, private creditors provided more than $50 billion a year in new lending to developing countries; by 1987, the net resource flow was: a. $1 billion. c. $125 million. b. $559 million. d. practically zero. ANS: D MSC: Factual
DIF: Easy
REF: 469
TOP: Impact on the Borrowers
9. Although the debt crisis effectively ended in the early 1990s for most middle-income countries that had borrowed heavily from commercial banks, it continued for many low-income countries, especially those in: a. the Middle East. c. Latin America. b. East Asia. d. Africa. ANS: D DIF: Easy REF: 473 TOP: The Debt Crisis in Low-Income Countries
MSC: Factual
10. Individual creditor governments provide debt rescheduling and debt reduction through an informal group called the: a. G-7. c. Paris Club. b. United Nations. d. Club of Rome. ANS: C DIF: Easy REF: 474 TOP: Debt Reduction in Low-Income Countries
MSC: Factual
11. The argument for providing debt relief for the poorest countries relies on the idea: a. of debt overhang. b. that creditor governments and institutions are to blame. c. that much was lent to poorly governed regimes. d. all of the above. ANS: D DIF: Medium REF: 474 TOP: Debt Reduction in Low-Income Countries
MSC: Conceptual
12. The first step for a country to receive debt reduction in the HIPC initiative is to: a. write a poverty reduction strategy paper. b. establish a track record of good economic policies. c. carry out specific policies for three years. d. double its growth rate. ANS: B
DIF: Easy
REF: 475
TOP: The Heavily Indebted Poor Country Initiative
MSC: Factual
13. Common characteristics of countries caught in the Asian crises include which of the following? a. middle and upper-middle national incomes b. receipt of large flows of private international capital c. large government budget deficits d. all of the above ANS: D DIF: Medium TOP: Emerging Market Financial Crises
REF: 480 MSC: Factual
14. Assume that, as was the case in 1994, Mexican goods are 22 percent more expensive than U.S. goods. If capital markets are fully liberalized and the Central Bank of Mexico is committed to a pegged peso/dollar exchange rate, then: a. foreign investors are likely to perceive this as an overvaluation of the peso. b. there is likely to be a net outflow of short-term capital. c. the central bank likely will need to raise interest rates. d. all of the above. ANS: D DIF: Medium TOP: Domestic Economic Weaknesses
REF: 482 MSC: Applied
15. Fixed exchange rates create problems because they: a. tend to encourage short-term capital inflows. b. tend to be undervalued. c. create instability among investors. d. all of the above. ANS: A DIF: Medium TOP: Domestic Economic Weaknesses
REF: 482 MSC: Conceptual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. External transfer problem, internal transfer problem ANS: Answer will vary 2. Insolvent borrower, illiquid borrower ANS: Answer will vary 3. Short-term loans, lender exposure ANS: Answer will vary
4. Liquidity, solvency ANS: Answer will vary 5. Stabilization, structural adjustment ANS: Answer will vary 6. Rational panics, bank runs ANS: Answer will vary 7. Debt overhang, heavily indebted poor countries (HIPC) ANS: Answer will vary 8. Brady plan, Brady bonds ANS: Answer will vary 9. Decision point, completion point ANS: Answer will vary 10. Moral hazard, standstill ANS: Answer will vary 11. Odious debt, Spanish-American War ANS: Answer will vary 12. Default, debt restructuring ANS: Answer will vary
Chapter 14 : Foreign Aid MULTIPLE CHOICE 1. When the U.S. government provides a grant to build an electricity generator: a. it counts as foreign aid. b. it does not count as foreign aid. c. it depends; sometimes it counts as foreign aid. d. it counts as private assistance. ANS: A MSC: Applied
DIF: Easy
REF: 501
TOP: What Is Foreign Aid?
2. When Citibank provides a commercial loan to build an electricity generator: a. it counts as foreign aid. b. it does not count as foreign aid. c. it depends; sometimes it counts as foreign aid. d. it counts as private assistance. ANS: B MSC: Applied
DIF: Easy
REF: 501
TOP: What Is Foreign Aid?
3. A loan counts as aid if it has a grant element of at least: a. 10 percent. b. 25 percent. c. 50 percent. d. none of the above; it never counts as a grant. ANS: B MSC: Factual
DIF: Easy
REF: 501
TOP: What Is Foreign Aid?
4. When the U. S. government provides a grant to purchase military equipment: a. it counts as foreign aid. b. it does not count as foreign aid. c. it depends; sometimes it counts as foreign aid. d. it counts as private assistance. ANS: B MSC: Applied
DIF: Easy
5. Most aid has been given: a. bilaterally. b. multilaterally. ANS: A MSC: Factual
DIF: Medium
REF: 501
TOP: What Is Foreign Aid?
c. through private organizations. d. through individuals. REF: 503
TOP: Who Gives Aid?
6. In terms of total amount, which country gives the most aid? a. United States c. United Kingdom b. Japan d. Norway ANS: A
DIF: Easy
REF: 503
TOP: Who Gives Aid?
MSC: Factual 7. Surveys indicate that the U.S. public believes the United States spends how much of its budget on aid? a. 1 percent c. 10 percent b. 5 percent d. 20 percent ANS: D MSC: Factual
DIF: Easy
REF: 503
TOP: Who Gives Aid?
8. In terms of aid as a percentage of GNI, which country gives the most aid? a. United States c. United Kingdom b. Japan d. Sweden ANS: D MSC: Factual
DIF: Easy
REF: 503
TOP: Who Gives Aid?
