Chapter 1 Introducing Economic

Development: A Global Perspective D 6. Which of the following is not an

C 1. Countries tend to be classified as
more or less developed based on
a. the literacy rate.
b. the poverty rate.
c. the level of income per capita.
d. the types of goods they produce.
important objective of development?
a. increases in per capita income
b. the expansion of available choices
c. increases in individual and national
self-esteem
d. all of the above are important
objectives of development

D 2. Which of the following B 7. The Millennium Development Goals

demonstrates international include
interdependence? a. eliminating the proportion of people
a. the oil shocks living on less than $1 per day.
b. the debt crisis b. universal primary education.
c. global warming c. increasing exports by one half.
d. all of the above. d. all of the above.

B 3. A subsistence economy is
a. a very low income economy.
b. an economy in which people make
what they consume.
c. an economy in which people receive
food for pay.
d. all of the above.

D 4. Development economics is the

study of the
a. alleviation of absolute poverty.
b. transformation of institutions.
c. allocation of resources in developing
countries.
d. all of the above.

C 5. Development economics must have

a scope wider than traditional
economics because
a. values and attitudes play little role in
the pace of development.
b. people in developing societies do less
utility-maximizing.
c. transformation of social institutions is
necessary for development.
d. all of the above.
c. transformation of social institutions is
necessary for development.
 Chapter 2 Comparative Economic Development C 10. The number of units of developing country
currency required to purchase a basket of goods and
B 1. An example of an upper-middle income country is services in a developing country that costs one dollar in
the U.S. is given by
(a) India (b) Brazil (c) Indonesia (d) Nigeria a. GNP price deflator.
b. Human Development Index ranking.
C 2. A newly industrialized country is c. purchasing power parity.
d. the exchange rate.
(a) the same as a high income country.
(b) any country that has experienced sustained growth in E 11. About how many people lack access to basic
industry. sanitation?
(c) a special classification given to some upper-middle a. 20 million b. 200 million
income countries that have achieved relatively advanced c. 500 million d. 1 billion
manufacturing sectors. e. 2 billion
(d) any country that has moved out of lower income
status. D 12. About how many people lack access to safe
water?
C 3. Which of the following is not an upper middle-
income country? a. 20 million b. 200 million
c. 500 million d. 1 billion
(a) Brazil (b) South Africa (c.) Pakistan (d) Argentina e. 2 billion

D 4. Which of the following is a low-income country? B 13. About how many malnourished children under age
five are there in the developing world?
(a) Mexico (b) Thailand (c) Turkey (d) Indonesia
a. 20 million b. 200 million
C 5. One of the components of the human development c. 500 million d. 1 billion
index is e. 2 billion
(a) the percentage of the population who are high school
A 14. Neutral technological progress occurs when
graduates.
(b) the average daily intake of protein.
a. higher output levels are achieved with the same
(c) life expectancy at birth.
quantity and combinations of factor inputs.
(d) the number of doctors per hundred people in the
b. higher output levels are achieved by more capital
population.
intensive methods.
d. higher output levels are achieved by more labor
E 6. What percent of the world’s nations have at least
intensive methods.
five significant ethnic populations?
e. higher output levels are achieved.
a. 0–10
D 15. Conditions of today’s developed countries at the
b. 10–20
start of their industrialization differ from conditions in the
c. 20–30
developing world in that
d. 30–40
e. over 40
a. population growth rates were higher.
b. more advanced technology was available.
D 7. What fraction of developing countries have recently
c. there were more opportunities for development
experienced some form of significant interethnic conflict?
assistance.
d. none of the above.
a. less than one-tenth b. a tenth to one-quarter
c. one quarter to one half d. over one half
D 16. Most successful examples of modern economic
growth have occurred in a country with
D 8. Which of the following African countries has
experienced widespread death and destruction due to
a. a temperate-zone climate.
ethnic or clan based conflict in the previous decade?
b. a market economy.
c. exports of manufactured goods.
a. Rwanda
d. all of the above.
b. Sudan
c. Somalia
D 17. Most successful examples of modern economic
d. all of the above
growth have occurred in a country with
A 9. Which measure uses a common set of international
a. a temperate-zone climate.
prices for all goods and services produced?
b. a market economy.
c. exports of manufactured goods.
a. purchasing power parity income levels
d. all of the above.
b. GNP price deflators
c. foreign exchange rate conversions to U.S. dollars
d. the exchange rate
D 18. The dependency burden is

a. a measure of the degree to which the less developed

countries are dependent on the rich industrial countries.
b. the average number of children that a woman gives
birth to during her lifetime.
c. the number of babies born per 1000 persons.
d. the percent of the population that is below 15 and
above 65 years of age.

