Deck 41: The Economics of Developing Countries

Question 1

If two nations have different per capita income levels and their rates of economic growth are identical,then the absolute per capita income differential:

A) will remain constant.
B) may either widen or diminish.
C) will diminish.
D) will widen.

Answer 1

D

Question 2

The very poorest low-income DVCs typically have relatively:

A) low rates of economic growth and relatively high rates of population growth.
B) high rates of economic growth and relatively low rates of population growth.
C) low rates of both population growth and economic growth.
D) high rates of both population growth and economic growth.

Answer 2

A

Question 3

Which of the following is not inversely related to per capita income?

A) Mortality rates for children under five years of age.
B) Adult illiteracy rates.
C) Per capita energy consumption.
D) Population growth rates.

Answer 3

C

Question 4

The DVCs are:

A) located primarily in Northern Europe.
B) located primarily in Western Europe.
C) located primarily in Africa,Asia,and Latin America.
D) more or less evenly distributed over the various continents.

Question 5

In recent decades:

A) all countries classified as DVCs have had little or no economic growth.
B) some nations classified as DVCs have grown rapidly while others have grown very slowly or not at all.
C) all countries classified as DVCs have experienced rapid economic growth and rising living standards.
D) all countries classified as low-income DVCs have had declining per capita GDPs.

Question 6

Which of these sets of nations are considered high-income economies?

A) Brazil,Thailand,and South Africa.
B) China,India,and Russia.
C) Canada,Switzerland,and France.
D) United States,South Korea,and Mexico.

Question 7

To be classified as a low-income developing country,annual per capita income in 2010 needed to be:

A) $1,005 or less.
B) $580 or less.
C) $3,723 or less.
D) $925 or less.

Question 8

Examples of low-income developing countries are:

A) Switzerland,New Zealand,and Australia.
B) Germany,Austria,and Italy.
C) Sudan,Bangladesh,and Ethiopia.
D) Mexico,South Korea,and Brazil.

Question 9

In 2010,the United States had about ___ percent of the world's population and produced about ___ percent of the world output.

A) 20;30
B) 3.5;41
C) 10;32
D) 4.5;23

Question 10

Which of these sets of nations are low-income developing nations?

A) Brazil,Australia,and South Africa.
B) Uganda,Madagascar,and Burkina Faso.
C) Canada,Switzerland,and France.
D) Germany,South Korea,and Mexico.

Question 11

According to the United Nations,approximately what percentage of the world's income is received by the richest one-fifth of the world's population?

A) 20 percent.
B) 30 percent.
C) 60 percent.
D) 80 percent.

Question 12

In 2010,the GDP of the United States was approximately:

A) $5 trillion less than the GDP of the 144 DVCs in that year.
B) $5 trillion more than the GDP of the 144 DVCs in that year.
C) twice the GDP of the 144 DVCs in that year.
D) the same as the GDP of 144 DVCs in that year.

Question 13

Which of the following includes only examples of industrially advanced countries (IACs)?

A) The United States,Canada,and Mexico.
B) Pakistan,India,and China.
C) Japan,South Korea,and China.
D) Germany,Italy,and France.

Question 14

Assume a DVC has a real per capita output of $1,000 as compared to $20,000 for an IAC.If both nations realize a 4 percent growth of their real per capita outputs,after one year the absolute real per capita output gap will:

A) remain unchanged at $19,000.
B) increase by $760.
C) decrease by $1,000.
D) increase by $19,760.

Question 15

Which of the following does not correlate positively with economic growth?

A) Output per capita.
B) Life expectancy.
C) The percentage of the population engaged in agriculture.
D) The literacy rate.

Question 16

Approximately what percent of the world's income is received by the poorest one-fifth of the world's population?

A) 2.
B) 5.
C) 7.
D) 10.

Question 17

The absolute income gap between the IACs and the DVCs has:

A) remained constant over time.
B) increased over time.
C) decreased over time.
D) increased in nominal terms but decreased in real terms.

