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Sample Test Questions For Development Economics
Sample Test Questions For Development Economics
Below are a set of sample test questions taken from previous exams in Development
Economics. The answers are indicated by the *. Please note that it is possible that
questions may have the * in the wrong place. You should think through all of these.
Also, these are only sample questions. They are put here because students often think
it is helpful to see past exams. The fact that these are here does not represent a
commitment that questions on your exam will be like these or on the same subject
matter. This is especially so because the subject matter and organization of the course
has recently been adjusted. In addition, as the material covered between exams
changes semester to semester, the questions here are not broken into specific exams.
1. A supply side vicious circle of poverty suggests that poor nations remain poor
because
a. saving remains low b. investment remains low c. there is a lack of effective
government d. all of the above e.* a and b above
2. The International Comparisons Project, which used purchasing power parity rates
rather than market exchange rates, has found that the real standard of living in many
less developed countries (LDCs) is even lower than indicated by their dollar per-
capita income.
a. true b.* false
3. As incomes rise there tends to be a shift of labor from the services sector to the
industrial sector.
a. true b.* false
4. Which of the following is not typically an element in the structural change that
accompanies development?
a.* increase in the share of agriculture in GDP (gross domestic product) b. increase in
manufacturing as a share of GDP c. increase in urbanization d. All of the above
changes accompany development
10. When the manufacturer of power looms expands, there are forward linkage effects
due to
a. lost employment in the hand-loom sector b. increased incomes of workers that
manufacture looms c.* increased output of woven cloth made by the power looms d.
increased demand for electric motors
13. A certain amount of goods and services is necessary for a minimum standard of
living. This is called
a.* basic needs b. absolute poverty c. an international standard of living d. the concept
of development
14. With perfect income equality the Gini coefficient in a country would be
a. infinity b. 1 c. .5 d.* 0
19. According to Simon Kuznets, the relationship between GNP per capita and
inequality in the distribution of income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no
relationship d.* first increasing and then decreasing
20. The physical quality of life index (PQLI) is an aggregation of widely available
indicators of basic human needs. Which of the following is not a component of the
PQLI:
a. life expectancy b.* per capita income c. infant mortality d. literacy
21. If Lorenz curves cross, we say there is less inequality in the case where
a. the poorer get a larger percentage of income b. the poorer get a smaller percentage
of income c. the richer are less rich d.* we cannot say
24. Whereas the headcount measure tells us the number of poor and the poverty gap
measure tells us about the average depth of poverty among the poor, the Foster-Greer-
Thorbecke measure (also called P-alpha) tells us about the number, the average depth
of poverty and
a. average income b. inequality in the population c.* inequality among the poor d.
variance of average income
26. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is
2.5, the headcount measure tells us what percentage of the population is in poverty
a. 40 b. 3 c. 2 d.* 60
27. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is
2.5, the average income shortfall measure tells us the average depth of poverty among
the poor is
a.* 5/6 b. 5/2 c. 2 d. 0
33. Malthus argued that the poor would always remain poor because
a.* population growth tends to outrun growth of food production b. they do not save
enough c. there are not enough resources to educate them d. all of the above
36. Both the Ricardian growth model and the Lewis model share the assumption that
population growth will outpace food production in the long run.
a. true b.* false
37. The Lewis model of the dual economy makes the following assumption(s)
a. The rural wage initially remains constant b. Industry makes a profit by employing
cheap labor c. Rural wage will rise when industry expands sufficiently d.* all of the
above e. none of the above
38. Industry faces an elastic supply curve of labor because the marginal product of
labor in agriculture is
a. lower than its marginal product in industry b. less than the average product in
agriculture c.* very low or zero d. constant at all levels of agricultural output
41. The endogenous growth model confirms the neoclassical model's implications
about convergence.
a. true b.* false
42. An LDC has an ICOR of 5 and a savings rate s = 15%. If current GDP is $1000,
what will be GDP next year?
a. $1150 b. $850 c. $1200 d.* $1030
47. Consider the following distribution of incomes in country x and country y: country
x (2, 3, 4) country y (6, 9, 12)
a. inequality is higher in x than in y. b. inequality is higher in y than in x. c.*
inequality is the same in x and y. d. the information given is not sufficient to compare
inequality in x and y.