9. Primarily, the World Bank provides: a. foreign aid. b. loans to middle-income countries at market rates. c. investment in private companies. d. settlement of international disputes. ANS: B MSC: Factual
DIF: Easy
REF: 503
TOP: Who Gives Aid?
10. True or False: Being a former colony substantially increases the probability of receiving aid flows. a. True b. False c. True only for former colonies of Great Britain d. True only for older colonies ANS: A MSC: Factual
DIF: Medium
REF: 514
TOP: The Motivations for Aid
11. Beginning in 2002, which country became the largest aid recipient in the world? a. Iraq c. Vietnam b. Iran d. India ANS: A MSC: Factual
DIF: Easy
REF: 514
TOP: The Motivations for Aid
12. Aid falls to about 50 percent of its peak level after: a. 6 years. c. 18 years. b. 12 years. d. 24 years. ANS: B MSC: Factual
DIF: Medium
13. As aid increases, GDP growth: a. increases. b. decreases. c. stays the same.
REF: 514
TOP: The Motivations for Aid
d. none of the above; there is no definite relationship between the two. ANS: D MSC: Factual
DIF: Medium
REF: 520
TOP: View 1
14. A study on the flypaper effect in Indonesia revealed that aid: a. crowded out government spending. c. was neutral to government spending. b. crowded in government spending. d. was harmful to government spending. ANS: B MSC: Factual
DIF: Easy
REF: 526
TOP: View 2
15. Aid has helped in all of the following areas except: a. health. c. emergency assistance. b. education. d. stimulating tax revenue. ANS: D MSC: Factual
DIF: Medium
REF: 533
TOP: View 3
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Official development assistance (ODA), Development Assistance Committee (DAC) ANS: Answer will vary 2. Foreign aid, nonconcessional assistance ANS: Answer will vary 3. Bilateral assistance, multilateral assistance ANS: Answer will vary 4. Commitment to development index, foreign aid ANS: Answer will vary 5. Iraq, motivations for aid ANS: Answer will vary 6. Aid, growth
ANS: Answer will vary 7. Flypaper effect, government spending ANS: Answer will vary 8. Absorptive capacity, aid ANS: Answer will vary 9. Aid dependency, aid agencies ANS: Answer will vary 10. Future of aid, recipient participation ANS: Answer will vary
Chapter 15 : Managing Short-Run Crises in an Open Economy MULTIPLE CHOICE 1. During the 1970s, 1980s, and 1990s, many economies became unbalanced because of: a. the expansion of the WTO. b. the emergence of NAFTA and the EU as powerful reenergized economic forces. c. world market conditions and macroeconomic mismanagement. d. China’s emergence as a new global economic power. ANS: C DIF: Medium REF: 545 TOP: Managing Short-Run Crises in an Open Economy
MSC: Factual
2. The two main policy approaches for correcting macroeconomic imbalances are: a. changes in aggregate expenditure and adjustments to the exchange rate. b. changes in expenditure and price controls. c. adjustments to the exchange rate and price controls. d. price controls and trade restrictions. ANS: A DIF: Medium REF: 545 TOP: Managing Short-Run Crises in an Open Economy
MSC: Factual
3. For purposes of macroeconomic analysis, a country is small when: a. its population is less than 20 million. b. it is a price taker in world markets for its exports and imports. c. its macroeconomic imbalances have no significant effect on other countries. d. its domestic economy is not significantly influenced by international trade and financial flows. ANS: B DIF: Medium REF: 546 TOP: Equilibrium in a Small, Open Economy
MSC: Factual
4. Which of the following should be classified as a nontradable? a. rural road construction services b. wheat production wholly consumed within the country c. computer equipment that cannot be produced locally d. all of the above ANS: A DIF: Medium REF: 546 TOP: Equilibrium in a Small, Open Economy
MSC: Applied
5. The domestic price of a tradable good is determined by which equation? a. Pt = e/P*t c. Pt = eP*t * b. Pt = P t/e d. Pt = e –P*t ANS: C DIF: Difficult REF: 546 TOP: Equilibrium in a Small, Open Economy
MSC: Factual
6. If the world price of cotton is $.75 per pound and Mexico’s exchange rate is 14 pesos per dollar, then the peso price of cotton in Mexico (in the absence of distortionary policies) is: a. P.08 per pound. c. P10.5 per pound. b. P.125 per pound. d. P8 per pound.
ANS: C DIF: Difficult REF: 546 TOP: Equilibrium in a Small, Open Economy
MSC: Applied
7. The defining characteristic of equilibrium in the Australian model is that: a. the economy is operating on its production frontier. b. the market for nontradables is in equilibrium. c. the market for tradables is in equilibrium. d. both the market for nontradables and the market for tradables are in equilibrium. ANS: D DIF: Medium TOP: Internal and External Balance
REF: 547 MSC: Factual
8. In terms of national income accounting concepts, absorption is defined as GNP: a. plus imports minus exports. b. plus exports minus imports. c. plus imports plus exports. d. minus investment expenditures minus exports. ANS: A DIF: Medium TOP: Internal and External Balance
REF: 547 MSC: Factual
9. A depreciation of the real exchange rate (as defined in the Australian model) means that the: a. price of tradables rises relative to the price of nontradables. b. price of tradables fall relative to the price of nontradables. c. official exchange rate (defined as local currency per unit of foreign currency) falls. d. official exchange rate rises more slowly than the average price of nontradables. ANS: A DIF: Medium REF: 550 TOP: Real Versus Nominal Exchange Rates
MSC: Factual
10. At any point to the left of the EB line in the phase diagram: a. there is inflationary pressure. b. there is an external surplus. c. fiscal and monetary policies are too loose. d. all of the above. ANS: B MSC: Conceptual
DIF: Medium
REF: 553
TOP: The Phase Diagram
11. Starting from disequilibrium in both markets, an increase in absorption will cause: a. the supply curve to shift to the left for both tradables (T) and nontradables (N). b. the demand curve to shift to the right for both T and N. c. the demand curve to shift to the right for N and to the left for T. d. no shifts in the curves, but the economy moves to a position of inflation and external deficit. ANS: B DIF: Medium TOP: Equilibrium and Disequilibrium
REF: 556 MSC: Factual
12. Starting from an equilibrium in both markets, an increase in absorption will cause: a. the supply curve to shift to the left for both tradables (T) and nontradables (N). b. the demand curve to shift to the right for both T and N.