Question 18

If the real GDP of a DVC increases from $600 billion to $630 billion and its population increases from 200 million to 216 million,its real per capita GDP will have:

A) increased by about $83.
B) decreased by about $83.
C) remained unchanged.
D) decreased by about $19.

Question 19

The exports of the DVCs consist largely of:

A) high-technology goods.
B) raw materials and farm products.
C) manufactured goods.
D) services and financial capital.

Question 20

Most of the world's population lives in:

A) North America.
B) the DVCs.
C) Western Europe.
D) the IACs.

Question 21

Underemployment occurs:

A) when workers do not have jobs.
B) when farm workers become more productive.
C) when workers are working fewer hours than they desire or when they are working less productively than they are capable.
D) in IACs but not in the DVCs.

Question 22

Rapid population growth can be an obstacle to economic development:

A) because it can translate a relatively large increase in real output into a small increase in real output per capita.
B) because more investment will be required to simply maintain the quantity of capital goods per person.
C) because it may lead to the overutilization and therefore ecological degradation of farmland.
D) for all of these reasons.

Question 23

If population is expanding at the same rate as real output:

A) real per capita output will increase.
B) real per capita output will decrease.
C) real per capita output will remain unchanged.
D) living standards will increase.

Question 24

Population growth remains high in most DVCs:

A) because religious and sociocultural considerations favor large families.
B) because children may provide economic security for aging parents.
C) because children provide agricultural labor in rural areas.
D) for all of these reasons.

Question 25

Which of the following is typically not a problem for low-income DVCs?

A) Capital flight.
B) "Brain drains."
C) High saving rates that slow aggregate demand growth.
D) Poor infrastructure.

Question 26

Per capita incomes must first grow for birth rates to decline.This statement describes the:

A) human capital view of population growth.
B) traditional view of population growth.
C) capricious universe view.
D) demographic transition view of population growth.

Question 27

Suppose that Alpha's real output rose from $400 billion in year 1 to $428 billion in year 2.Its growth rate for this period was:

A) 14 percent.
B) 12 percent.
C) 9 percent.
D) 7 percent.

Question 28

Increases in the total real output of many DVCs do not increase the nation's standard of living because:

A) diminishing returns may be encountered in increasing total output.
B) population increases may dissipate the increase in real output.
C) disguised unemployment in agriculture will persist.
D) surplus farm labor may move from rural areas to industrial areas,causing unemployment.

Question 29

The "brain drain" problem in the DVCs refers to the fact that the best-educated workers:

A) are concentrated in the public,rather than the private,sector.
B) are concentrated in the private,rather than the public,sector.
C) are concentrated in urban,rather than rural,areas.
D) have emigrated from the DVCs to the IACs.

Question 30

For DVC per capita incomes to rise,birth rates must first be reduced.This statement describes the:

A) human capital view of population growth.
B) traditional view of population growth.
C) capricious universe view.
D) demographic transition view of population growth.

Question 31

Which of the following is characteristic of DVCs?

A) A large percentage of the labor force is in agriculture.
B) High levels of saving and investment.
C) High labor productivity.
D) High levels of training.

Question 32

The demographic transition view of population growth argues that,on average (and as perceived by parents),the marginal:

A) benefits of extra children are larger in IACs than in DVCs.
B) costs of extra children are lower in IACs than in DVCs.
C) costs of extra children are larger in IACs than in DVCs.
D) benefits of extra children are the same in DVCs and IACs.

Question 33

In the DVCs,underemployment frequently takes the form of:

A) factory workers who are working longer hours than they would prefer.
B) workers who are employed inefficiently in small industry when they could be highly productive in agriculture.
C) farmers whose productivity is very low.
D) craft workers and artisans who are replaced by simple machinery and equipment.

Question 34

If the real output of a DVC increases from $200 billion to $260 billion and its population increases from 100 to 120 million,its real per capita output will have:

A) remained unchanged.
B) increased by about $167.
C) increased by about $55.
D) decreased by about $20.