48. Consider the following distribution of incomes in country x and country y: country
x (2, 3, 4) country y (6, 9, 12)
a. absolute poverty is higher in x than in y. b. absolute poverty is higher in y than in x.
c. absolute poverty is the same in x and y. d.* the information given is not sufficient to
compare absolute poverty in x and y.
49. Consider an economy with low per capita income. Assume i) whenever per capita
income rises above subsistence level, population grows and ii) whenever it falls below
subsistence level, population shrinks. Given, i) and ii),
a.* a poverty trap exists. b. a critical minimum effort increasing per capita income by
1.5% per annum is necessary for development to take place. c. the economy is ready
for Rostow's take-off stage. d. none of the above.
52. Most lists of basic human needs include all the following items except
a.* basic transportation, such as bicycles. b. minimal levels of nutrition c. minimal
provision of shelter d. provision of basic health care
53. Rising per-capita GNP may fail to increase incomes for most citizens because:
a. Gains from growth may be used for expensive glory projects that provide few
concrete benefits to the people. b. gains from growth may be heavily reinvested, so
consumption gains are postponed c. Those who are already relatively well-off may get
all or most of the benefits d.* all of the above
54. The idea which suggests that poverty is self-perpetuating because poor nations are
unable to save and invest enough to accumulate the capital stock that would help them
grow is
a. the dependency theory. b.* the vicious-circle-of-poverty hypothesis. c. neo-
colonialism. d. the under-consumptionist hypothesis.
55. If the vicious-cycle-of-poverty hypothesis were true at all levels of per capita
income, then
a. all economies would develop at the same rate. b.* no nation could ever achieve
economic development. c. no nation would ever fail to reach the highest level of
economic development. d. poverty would not be self-perpetuating.
58. To draw a Lorenz curve showing the distribution of income by household, one
should first rank all households according to
a. household size. b. age of head of household. c. wage level. d.* income per capita.
59. One study found that the Gini coefficient for Egypt .403 . was virtually the same
as that for Australia .404. From this information one can conclude that Egypt and
Australia
a. had virtually the same number of households in absolute poverty. b. had virtually
the same percentage of households in absolute poverty. c. had virtually the same
Human Development Index level. d.* none of the above.
61. If 's' is the savings rate and 'v' the capital-output ratio, then 'g' the rate of growth in
the Harrod Domar model is represented by
a. v/s. b. sv. c. sv. d.* s/v.
67. In constant 1968 lira, real GNP in Turkey increased from L206.1 billion in 1980 to
L214.7 billion in 1981. Investment in 1980 totaled L43 billion. What was the value of
the ICOR?
a.* 5. b. 0.176. c. L8.6 billion. d. It cannot be determined from these data.
68. All but one of the following elements is a characteristic of the demographic
transition. Which one is the exception?
a. Initially high birth rate and death rate. b. Initially low rate of natural increase. c.*
Rapid increase in the birth rate during the early stages of development. d. A sharp fall
in the death rate followed with a lag by a decline in the birth rate.
69. The supply curve of labor to industry is horizontal if there is surplus labor in
agriculture. The condition occurs as long as:
a. the marginal product of labor in agriculture is less than the average product of
labor. b. the marginal product of labor in agriculture is less than the marginal product
of labor in industry. c. there are diminishing returns to labor in agriculture. d.* the
marginal product of labor in agriculture is zero.
71. Which of the following is a direct implication of the view that childbearing is an
economic decision?
a. People will not have additional children unless they can earn a profit from doing so.
b. Social factors have no effect on 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.
72. The primary focus of development strategy during the 1950's was on
a. Reduction in unemployment, b.* Increase in G.N.P., c. Increase in foreign trade, d.
Increase in literacy
73. The extraction of iron ore has increased on account of increased demand for steel.
The above is an example of
a. Forward linkages, b.* Backward linkages, c. Backward and forward linkages, d.