c. the demand curve to shift to the right for N and to the left for T. d. no shift in the curves, but the economy moves to a position of inflation and external surplus. ANS: D DIF: Medium TOP: Equilibrium and Disequilibrium
REF: 556 MSC: Factual
13. Which of the following events will cause the external-balance line in the phase diagram to shift to the left? a. an appreciation of the exchange rate b. a decline in the interest rate on foreign debt c. a decline in the absorption d. a decline in export earnings ANS: D DIF: Easy TOP: Equilibrium and Disequilibrium
REF: 556 MSC: Factual
14. Which of the following is a self-correcting tendency in the market when an economy is in the inflation-and-deficit zone? a. The loss of foreign exchange reserves compels the government to impose price controls and trade controls. b. The macroeconomic imbalances cause international lenders to increase the interest rate on the country’s external debt. c. Domestic inflation reduces the real exchange rate. d. All of the above. ANS: C DIF: Medium TOP: Equilibrium and Disequilibrium
REF: 556 MSC: Conceptual
15. Using the exchange rate as an anchor for an adjustment program means: a. letting the market set the nominal exchange rate. b. maintaining a crawling peg such that the real exchange rate remains fixed. c. fixing the official, nominal exchange rate. d. imposing strict controls over foreign exchange transactions. ANS: C DIF: Medium TOP: Equilibrium and Disequilibrium
REF: 556 MSC: Conceptual
16. An unexpected feature of Chile’s stabilization program in the 1970s was that: a. export growth was weak after the real exchange rate appreciated. b. the economy stabilized without requiring fiscal austerity. c. the market’s self-correcting mechanisms worked smoothly and quickly to eliminate the imbalances. d. inflation stayed high despite tight monetary policy and a big drop in the fiscal deficit. ANS: D DIF: Easy REF: 559 TOP: Pioneering Stabilization: Chile, 1973–1984
MSC: Factual
17. For an economy suffering from high inflation and a large external deficit, the standard prescription for stabilization entails fiscal: a. austerity to reduce demand and an appreciation of the exchange rate. b. austerity to reduce demand and a real appreciation. c. stimulus to expand supply and a real devaluation.
d. stimulus to expand supply and a real appreciation. ANS: A MSC: Factual
DIF: Medium
REF: 561
TOP: Stabilization Prices
18. For an economy that is experiencing internal balance with a large deficit, which package of stabilization measures is warranted? a. a real devaluation, with no changes in absorption b. a real appreciation, with no change in absorption c. a real devaluation, with fiscal austerity d. a real appreciation, with fiscal austerity ANS: C MSC: Factual
DIF: Difficult
REF: 560
TOP: Stabilization Prices
19. If the world price of tradables remains unchanged while the official exchange rate rises by 20 percent and domestic prices for nontradables rise by 50 percent, then the real exchange rate (as defined in the Australian model): a. rises by 30 percent. c. falls by 20 percent. b. falls by 30 percent. d. rises by 70 percent. ANS: C MSC: Applied
DIF: Difficult
REF: 560
TOP: Stabilization Prices
20. The onset of the Dutch disease in represented in the Australian model as a shift of the external-balance (EB) line to the: a. left. b. right. c. left combined with a shift of the internal-balance (IB) line to the left. d. right combined with a shift of the IB line to the left. ANS: B MSC: Factual
DIF: Easy
REF: 564
TOP: Dutch Disease
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Tradable goods, real exchange rate ANS: Answer will vary 2. Nontradable goods, absorption ANS: Answer will vary 3. Official exchange rate, devaluation
ANS: Answer will vary 4. Fiscal policy, austerity ANS: Answer will vary 5. Internal balance, external balance ANS: Answer will vary 6. Stabilization program, crawling-peg exchange rate regime ANS: Answer will vary 7. International Monetary Fund, balance of trade ANS: Answer will vary 8. Exchange-rate anchor, monetary policy ANS: Answer will vary 9. Phase diagram, self-correcting tendencies ANS: Answer will vary 10. Small economy, open economy ANS: Answer will vary
Chapter 16 : Agriculture and Development MULTIPLE CHOICE 1. Between 2006 and 2008, the world experienced its worst food crisis since the: a. swine flu epidemic. c. 1970s. b. 1930s. d. fall of the Soviet Union. ANS: C DIF: Easy TOP: Agriculture and Development
REF: 583 MSC: Factual
2. According to the Food and Agricultural Organization (FAO) of the United Nations, high food prices in 2008 pushed how many additional people into hunger? a. 20 million c. 57 million b. 40 million d. 1 billion ANS: B DIF: Easy TOP: Agriculture and Development
REF: 583 MSC: Factual
3. Among countries categorized as low income by the World Bank in 2008, agriculture accounts for: a. 10% of GDP c. 50% of GDP b. 25% of GDP d. 65% of GDP ANS: B DIF: Medium TOP: Agriculture and Development
REF: 583 MSC: Factual