Question 35

At the present time,the largest percentage of the national incomes of the low-income DVCs is used for:

A) imports of the finished products of foreign industries.
B) food.
C) infrastructure.
D) industrial development.

Question 36

The populations of the developing nations are growing:

A) at about 5 percent per year.
B) at about the same rate as those of the industrially advanced nations.
C) slower than those of the industrially advanced nations.
D) faster than those of the industrially advanced nations.

Question 37

The demographic transition view alleges that:

A) the DVCs must first accept the use of birth control techniques to increase their standards of living.
B) population growth will only decline if mortality rates exceed birth rates.
C) if incomes first rise,population growth will then decline.
D) population growth has no bearing on a nation's per capita income.

Question 38

Over the next 15 years,___ out of every 10 people added to the world's population will be born in developing countries.

A) 6
B) 7
C) 8
D) 9

Question 39

The demographic transition concept suggests that:

A) effective birth control is the primary prerequisite of DVC income growth.
B) income growth must first occur before DVC birth rates will decline.
C) children are economic assets in the IACs but economic liabilities in the DVCs.
D) the IACs will have higher birth rates than the DVCs.

Question 40

Which attitude or custom is the most conducive to long-term economic growth?

A) Focus on group contentment rather than individual achievement.
B) The belief there is little or no correlation between an individual's economic actions and her or his economic fortunes.
C) Direct connections between individual efforts (including educational efforts)and economic rewards.
D) Use of the majority of resources for religious structures and ceremonies.

Question 41

It is sometimes difficult to transfer the advanced technologies of the industrialized nations to the DVCs because:

A) the technologies of the IACs are frequently based on relatively expensive labor and relatively cheap capital.
B) the resource endowments of the IACs and the DVCs are highly similar.
C) international patent laws prohibit such transfers.
D) the technologies of the IACs are frequently based on relatively cheap labor and relatively expensive capital.

Question 42

If a technological advance expands output and requires a smaller investment in capital goods,this technological advance:

A) is capital-using.
B) must involve nonfinancial investment.
C) is capital-saving.
D) must pertain to the infrastructure.

Question 43

Infrastructure is best illustrated by:

A) farm equipment.
B) school buildings and highways.
C) machinery and equipment for the production of consumer goods.
D) government tax revenues.

Question 44

Investment in kind refers to the possibility that:

A) DVCs will invest for the purpose of becoming less dependent on world markets.
B) a DVC will overinvest in industries in which it has a comparative advantage,disrupting its development program.
C) newly established manufacturing firms may expand by reinvesting their profits.
D) surplus labor in,say,agriculture can be diverted to the production of simple capital goods such as earthen dams.

Question 45

Capital flight is a problem to DVCs because it:

A) causes the value of a DVC's currency to appreciate.
B) reduces the volume of DVC investment.
C) reduces the flow of foreign aid from the IACs.
D) causes inflation in the DVCs.

Question 46

Which of the following describes the vicious circle of poverty?

A) Government spending for public goods is inflationary and this undermines incentives to save and invest.
B) Higher incomes increase consumption at the expense of capital accumulation,which causes income to fall.
C) Low per capita incomes cause low levels of saving and investment,which mean low productivity and therefore low incomes.
D) A growing national income increases the demand for money,which increases the interest rate and reduces investment.

Question 47

Capital flight from the DVCs may be caused by:

A) a fear of government privatization efforts.
B) slow domestic inflation.
C) low rates of domestic taxation.
D) risks of severe fluctuations in exchange rates.

Question 48

The capricious universe view indicates that:

A) in the long run,"acts of God" have contained population growth and thus contributed to economic development.
B) DVCs will obtain biological and chemical weapons and force the redistribution of world wealth.
C) there is little or no correlation between one's efforts and the rewards he or she receives.
D) international and civil wars have been the primary impediment to growth.

Question 49

Most of the DVCs find it difficult to accumulate capital goods because:

A) the terms of trade prohibit the inflow of private capital from the advanced nations.
B) it is very difficult to restrict consumption and thus to free resources for capital goods production.
C) domestic monetary policies designed to achieve price stability result in low interest rates,thereby discouraging investment.
D) investment is interest inelastic in DVCs.