C 19. How many people still live on less than the

equivalent of $1.25 per day (new definition of “extreme
poverty”)?

a. 100 million.
b. 500 million.
c. 1.4 billion.
d. 2.2 billion.
C 20. Which of the following is not an indicator that is
used to compute the Human Development Index?

a. life expectancy at birth.

b. real GDP per capita.
c. infant mortality rate.
d. adult literacy rate.

D 21. The combined GDP of developing countries

constitutes approximately

a. 5 percent of global GDP.

b. 20 percent of global GDP.
c. 30 percent of global GDP.
d. 40 percent of global GDP.

D 22. Developing countries are starting to converge with

developed countries in the long run in what respect?

a. Growth rate
b. Income inequality
c. Population
d. Per capita income

C 23. Which region in the world has the lowest GNI per
capita based on the World Bank Atlas method?

a. Sub-Saharan Africa
b. East Asia/Pacific
c. South Asia
d. Latin America/The Caribbean

B 24. Which of the following is not the major components

of economic growth?

a. capital accumulation
b. longer life expectancy
c. labor force growth
d. technological progress
Chapter 3 The Environment and Development
D 1. Which of the following is not a policy proposal of the
neoclassical counter-revolution school?
(a) promoting free trade
(b) privatizing state-owned enterprises
(c) welcoming multinational corporations
(d) promoting trade unions
A 2. Which of the following is an assumption of the Lewis
two-sector model?
(a) surplus labor in the rural sector
(b) high unemployment in the urban modern sector
(c) rising real urban wages
(d) rising marginal product of labor in the rural sector
B 3. The false paradigm model attributes lack of
development to
(a) inadequate attention to price incentives.
(b) inappropriate advice from rich country economists.
(c) low levels of savings and investment.
(d) a lack of government regulation.
D 4. Which of the following is a criticism of the neoclassical
counter-revolution school's approach?
(a) markets are not competitive in developing countries.
(b) externalities are common in developing countries.
(c) inequality may worsen when interventions are
removed in developing countries.
(d) all of the above.
B 5. Which of the following approaches does not offer an
international dependence explanation of
underdevelopment?
(a) the false paradigm model
(b) the neoclassical counter-revolution
(c) the dualistic development model
(d) the neocolonial dependence model
C 6. The neoclassical counter-revolution school supports
(a) trade restrictions.
(b) state-owned enterprises.
(c) eliminating government regulations.
(d) limitations on foreign investors.
(c) eliminating government regulations.
A 7. Implicit assumptions from which theories evolve are
known as
(a) a paradigm.
(b) biases.
(c) stylized facts.
(d) normative economics.
A 8. On which of the following does the neoclassical
counter-revolution school most blame underdevelopment?
(a) misguided government policies
(b) relatively rigid cultural traditions
(c) the legacy of colonialism
(d) unfair trade practices on the part of developed countries
A 9. According to the theory of structural patterns of
development, which of the following tends to occur as a
country develops?
(a) a shift from agriculture to industry and services
(b) an increase in the percentage of income spent on food
(c) growth of the rural sector
(d) a decline in trade as a share of GNP
B 10. In the public choice (or new political economy)
approach to development the emphasis is on
(a) growth in the rural sector.
(b) the self-interested behavior of public officials.
(c) the dependence of LDCs on former colonial powers.
(d) the inherent efficiency of developing country markets.
C 11. A situation in which government intervention in the
economy worsens the economic outcome is termed
(a) neoclassical failure.
(b) socialism.
(c) government failure.
(d) dependency revolution.
B 12. According to the dependence theory, the developing
world is known as the
(a) backward areas.
(b) periphery.
(c) first world.
(d) center.
B 13. The underlying assumption of the Harrod-Domar
growth model is that
(a) the incremental capital-output ratio is given by k Y/K.
(b) growth is mainly determined by capital accumulation.
(c) growth can be sustained only if agricultural productivity
rises.
(d) developing countries save too much and invest too little.
D 14. The supply curve of labor to industry in the Lewis
model is horizontal if there is surplus labor in agriculture.
This condition persists as long as
(a) the marginal product of labor is less than the average
product of labor in agriculture.
(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.
C 15. International dependence theories distinguish
between two groups of countries known as
(a) rich-poor.
(b) developed-developing.
(c) center-periphery.
(d) independent-dependent.
D 16. Which of the following is an assumption of the Lewis
two-sector model?
(a) surplus labor in industry.
(b) positive marginal product of labor in agriculture.
(c) an upward sloping labor supply curve in industry.
(d) none of the above.
D 17. The market-friendly approach to development
emphasizes
(a) self-interested behavior of public officials in LDCs.
(b) the dependence of LDCs on former colonial powers.
(c) the inherent efficiency of markets in developing
countries.
(d) that markets in LDCs fail sometimes and selective
interventions can promote economic development.
B 18. The linear stages theory of economic growth fails to
recognize that increased investment is
(a) both a necessary and a sufficient condition.
(b) a necessary but not a sufficient condition.
(c) a sufficient but not a necessary condition.
(d) neither a necessary nor a sufficient condition
D 19. Which of the following are components of economic
growth
(a) growth in labor force.
(b) technological progress.
(c) investment.
(d) all of the above.
 Chapter 4 Contemporary Models of
Development and Underdevelopment
D 1. The Solow residual helps explain
growth that derives from
(a) increasing the size of the labor force.
(b) increasing the size of the capital
stock.
(c) increasing the capital-labor ratio.
(d) anything except increases in the size
of the labor force or the capital stock.
A 2. In endogenous growth models, it is
assumed that
(a) there are external economies from
public or private investments.
(b) there are diminishing marginal
returns to capital.
(c) growth is explained by forces outside
the model.
(d) the capital-labor ratio is constant.
D 3. In contrast to the earlier
neoclassical models of economic
growth, in endogenous growth models,
there is more emphasis on
D 5. The S-curve is used to illustrate
(a) the typical path taken by the current
account over time.
(b) economic fluctuations in the
economy.
(c) the typical growth path of a
developing economy.
(d) the existence of multiple equilibria.
A 6. The big-push theory argues that
coordination failures may arise because
of
(a) pecuniary externalities.
(b) technological externalities.
(c) lack of human capital.
(d) all of the above.
B 7. The O-ring theory places emphasis
on
(a) education of the labor force.
(b) skill complementarities.
(c) purchases of machinery and
equipment by firms.
(d) none of the above.

