Question 1

Insufficient capital formation can limit a poor nation's economic growth.

Accepted Answer

Capital formation refers to the process of increasing the stock of capital goods in a country. Inadequate capital formation can limit a country's ability to expand production, improve productivity, and create jobs, all of which are essential for sustained economic growth. Without adequate investments in physical and human capital, a poor nation may find it difficult to modernize its economy, attract foreign investment, and compete in global markets.

Question 2

A lack of infrastructure can limit a poor nation's economic growth.

Accepted Answer

Infrastructure such as transportation, communication, and energy systems facilitate trade, investment, and production, which are necessary for economic growth. The lack of these can hinder growth and development in a country.

Question 3

Policies designed to promote import substitution often encouraged labor-intensive production methods, which encouraged the creation of jobs.

Accepted Answer

Import substitution policies typically encouraged the establishment of industries that were often capital-intensive rather than labor-intensive, focusing on manufacturing and heavy industries which did not necessarily create a large number of jobs.

Question 4

Most economists believe that import-substitution strategies have been quite successful around the world.

Accepted Answer

Most economists actually believe that import-substitution strategies have not been successful and have led to inefficiency, higher costs, and less competition. Many countries that have used this strategy in the past have since shifted to export-oriented policies.

Question 5

China has developed a rapid approach to development.

Accepted Answer

The answer of China has developed a rapid approach to...

Question 6

Investment in social overhead capital refers to investment in areas like education and nutrition.

Accepted Answer

The answer of Investment in social overhead capital refers to...

Question 7

A frequently cited barrier to economic development is the apparent shortage of entrepreneurial activity in developing nations.

Accepted Answer

Many experts see a lack of entrepreneurship as a significant obstacle to economic growth and development in developing nations. Without enough entrepreneurs starting businesses and creating jobs, it is difficult for economies to expand and diversify.

Question 8

Remittances can be used as investment capital for small businesses.

Accepted Answer

Remittances can be used for various purposes, including investment in small businesses. Many people in developing countries use the money they receive from family members living abroad to start or expand a business, which can generate income and create employment opportunities.

Question 9

Export promotion policies try to encourage firms to produce more of the products for which the country has a comparative advantage.

Accepted Answer

Export promotion policies are designed to boost exports by encouraging firms to produce and export more of the products for which the country has a comparative advantage. This is done through a range of measures such as export subsidies, tax incentives, trade missions, and trade fairs. The aim is to increase output, create employment, earn foreign exchange, and improve the balance of payments. Therefore, the statement is true.

Question 10

Microfinance is aimed at introducing entrepreneurs among the very poorest parts of the developing world to the capital market.

Accepted Answer

Microfinance aims to provide financial services to entrepreneurs who do not have access to traditional banking institutions, especially in the poorest parts of the world, and help them build businesses and sustainable livelihoods. By introducing these entrepreneurs to the capital market, microfinance institutions aim to promote economic growth and alleviate poverty.

Question 11

The following situation is an example of an import substitution strategy. Costa Rica has a comparative advantage in the production of coffee and, as a result, the Costa Rican government grants incentives to coffee planters to improve their performance in the international marketplace.

Accepted Answer

The situation described is an example of export promotion strategy, where the Costa Rican government is encouraging the coffee planters to improve their performance in the international market. Import substitution strategy involves promoting domestic production by reducing imports and increasing the consumption of domestically produced goods.

Question 12

Countries with the highest level of per-capita GNI tend to generate a large percentage of GDP from agriculture production.

Accepted Answer

Countries with high per-capita GNI tend to have developed economies with a larger focus on service and industrial sectors, rather than agriculture.

Question 13

A very small percentage of GDP tends to come from the service sectors in poor countries.

Accepted Answer

Poor countries often have a large percentage of their GDP coming from the service sector, especially in tourism and related industries.

Question 14

India is a democratic country with a history of rule-of-law and an English speaking heritage, all factors thought to give a development advantage.

Accepted Answer

India's democratic nature, history of rule-of-law, and English speaking heritage are all commonly thought to give it a development advantage.

Question 15

Economic growth guarantees economic development.

Accepted Answer

Economic growth refers to an increase in the production of goods and services in an economy, whereas economic development refers to improvement in the economic, social, and political well-being of a country. While economic growth can contribute to economic development, it is not a guarantee as the benefits of growth may not be evenly distributed or may not translate into broader development outcomes such as poverty reduction or improved social services.

Question 16

In a developing economy, scarcity of capital may have more to do with a lack of incentive for citizens to save and invest productively than with any absolute scarcity of income available for capital accumulation.

Accepted Answer

In developing economies, there may be enough income available for capital accumulation but citizens may not have the incentive to save and invest it productively. This lack of savings and investment can lead to a scarcity of capital for future economic development.

Question 17

Human capital shortages are not a barrier to economic growth in developing countries.

Accepted Answer

Human capital shortages, such as lack of education and skilled workforce, can be a major barrier to economic growth in developing countries. Without a well-educated and skilled workforce, these countries may struggle to attract investment and adopt new technologies, thus limiting their potential for growth. Addressing human capital shortages through investments in education and training is often seen as a key strategy for promoting economic development in these countries.

Question 18

The International Monetary Fund (IMF) makes loans to encourage economic development.

Accepted Answer

The answer of The International Monetary Fund (IMF) makes loans...

Question 19

Related to the Economic in Practice on page 387: Corruption often leads to more efficient firms producing the goods and services in a society.

Accepted Answer

Corruption may lead to certain firms gaining advantages and become more efficient, but it also leads to inefficient allocation of resources, unfair competition, and ultimately harms the overall economy and society. Thus, in the long run, corruption does not lead to more efficient firms producing goods and services in a society.

Question 20

Social overhead capital is basic infrastructure projects such as roads, power generation and irrigation systems.

Accepted Answer

Social overhead capital refers to basic infrastructure projects that are necessary for the overall development of a region or country, such as roads, power generation, and irrigation systems.

Quiz 20: Economic Growth in Developing Economies