Question 50

The ability of the DVCs to use the technologies of the IACs is somewhat limited because:

A) the IACs have patents on most of their technologies.
B) the IACs and the DVCs have much different resource endowments.
C) the technologies of the IACs rely heavily on unskilled labor.
D) IAC technologies are labor-intensive,while DVC technologies are capital-intensive.

Question 51

Capital flight refers to:

A) the tendency of large corporations of IACs to build new plants in the DVCs because labor is cheaper.
B) DVC citizens accumulating or investing their savings in the IACs.
C) the high international mobility of speculative funds caused by variations in exchange rates.
D) the tendency of DVCs to overinvest in commercial aircraft.

Question 52

Which of the following is not part of a nation's infrastructure?

A) Communications facilities.
B) Roads,highways,and bridges.
C) The electrical power system.
D) Industrial plants and equipment.

Question 53

An economy's infrastructure refers to its:

A) public capital goods,such as roads,schools,and power facilities.
B) financial and banking institutions.
C) land and natural resources.
D) surplus supplies of unskilled labor.

Question 54

Economic growth may hinge on whether individuals and institutions within a nation want growth badly enough to change their traditional ways of doing things.This statement refers to:

A) in-kind investment.
B) the capricious universe view.
C) human capital investment.
D) the will to develop.

Question 55

The "brain drain" problem in the DVCs refers to the fact the best-educated workers:

A) are reluctant to become entrepreneurs.
B) are concentrated in rural areas where their skills are underutilized.
C) often immigrate to industrialized countries.
D) are reluctant to work in the public sector.

Question 56

Suppose that surplus labor in a Pakistani village is used to build a medical clinic and dig several wells.This is an illustration of:

A) foreign aid.
B) capital-saving investment.
C) in-kind investment.
D) technological advance.

Question 57

All of the following contribute to low investment spending in DVCs except:

A) low rates of saving.
B) inadequacy of public capital goods (infrastructure).
C) political instability.
D) expensive labor.

Question 58

The low per capita outputs of the DVCs are explained by:

A) insufficient saving and investment.
B) overinvestment in human capital.
C) slow population growth.
D) excessively rapid technological advance.

Question 59

When economists refer to capital flight,they are speaking of an:

A) outflow of financial capital from a certain country.
B) outflow of real capital from a certain country.
C) outflow of financial and real capital from a certain country.
D) outflow of human capital from a certain country.

Question 60

The idea that a person's productive efforts and his or her economic rewards are unrelated:

A) is the neocolonialism view of economic development.
B) describes the vicious circle of poverty.
C) is the surplus labor theory of economic development.
D) is the capricious universe view.

Question 61

A highly active role by government may be needed to promote economic growth in low-income DVCs because of:

A) a lack of infrastructure.
B) rigid law enforcement in the country.
C) excessive local entrepreneurship.
D) all these reasons.

Question 62

Which of these sets of countries has the greatest degree of internal corruption as of 2012,according to Transparency International?

A) Somalia,Afghanistan,and Venezuela.
B) Finland,Denmark,and New Zealand.
C) United States,Greece,and Italy.
D) Mexico,China,and India.

Question 63

An increasing share of the private capital flows to DVCs in recent years has been in the form of:

A) interest-free government loans.
B) educational and training assistance.
C) direct foreign investment.
D) bank loans.

Question 64

In recent years,U.S.foreign aid has been:

A) less than 1 percent of its output.
B) about 2 percent of its output.
C) about 3 percent of its output.
D) about 5 percent of its output.

Question 65

In recent years,the industrially advanced nations as a group have provided foreign aid amounting to about what percentage of their aggregate outputs?

A) 0.25 percent.
B) 0.7 percent.
C) 1 percent.
D) 2 percent.

Question 66

Which of the following is generally not an effective strategy to promote DVC growth?