None of the above
74. According to W.W.Rostow, which of the following does not belong to the
"precondition for take off":
a. Increased agricultural productivity, b. Political stability, c. Development of social
overhead capital, d.* Growth of the durable consumer goods industry
75. If a situation exists where it is not profitable for any single producer to expand
production because of market limitation, then the best strategy for the country to adopt
would be
a.* Balanced growth strategy, b. Unbalanced growth strategy, c. Employment growth
strategy, d. None of the above
77. Which of the following is not true about agriculture's role in economic
development
a. Provides labor for non-agricultural sector, b. Provides a market for non-agricultural
commodities, c. Source of industrial raw materials, d.* None of the above
78. Which of the following is not a weakness of the import substitution strategy of
growth
a.* Reduces production of modern sector, b. Leads to an inappropriate domestic K/L
ratio, c. Leads to a balance of payments problem, d. Reduces exports of agricultural
goods
81. In the theory of demographic transition, the rate of growth of population is likely
to increase in
a. Period I, b.* Period II (c) Period III (d) Period I & II
82. According to Malthus, the fixed factor of production is
a. Labor, b. Capital, c.* Land, d. Entrepreneurship
84. In a perfectly competitive economy, if the demand curve for labor is infinitely
elastic then all of the national income will accrue to
a.* Workers, b. Capitalists, c. Landlords, d. None of the above
86-90. Suppose there are 5 workers in an economy and initially all the workers work
in the traditional sector at a wage equal to 1 (call this initial period, period 0). In each
subsequent period, one worker migrates from the traditional sector to the modern
sector where wages are equal to 4. Assuming that the number of workers remains
constant, then period 5 all the workers are in the modern sector.
88. As migration takes place the income share of the poorest 50%
a. At first rises,then falls, b.* At first falls,then rises, c. Falls continuously, d. Rises
continuously
89. As migration takes place the per capita income of the workers
a. At first rises,then falls, b. At first falls,then rises, c. Falls continuously, d.* Rises
continuously
90. The income share of the poorest 20% is likely to be at a minimum in which period
a. Period 2, b. Period 3, c.* Period 4, d. Period 5
91. Suppose we hypothesize that wages are set at a subsistence level. Then what
observation will strengthen our hypothesis
a. There is no involuntary unemployment, b.* Wages do not fall as labor productivity
changes, c. Wages fall in the slack agricultural seasons, d. None of the above
92. In a fixed rent tenancy, risk is
a.* Borne by the tenant, b. Borne by the landlord, c. Shared between landlord and
tenant, d. None of the above
95. In the Harris-Todaro model, in equilibrium, the expected urban wage rate will be
_________ the rural wage rate
a. Greater than, b.* Equal to, c. Less than, d. None of the above
96. Suppose migrants are risks averse, then in the Harris-Todaro model, in
equilibrium, the expected urban wages will be _________ the rural wage rate
a.* Greater than, b. Equal to, c. Less than, d. None of the above
98. According to the Ricardian model, the reason for lower priced services in the
LDC's is
a. Labor -productivity in commodities is the same in rich and poor countries, b.*
Labor-productivity in commodities is lower in poor countries, c. Labor-productivity in
services is lower in poor countries, d. None of the above
99. Which of the following statements is not true about import restriction
a. Import restrictions attract resources to protected industry, b. Import restrictions
involve a deadweight loss, c. Import restrictions raise prices for buyers to a product,
d.* Import restriction shift welfare from producers to consumers
104. During years of financial repression in LDCs, the real interest rate was often
negative due to:
a. explicit policy by the government b. low interest rates instituted by government to
encourage capital investment c. government policy to combat inflation d.* an
inadvertent result of inflation occurring after nominal interest rates had been fixed.
106. If the marginal product of capital is twice that of labor and the price of capital is
three times that of labor, then,
a. capital will be substituted for labor b.* labor will be substituted for capital c. the
price of capital will fall, and price of labor will rise d. twice as much capital as labor
will be employed
109. A public works projects pay $5 a day to poor rural laborers who would otherwise
earn only $2 per day from casual labor. The opportunity cost, or shadow wage rate, of
labor is:
a.* $2 b. $3 c. $5 d. $7
110. Peasant farmers in LDCs are generally observed to
a. respond appropriately to changes in price incentives b. use available resources
efficiently c.* Both a and b d. Neither a nor b
111. In the household production model, agents choose their hours and type of work
so as to maximize:
a. production b. income c. leisure d.* utility e. short-run consumption