4. Among the poor households of developing countries, household food expenditures amount to: a. 25% of income. c. 50–70% of income. b. 30–50% of income. d. 90% of income. ANS: C DIF: Medium REF: 584 TOP: Unique Characteristics of the Agricultural Sector
MSC: Factual
5. All of the following are key characteristics of the agricultural production function EXCEPT: a. seasonality. c. sources of technical change. b. geographic dispersion. d. diminishing returns to labor. ANS: D DIF: Medium REF: 584 TOP: Unique Characteristics of the Agricultural Sector
MSC: Factual
6. The argument that the proportion of income spent on food declines as income rises is known as: a. Say’s Law. c. Engel’s law. b. the Malthusian trap. d. health consciousness. ANS: C MSC: Factual
DIF: Easy
REF: 587
TOP: Structural Transformation
7. ___________ is the systematic changes in sector proportions as economies grow. a. Structural transformation c. Developmental devolution b. Technical innovation d. Unit-elastic supply ANS: A
DIF: Medium
REF: 587
TOP: Structural Transformation
MSC: Factual 8. In the growth process, two-sector models recognize the prime importance of: a. time and money. c. imports and exports. b. labor and capital. d. complements and substitutes. ANS: B DIF: Medium REF: 590 TOP: Two-Sector Models of Development
MSC: Factual
9. Disguised unemployment refers to: a. the underground economy. b. unemployment that fluctuates in the rural countryside. c. earning two incomes annually, but reporting only one. d. people who claim to be looking for a job, but have no intention of working. ANS: B MSC: Factual
DIF: Easy
REF: 591
TOP: The Labor Surplus Model
10. These two basic assumptions of David Ricardo have played an important role in two-sector models: a. rents and taxation. b. buyers and sellers. c. diminishing returns and labor surplus. d. constant returns to scale and economic efficiency. ANS: C MSC: Factual
DIF: Medium
REF: 591
TOP: The Labor Surplus Model
11. The Fei-Ranis model can be used to explore the implications of: a. population growth and a rise in agricultural productivity. b. enclosure movements and the rise of urban laborers. c. becoming a resource exporting country. d. using barter as the primary method of exchanging goods. ANS: A MSC: Factual
DIF: Medium
REF: 591
TOP: The Labor Surplus Model
12. The neoclassical two-sector model was developed and formalized by: a. Alfred Marshall. c. Dale Jorgenson. b. John Stuart Mill. d. John Maynard Keynes. ANS: C MSC: Factual
DIF: Easy
REF: 591
TOP: The Labor Surplus Model
13. The neoclassical model argues that there must be a balance between: a. imports and exports. b. industry and agriculture. c. tariffs and quotas. d. the pace of modernization and respect for tradition. ANS: B MSC: Factual
DIF: Medium
REF: 591
TOP: The Labor Surplus Model
14. The nutritional linkage from agriculture to economic growth is based on evidence gathered by which Nobel-winning economic historian? a. Robert Fogel c. Joseph Schumpeter b. Robert Heilbroner d. Leon Walras ANS: A DIF: Easy TOP: Agriculture and Economic Growth 15. Stability linkage operates primarily at the: a. microeconomic level. b. daily exchange rate. ANS: C DIF: Medium TOP: Agriculture and Economic Growth
REF: 604 MSC: Factual
c. macroeconomic level. d. poorest areas in a society. REF: 604 MSC: Factual
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Food and Agricultural Organization (FAO), food price shock ANS: Answer will vary 2. Agricultural productivity, technical change ANS: Answer will vary 3. Structural transformation, Engel’s Law ANS: Answer will vary 4. Agricultural output per worker, nonagricultural output per worker ANS: Answer will vary 5. Diminishing returns, labor surplus ANS: Answer will vary 6. Marginal product of labor, average product ANS: Answer will vary 7. Subsistence level, institutionally fixed wage
ANS: Answer will vary 8. Labor surplus model, neoclassical model ANS: Answer will vary 9. Intersectoral linkages, indirect linkages ANS: Answer will vary 10. Subsistence-oriented farmers, market-oriented farmers ANS: Answer will vary
Chapter 17 : Agricultural Development: Technology, Policies, and Institutions MULTIPLE CHOICE 1. Before the 1950s, agriculture in nearly all developing countries relied on: a. hybrid crops and irrigation. b. traditional technologies and crop varieties. c. the new and emerging Green Revolution. d. grants and charity provided by the developed nations of the world. ANS: B MSC: Factual
DIF: Easy
REF: 619
TOP: Agricultural Development
2. By the 1960s, large public investments in crop science had begun to pay off in the form of: a. crop rotation and drip irrigation. b. the move toward organic farming. c. seeds for improved crop varieties and packages of complementary inputs. d. making barley and maize the new main staples at the dinner table. ANS: C MSC: Factual
DIF: Easy
REF: 619
TOP: Agricultural Development
3. The Green Revolution has had the least impact thus far in: a. East Asia. c. West Asia. b. Latin America. d. sub-Saharan Africa. ANS: D MSC: Factual
