Question 1

Which of the following would most help a developing country (DVC) break out of the vicious circle of poverty?

Accepted Answer

Increasing labor productivity is the best choice as it leads to an increase in output with the same or fewer inputs, which in turn leads to increased income and economic growth. This can help a developing country break out of the vicious circle of poverty by creating employment opportunities, increasing wages, and ultimately reducing poverty levels. Options A and C may provide a temporary boost but will not lead to sustained economic growth, and option B may not be achievable due to resource constraints or environmental factors.

Question 2

Capital flight is a problem facing DVCs that involves the

Accepted Answer

Capital flight refers to the transfer of private savings and assets from a country to another country, often to more secure and stable economies in IACs. This results in the reduction of capital available in the DVC, leading to lower investment, slower economic growth, and increased debt. The other options do not accurately describe capital flight.

Question 3

Which of the following is not an example of a sociocultural impediment to economic growth?

Accepted Answer

The migration of labor resources from agricultural to urban areas is not an example of a sociocultural impediment to economic growth, but rather a natural progression in the development of an economy. It may cause challenges and changes in the short term, but can lead to increased productivity and growth in the long term. A, B, and D are examples of socio-cultural impediments that can limit or prevent economic growth.

Question 4

The "vicious circle of poverty" for developing nations can best be described by

Accepted Answer

The vicious circle of poverty refers to a self-reinforcing cycle in which low income leads to limited savings and investment in human and physical capital, which then hinders productivity growth and income growth, further reducing savings and investment potential. This situation makes it difficult to break out of the poverty cycle, and developing countries often find themselves caught in this trap.

Question 5

Which of the following statements is correct?

Accepted Answer

Investment is low in developing nations because they lack the financial resources and infrastructure necessary to attract investment. This contributes to difficulties in increasing productivity and incomes in these countries. Choices A, B, and C are all incorrect.

Question 6

A factor that limits the amount of saving in developing countries is the fact that

Accepted Answer

Developing countries typically have low levels of aggregate domestic output, which can limit the amount of saving because households and businesses may have limited disposable income to save. Options A and D are also factors that can limit saving in some developing countries, but they are not as universally applicable as the low level of aggregate output. Option B is not a factor that limits saving, as foreign aid is typically used for different purposes and does not replace the need for domestic savings.

Question 7

Infrastructure is best illustrated by

Accepted Answer

Infrastructure refers to the basic physical and organizational structures needed for the operation of a society or enterprise, including transportation systems, communication networks, and water and power supply. Roads and bridges are examples of transportation infrastructure.

Question 8

If a local leader in a developing nation claims that there is little or no correlation between a person's efforts and the economic rewards that are given to that person, this leader is most likely expressing a

Accepted Answer

The answer of If a local leader in a developing...

Question 9

The vicious circle of poverty in the poorest DVCs can also be expressed as,

Accepted Answer

The phrase "The poor nations stay poor because they are poor" accurately represents the idea of a vicious circle of poverty, where poverty perpetuates itself due to lack of access to resources, education, and opportunities. This becomes a self-fulfilling prophecy where poverty leads to more poverty. The other options, while containing elements of truth, do not fully capture the dynamic of poverty in DVCs.

Question 10

What is the problem with saving in DVCs, even when saving as a percentage of domestic output is the same as in industrially advanced countries?

Accepted Answer

The issue with saving in Developing and Vulnerable Countries (DVCs) is that even if the saving rate as a percentage of domestic output matches that of industrially advanced countries, the overall lower level of domestic output in DVCs means that the absolute amount of savings generated is significantly smaller. This limits the funds available for investment and economic development.

Question 11

Which of the following is most characteristic of most developing nations?

Accepted Answer

Developing nations usually have low levels of saving and investment due to factors such as poor infrastructure, limited financial institutions, and unstable political environments. This lack of investment limits economic growth, which in turn keeps income levels low and perpetuates the cycle of low savings and investment.

Question 12

Most economists agree that government efforts in economic development must be

Accepted Answer

Most economists believe that government efforts in economic development should be designed to support private efforts, rather than to substitute for them. This is because private businesses are generally more efficient and effective at creating jobs and generating economic growth. However, government policies can play an important role in creating a favorable business climate by providing infrastructure, education and training, and incentives for investment and entrepreneurship.

Question 13

Which of the following is a factor limiting saving in DVCs?

Accepted Answer

The answer of Which of the following is a factor...

Question 14

A new fertilizer that is better suited to a nation's topography and climate is an example of a technological advance that is

Accepted Answer

A new fertilizer that is better suited to a nation's topography and climate would be considered a capital-saving technological advance as it would reduce the need for excessive capital investment in traditional fertilizers that may not yield optimal results in certain regions.

Question 15

Which of the following seems to be the most acute institutional problem that needs to be resolved by many DVCs?

Accepted Answer

Widespread political corruption is a major institutional problem in many DVCs, as it hinders economic growth, discourages foreign investment, and results in misallocation of resources. This problem needs to be addressed before any meaningful progress can be made in other areas. The other options, while important, are not as pressing as this issue.

Question 16

An institutional change that is needed in most developing nations is

Accepted Answer

Land reform is an institutional change needed in most developing nations. This is because many developing nations have unequal distribution of land ownership which leads to social and economic inequalities. Land reform can help address these issues by redistributing land, promoting land ownership for farmers, and increasing agricultural productivity. Other options listed may also be important, but land reform is crucial for promoting social and economic growth.

Question 17

The diversion of surplus labor in agriculture to the production of schools or roads in developing countries is described as

Accepted Answer

The diversion of surplus labor in agriculture to the production of schools or roads in developing countries is known as in-kind investment, where labor is redirected from the agricultural sector to the production of public infrastructure, such as roads or schools. This type of investment is different from capital-using technological advances that mechanize agricultural production or land reform, which involves redistributing land ownership. The brain drain refers to the emigration of highly skilled workers from developing countries to developed countries.

Question 18

If it is cheaper in the long run to use a new metal plow that lasts a long time than an inferior wooden plow that needs to be replaced often, then this is an example of

Accepted Answer

This is an example of a capital-saving technology because using a more durable metal plow saves the need for frequent replacement, which saves capital in the long run.

Question 19

Many economists believe that the key to breaking the vicious circle of poverty is to

Accepted Answer

Increasing the rate of capital accumulation in poor nations can lead to higher levels of productivity and income, which can help to break the cycle of poverty. This can be achieved through investment in education, infrastructure, and technology, as well as through policies that encourage savings and investment. Cutting down mortality rates or reducing birth rates may be important for other reasons, but they are not necessarily the most effective ways to tackle poverty. Similarly, while increasing the mobility of labor and migration may have some benefits, it is not a comprehensive solution to the problem of poverty.

Question 20

What is needed to aid capital formation in developing countries?

Accepted Answer

Developing countries need more entrepreneurship to aid capital formation. This means encouraging innovation and creating an environment that fosters business growth and investment. This can lead to increased economic growth and job creation, ultimately leading to a cycle of capital accumulation. More capital flight, oil resources, or price supports for products may be helpful, but entrepreneurship is the key driver to sustained capital formation.

Quiz 28: The Economics of Developing Countries