A) Microlending.
B) Human capital development.
C) Fighting wars against neighbors to obtain resources and stimulate aggregate demand through arms spending.
D) Controlling inflation.

Question 67

The World Bank:

A) provides military assistance to those nations interested in improving national defense.
B) makes and guarantees loans for basic development projects such as the construction of dams,roads,and schools.
C) provides gold for DVCs that want to go on the gold standard.
D) provides short-term loans to DVCs that are incurring balance of payments deficits.

Question 68

The international agency that lends money to DVCs for economic development projects is the:

A) World Bank.
B) International Monetary Fund (IMF).
C) World Trade Organization (WTO).
D) World Credit Union.

Question 69

Foreign aid to the DVCs has been criticized:

A) because it may generate economic dependence on the IACs.
B) because it encourages the centralization of government power over the economy.
C) because government corruption in the DVCs causes aid to be misused.
D) for all of these reasons.

Question 70

Government-provided foreign aid to developing countries has:

A) averaged about 1 percent of the IACs' GDP each year.
B) increased sharply since 1995.
C) dwarfed the size of foreign direct investment to the DVCs in recent years.
D) declined in the late 1990s but increased from 2000 to 2008.

Question 71

The primary function of the International Finance Corporation (IFC)is to:

A) provide U.S.surplus food to low-income countries.
B) provide short-term loans to poor countries to finance international trade deficits.
C) make infrastructure loans,that is,loans for highways,schools,communication facilities,and so forth.
D) make loans to private enterprises in the DVCs.

Question 72

An example of direct foreign investment is:

A) a U.S.bank granting a loan to a Guatemalan firm.
B) General Motors building an auto production facility in China.
C) a U.S.government foreign aid grant to Bangladesh.
D) the purchase of debt issued by the Panamanian government.

Question 73

Successful foreign aid programs:

A) enhance a DVC's resources and therefore shift its production possibilities curve to the left.
B) enhance a DVC's resources and therefore shift its production possibilities curve to the right.
C) move the DVC from a high-investment-low-consumption position to a low-investment-high-consumption position on its stable production possibilities curve.
D) cause a DVC's exchange rate to depreciate.

Question 74

The government of a DVC may force the economy to save by deliberately causing inflation.This policy is undesirable because inflation may:

A) distort investment away from productive facilities and toward luxury housing and precious metals.
B) increase voluntary saving because the value of money is depreciating.
C) contribute to a balance of trade surplus.
D) entail all of these problems.

Question 75

Many countries remain poor because they currently are poor.This statement summarizes the:

A) infrastructure problem.
B) vicious circle of poverty.
C) demographic transition problem.
D) problem of capital flight.

Question 76

Development assistance as a percentage of GDP is greatest for which of the following industrialized nations (as of 2012)?

A) The United States.
B) Norway.
C) Sweden.
D) Netherlands.

Question 77

In the 1990s:

A) direct private investment to the DVCs increased and government-provided foreign aid decreased.
B) both direct private investment and government-provided foreign aid to the DVCs increased.
C) both direct private investment and government-provided foreign aid to the DVCs decreased.
D) direct private investment to the DVCs decreased and government-provided foreign aid increased.

Question 78

The government of a DVC may purposely cause inflation because:

A) a rapid rate of inflation attracts private foreign capital into a DVC.
B) there is conclusive evidence that inflation discourages people from having large families.
C) this will strengthen the nation's position in international markets.
D) inflation works like taxation in that it may release resources from consumption so that they can be invested.

Question 79

Small loans to entrepreneurs and small business owners in DVCs are referred to as:

A) human capital development projects.
B) microfinance.
C) capital flight promotion systems.
D) incubator lending.

Question 80

The World Bank:

A) is also known as the International Monetary Fund (IMF).
B) lends money to developing nations for basic infrastructure projects such as dams,irrigation,health and sanitation,communications,and transportation.
C) is an affiliate of the World Trade Organization (WTO).
D) provides subsidies to private firms so they can improve their wages and working conditions.