DIF: Easy
REF: 619
TOP: Agricultural Development
4. The months preceding the next harvest, when prices are at their highest, are known as the: a. drought. c. anticipatory season. b. lean season. d. season of hope. ANS: B DIF: Easy REF: 620 TOP: Characteristics of Traditional Agriculture and Agricultural Systems MSC: Factual 5. The problem with the practice of shifting cultivation is that it has been linked to: a. price distortions in the marketplace. b. increased reports of farmers suffering from “spatial dislocation.” c. soil erosion. d. outbreaks of various disease strains. ANS: C MSC: Factual
DIF: Medium
REF: 621
TOP: Agricultural Systems
6. It is currently estimated that for the time period ranging from 1997 to 2020, cereal demands in developing nations will rise: a. 15 percent. c. 40 percent. b. 35 percent. d. 50 percent. ANS: D
DIF: Medium
REF: 621
TOP: Agricultural Systems
MSC: Factual 7. Which economist compared the actual performance of agricultural producers with their potential performance? a. Arthur Mosher c. Esther Duflo b. Angus Deaton d. Simon Kuznets ANS: A DIF: Easy REF: 622 TOP: Diagnosing the Constraints to Agricultural Development
MSC: Factual
8. The distribution of yields that are possible when all farmers maximize their profits given the opportunities available to them in a given environment is known as: a. excess profit. c. allocative efficiency. b. producer surplus. d. economic ceiling. ANS: D DIF: Medium REF: 622 TOP: Diagnosing the Constraints to Agricultural Development
MSC: Factual
9. Agronomist Norman Borlaug is often referred to as the father of: a. economic development. c. the World Bank. b. the Green Revolution. d. radical land redistribution. ANS: B MSC: Factual
DIF: Easy
REF: 628
TOP: The Green Revolution
10. By the year 2002, what percentage of cropland in sub-Saharan Africa was irrigated? a. 4 percent c. 15 percent b. 12 percent d. 22 percent ANS: A MSC: Factual
DIF: Medium
REF: 628
TOP: The Green Revolution
11. Since the 1980s, the growth rate of yields in the world’s major cereal crops has: a. trended steadily upward. b. been mostly consistent and remained the same over the past 30 years. c. trended strongly downward. d. fluctuated radically because of the objectives of different governmental policies around the world. ANS: C DIF: Medium REF: 632 TOP: Recent Trends in Agricultural Productivity
MSC: Factual
12. The food policy dilemma, as defined by Timmer, Falcon, and Pearson, refers to: a. the continual battle within governments over what is to be grown in the agricultural sector. b. the push to move agricultural laborers to industrial jobs in the urban areas. c. the production of agricultural goods for domestic consumption vs. for export. d. conflicting interests of producers and consumers in regard to food prices. ANS: D DIF: Easy TOP: Raising the Economic Ceiling
REF: 637 MSC: Factual
13. What is the margin between farm-gate price and retail price called?
a. marginal return b. net profit ANS: C MSC: Factual
c. marketing margin d. base price DIF: Medium
REF: 643
TOP: How Much to Produce?
14. Share cropping is the dominant farming contractual arrangement in: a. South Asia. c. the Middle East. b. Latin America. d. sub-Saharan Africa. ANS: A DIF: Easy REF: 653 TOP: Institutions for Agricultural Development
MSC: Factual
15. Economists Derek Headey and Shenggen Fan have concluded that 60 percent to 70 percent of the increase in corn prices is due to: a. the use of corn as improved feed for cattle to avoid future outbreaks of “mad cow” disease. b. the increasing cost of transportation. c. the substitution of corn for higher profit-oriented crops. d. the diversion of corn for biofuels production. ANS: D MSC: Factual
DIF: Medium
REF: 659
TOP: Causes of the Crisis
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Traditional agriculture, Green Revolution ANS: Answer will vary 2. Planting and harvesting time, the lean season ANS: Answer will vary 3. Shifting cultivation, slash and burn ANS: Answer will vary 4. Pastoral nomadism, settled agriculture ANS: Answer will vary 5. Intensive annual crops, mixed farming
ANS: Answer will vary 6. Perennial crops, livestock systems ANS: Answer will vary 7. Actual performance, potential performance ANS: Answer will vary 8. Technical ceiling, technology diffusion ANS: Answer will vary 9. International Maize and Wheat Improvement Center (CIMMYT), International Rice Research Institute (IRRI) ANS: Answer will vary 10. Intercropping, optimal crop mix ANS: Answer will vary 11. Overvalued exchange rates, ceilings on interest rates ANS: Answer will vary 12. Supply response, nonprice constraints ANS: Answer will vary 13. Latifunda, minifunda ANS: Answer will vary 14. Fixed-rent tenancy, share cropping ANS: Answer will vary 15. Common property resources, land tilting ANS: Answer will vary
16. Supply shocks, demand shocks ANS: Answer will vary
Chapter 18 : Trade and Development MULTIPLE CHOICE 1. The bulk of world trade originates and is exchanged between ________ economies. a. high-income c. developing b. low-income d. closed ANS: A MSC: Factual
DIF: Easy
REF: 667
TOP: Trade Trends and Patterns
2. Which country is the largest trading partner of the United States? a. Mexico c. China b. Canada d. Japan ANS: B MSC: Factual
DIF: Easy
REF: 667
TOP: Trade Trends and Patterns
3. In 2009, which nation replaced Germany as the world’s largest exporter of goods? a. United States c. Russia b. Japan d. China ANS: D MSC: Factual
DIF: Easy
REF: 667
TOP: Trade Trends and Patterns
4. Almost half of Asia’s exports today are sent to: a. North America. c. other Asian countries. b. Europe. d. the Middle East. ANS: C MSC: Factual
DIF: Easy
REF: 667
TOP: Trade Trends and Patterns
5. ________ prices are domestic prices without trade. a. Autarky c. Absolute b. Commodity d. National ANS: A MSC: Factual
DIF: Medium
REF: 674
TOP: Comparative Advantage
6. A nation will have a(n) ________ of a good when its production of that good is relatively more productive than that of another nation. a. absolute advantage c. relative advantage b. comparative advantage d. trade advantage ANS: B MSC: Factual
DIF: Medium
REF: 674
TOP: Comparative Advantage
7. ________ is the ratio of the prices a nation receives for the goods it exports relative to the prices it receives for the goods it imports. a. Exchange equilibrium c. Balance of trade b. International terms of trade d. Net exports
ANS: B MSC: Factual
DIF: Medium
REF: 677
TOP: The Benefits of Trade
8. Gains from trade are made up of the gains from ________ plus the gains from ________. a. population size; diversification c. technology; education b. exchange; diversification d. exchange; specialization ANS: D MSC: Factual
DIF: Medium
REF: 677
TOP: The Benefits of Trade
9. Most world trade involves manufactured goods, but ________ still represent about one-third of the value of all traded goods. a. primary products c. intermediate materials b. secondary products d. processed materials ANS: A MSC: Factual
DIF: Easy
REF: 683
TOP: Trading Primary Products
10. Adam Smith’s term for the situation in which a country has the capacity to produce more than it can sell in the domestic market is known as: a. safety stock. c. capacity maximization. b. leftover goods. d. vent for surplus. ANS: D MSC: Factual
DIF: Medium
REF: 683
TOP: Trading Primary Products
11. Expanded production of primary products can stimulate ________ by making lower-cost primary goods available as inputs to other industries. a. backward linkages c. horizontal linkages b. forward linkages d. vertical linkages ANS: B MSC: Factual
DIF: Medium
REF: 683
TOP: Trading Primary Products
12. Tariff escalation makes it harder for developing nations to move up the value-added ladder by imposing higher tariffs on imports of ________ than on ________. a. raw materials; processed goods c. primary goods; secondary goods b. processed goods; raw materials d. natural resources; finished products ANS: B MSC: Factual
DIF: Medium
REF: 683
TOP: Trading Primary Products
13. Raul Prebisch, Hans Singer, and other economists argued that, over the long run, prices for primary commodity exports on the world markets tend to fall relative to prices of manufactured goods. This concept is known as: a. export pessimism. c. export cynicism. b. import optimism. d. trade confidence. ANS: A MSC: Factual
DIF: Easy
REF: 688
TOP: Export Pessimism
14. Which term labels the problem that emerging economies could face when experiencing export booms of primary commodities? a. Holland sickness c. Netherlands syndrome b. Dutch disease d. Dutch illness ANS: B MSC: Factual
DIF: Medium
REF: 693
TOP: Dutch Disease
15. Which of the following is the price at which anyone holding foreign exchange can convert it into local currency? a. real exchange rate c. foreign exchange rate b. nominal exchange rate d. national exchange rate ANS: B MSC: Factual
DIF: Easy
REF: 693
TOP: Dutch Disease
16. An increase in nontradables prices causes the real exchange rate (RER) to: a. appreciate. c. remain unchanged. b. depreciate. d. equal the nominal exchange rate. ANS: A MSC: Factual
DIF: Easy
REF: 693
TOP: Dutch Disease
17. The best prevention for Dutch disease effects is to avoid or reverse the initial real ________ of the currency. a. appreciation c. devaluation b. depreciation d. purchasing power ANS: A MSC: Factual
DIF: Easy
REF: 693
TOP: Dutch Disease
18. ________ acts like a tax on economic activity and encourages rent-seeking behavior rather than productive investment. a. Fraud c. Lobbying b. Bribery d. Corruption ANS: D MSC: Factual
DIF: Easy
REF: 703
TOP: The Resource Trap
19. According to British economist Paul Collier, which of the following significantly increases the probability that a nation will experience a civil war? a. low income b. slow growth c. dependence on primary commodity exports d. all of the above ANS: D MSC: Factual
DIF: Easy
REF: 703
TOP: The Resource Trap
20. Which of the following refers to the accumulation of foreign assets, usually financed by primary product export earnings? a. offshore bank account c. sovereign wealth fund b. foreign investment d. international hedge fund
ANS: C MSC: Factual
DIF: Medium
REF: 705
TOP: Breaking the Resource Curse
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Open trade, winners and losers ANS: Answer will vary 2. Global exchange, high-income nations ANS: Answer will vary 3. Openness to trade, rate of growth in GDP per capita ANS: Answer will vary 4. Geographic location, trade ANS: Answer will vary 5. Absolute advantage, comparative advantage ANS: Answer will vary 6. Primary products, manufactured goods ANS: Answer will vary 7. Exporting primary products, forward linkages ANS: Answer will vary 8. Export pessimism, relative price movements ANS: Answer will vary 9. Dutch disease, exchange rates
ANS: Answer will vary 10. Tradable goods, nontradable goods ANS: Answer will vary 11. Politics, resource traps ANS: Answer will vary
Chapter 19 : Trade Policy MULTIPLE CHOICE 1. What was GATT? a. an international organization that oversaw multilateral trade negotiations and tariff policies b. a voluntary export-restriction agreement governing international trade in textiles c. a free-trade area in southeast Asia d. an Eastern European trading bloc that disbanded in the early 1990s ANS: A MSC: Factual
DIF: Easy
REF: 709
TOP: Trade Policy
2. The essence of outward-looking development is that it: a. relies on primary exports until domestic industry is efficient enough to compete in export markets. b. gets prices right and lets the free market dictate the development of manufactured exports. c. establishes an incentive system that induces firms to seek export markets. d. subsidizes export-oriented manufacturing firms. ANS: C MSC: Factual
DIF: Easy
REF: 709
TOP: Trade Policy
3. When the government auctions import licenses, it captures the quota rent. Who gets the quota rent when the government administratively allocates import licenses? a. the foreign producer of the imported product b. the importers c. the domestic consumer d. the domestic producers of the import substitutes ANS: B MSC: Conceptual
DIF: Medium
REF: 714
TOP: Import Quotas
4. The effective rate of protection measures how much: a. investment will be drawn into the protected industry. b. profit can be earned by producing the protected product. c. the margin of price over input cost for domestic producers can exceed the margin at world market prices. d. the price of the product increases due to the tariff. ANS: C MSC: Factual
DIF: Easy
REF: 715
TOP: Effective Rates of Protection
5. Effective rates of protection in developing countries typically: a. are very high for manufactured consumer goods. b. differ widely from industry to industry. c. discriminate against the agricultural sector. d. all of the above. ANS: D MSC: Factual
DIF: Easy
REF: 715
TOP: Effective Rates of Protection
6. Other things being equal, the effective rate of protection for domestic producers of steel nails will be higher: a. when the tariff on imported nails is low. b. when the tariff on imported steel is low. c. when the value added in converting steel to nails is high. d. all of the above. ANS: B MSC: Applied
DIF: Easy
REF: 715
TOP: Effective Rates of Protection
7. Zawana faces world prices for finished radios and radio components, which are 100 shillings and 95 shillings, respectively. There is a 30 percent tariff on imported radios and no tariff on imported components. The effective rate of protection for the radio assembly industry in Zawana is: a. 30 percent. c. 600 percent. b. 60 percent. d. 5 percent. ANS: C MSC: Applied
DIF: Medium
REF: 715
TOP: Effective Rates of Protection
8. Suppose Kenya imports film at a border price of $5 per roll. If there are 70 Kenyan shillings to the dollar and Kenya imposes a 50 percent tariff on imported film, then the domestic price of the imported film per roll is: a. 350 shillings. c. 525 shillings. b. 105 shillings. d. 400 shillings. ANS: C DIF: Medium REF: 719 TOP: The Two-Country Model with a Tariff
MSC: Applied
9. To minimize losses to consumer surplus, protection for infant industries should be provided through: a. subsidies. c. tariffs. b. quotas. d. an overvalued exchange rate. ANS: A MSC: Factual
DIF: Easy
REF: 720
TOP: Production Subsidies
10. Economists generally prefer the use of subsidies instead of protective tariffs because: a. subsidies create smaller deadweight losses. b. subsidies can be targeted more carefully. c. the visible cost of subsidies creates an automatic incentive to phase out protection. d. all of the above. ANS: D MSC: Conceptual
DIF: Easy
REF: 720
TOP: Production Subsidies
11. What effect do high import tariffs have on a country’s export industries? a. Tariffs reduce the demand for foreign exchange, so the home currency appreciates; this hurts exports. b. Tariffs reduce the demand for foreign exchange, so the home currency depreciates; this boosts exports. c. Tariffs reduce the demand for foreign exchange, so the home currency appreciates; this boosts exports. d. Tariffs do not affect exports, just imports.
ANS: A MSC: Applied
DIF: Easy
REF: 722
TOP: Exchange-Rate Management
12. Malawi’s currency, the kwacha, is overvalued when the kwacha price of foreign exchange rate is: a. too high compared to the equilibrium free-trade exchange rate. b. too low compared to the equilibrium free-trade exchange rate. c. rising. d. falling. ANS: A MSC: Applied
DIF: Medium
REF: 722
TOP: Exchange-Rate Management
13. Which of the following is NOT an argument in favor of export-oriented development over import substitution? a. International competition compels domestic producers to become more efficient. b. Exposure to world markets enhances opportunities to learn new technologies. c. Producing for export permits greater specialization. d. Outward-looking development favors firms that are better at rent seeking. ANS: D MSC: Factual
DIF: Medium
REF: 725
TOP: Export Orientation
14. What credit-market policy did the Korean government use to promote exports in its transition toward a rapidly industrializing nation? a. The government liberalized financial markets and let market forces allocate credit. b. The government set high interest rates on loans to exporters to screen out low-productivity investments. c. The government cut off credit to exporters to make them compete for loans overseas. d. The government used low-interest-rate loans as a form of indirect subsidy to exporters. ANS: D MSC: Factual
DIF: Medium
REF: 728
TOP: Favoring Exports
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Import substitution, infant industry ANS: Answer will vary 2. Tariff revenue, quota rent ANS: Answer will vary 3. Import quota, deadweight loss
ANS: Answer will vary 4. Overvalued exchange rate, import-GDP ratio ANS: Answer will vary 5. Rent seeking, import licensing ANS: Answer will vary 6. Outward-looking strategy, global market ANS: Answer will vary 7. East Asian Tigers, export-orientation ANS: Answer will vary 8. GATT, most-favored-nation principle ANS: Answer will vary 9. Trade liberalization, benefits of exporting ANS: Answer will vary 10. Effective rate of protection, value added ANS: Answer will vary 11. Trade protection, political economy ANS: Answer will vary
Chapter 20 : Sustainable Development MULTIPLE CHOICE 1. Which British economist predicted that continued population growth would bring the world to disaster? a. John Stuart Mill c. Adam Smith b. David Ricardo d. Thomas Malthus ANS: D MSC: Factual
DIF: Easy
REF: 757
TOP: Sustainable Development
2. Statistical estimations suggest that pollution peaks at what level of income per capita? a. $5,000 to $8,000 c. $21,000 to $24,000 b. $13,000 to $16,000 d. $29,000 to $32,000 ANS: A DIF: Medium REF: 759 TOP: Will Economic Growth Save or Destroy the Environment? MSC: Factual 3. The relationship between levels of pollution and levels of income generally follows an inverted-U shape and is commonly called the: a. pollution-level Laffer curve. c. sustainability Lorenz curve. b. environmental Kuznets curve. d. atmospheric Engel curve. ANS: B DIF: Medium REF: 759 TOP: Will Economic Growth Save or Destroy the Environment? MSC: Factual 4. Which organization declared the requirement that consumption by today’s generation must be accompanied by sufficient conservation of resources to protect the future generation’s ability to consume as well? a. Brundtland Commission c. Millennium Project b. The Club of Rome d. The Earth Institute ANS: A DIF: Easy REF: 761 TOP: Concept and Measurement of Sustainable Development
MSC: Factual
5. The combination of produced capital, natural capital, and intangible capital make up which of the following terms? a. complete wealth c. comprehensive wealth b. total assets d. comprehensive resources ANS: C DIF: Medium REF: 761 TOP: Concept and Measurement of Sustainable Development
MSC: Factual
6. The ________ suggests that a sustainable development path for countries that depend on nonrenewable resources requires the rents from those resources to be continually invested rather than consumed. a. Hartwick rule c. Malthus theory b. Solow growth model d. Ricardo rule ANS: A
DIF: Medium
REF: 761
TOP: Concept and Measurement of Sustainable Development
MSC: Factual
7. Adjusted net saving is equal to gross saving minus both the depreciation of made capital and the depreciation of: a. resource surpluses. c. trade assets. b. natural capital. d. reserve capital. ANS: B DIF: Medium TOP: Saving for a Sustainable Future
REF: 765 MSC: Factual
8. Which of the following are characteristics of common-pool resources (CPRs)? a. It is difficult to exclude anyone from using them. b. Use by one person reduces the availability of that resource for use by others. c. CPRs cannot be governed or regulated. d. Both a and b. ANS: D DIF: Easy TOP: Externalities and the Commons
REF: 770 MSC: Factual
9. The socially optimal outcome is achieved when the owner of property rights is a(n) ________ and sells output in a competitive market. a. experienced manager c. skilled land owner b. profit-maximizer d. wealthy investor ANS: B MSC: Factual
DIF: Medium
REF: 773
TOP: Property Rights
10. Public disclosure of information about a factory’s environmental performance to local stake holders is an example of: a. informal regulation. c. unofficial guidelines. b. formal regulation. d. transparency parameters. ANS: A MSC: Factual
DIF: Easy
REF: 781
TOP: Informal Regulation
11. Fragile environments of the world are largely populated by the world’s: a. rich. c. industrialized population. b. poor. d. developed economies. ANS: B MSC: Factual
DIF: Easy
REF: 782
TOP: Policy Failures
12. Which of the following is a function of forest income in rural livelihoods? a. safety nets to help compensate production shortfalls b. support for current consumption c. a source of income growth d. all of the above ANS: D DIF: Medium TOP: Poverty-Environment Linkages
REF: 785 MSC: Factual
13. As of 2006, which country overtook the United States as the world’s leading source of carbon dioxide emissions? a. India c. Russia b. China d. Japan ANS: B MSC: Factual
DIF: Easy
REF: 792
TOP: Global Climate Change
14. Response to the potential threats from global climate change requires simultaneous action on which two fronts? a. interception and adjustment c. alleviation and treatment b. mitigation and adaptation d. easing and restoration ANS: B MSC: Factual
DIF: Easy
REF: 792
TOP: Global Climate Change
15. The incremental cost of achieving a lower target in the amount of change in global temperature is a form of: a. climate insurance. c. weather price. b. atmosphere protection. d. global cooling fee. ANS: A MSC: Factual
DIF: Easy
REF: 792
TOP: Global Climate Change
SHORT ANSWER IDs and Paired-Concept Questions These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them. 1. Pollution, greenhouse gases ANS: Answer will vary 2. Resource rent, depletion ANS: Answer will vary 3. Present value, optimal target ANS: Answer will vary 4. Payments for environmental services (PES) programs, marketable permits ANS: Answer will vary 5. Common-pool resources, nonrenewable resource
ANS: Answer will vary 6. Marginal abatement cost, optimal pollution ANS: Answer will vary 7. Malthusian trap, neoclassical theory ANS: Answer will vary 8. Adjusted net saving, sustainable growth ANS: Answer will vary 9. Pollution, rich countries ANS: Answer will vary 10. Natural capital, intangible capital ANS: Answer will vary