(a) human capital.

(b) externalities.
(c) increasing returns to scale.
(d) all of the above.

C 4. The new growth theory attempts to

explain

(a) the rate of population growth within a

country.
(b) the rate of capital accumulation
within a country.
(c) the factors that determine the size of
the Solow residual.
(d) why there are diminishing returns to
capital.
(c) the factors that determine the size of
the Solow residual
 Chapter 5 Poverty, Inequality and Development
D 1. The absolute poverty line
(a) decreases as real income grows.
(b) shows the average income of the lowest income group.
(c) can be measured with the Lorenz curve.
(d) none of the above.
B 2. The Gini coefficient provides a measure of
(a) the level of poverty.
(b) the level of relative inequality.
(c) disguised unemployment.
(d) the rate of growth.
B 11. Which of the following policies might increase labor
intensity in industry?
(a) a decline in the cost of credit
(b) a decline in the minimum wage rate
(c) a decline in the elasticity of substitution
(d) all of the above.
D 12. Which of the following policies may decrease the
level of capital intensity in industry?
(a) an increase in the cost of capital
(b) a decrease in the minimum wage
(c) an increase in the elasticity of substitution
(d) all of the above.

B 3. Kuznets' inverted-U hypothesis B 13. The Ahluwalia-Chenery welfare index

(a) implies that things must get worse before they get (a) is a method used to measure changes in absolute
better. poverty.
(b) suggests that inequality will worsen and then improve as (b) shows the value judgement implications of using the
a country grows. change in income per capita as a measure of the change in
(c) suggests that inequality will improve and then worsen as development.
a country grows. (c) is a method used to measure changes in inequality.
(d) points out six characteristics of modern economic (d) is a method used to measure the growth rate of GDP.
growth.
C 14. About what percent of the world's poorest people are
A 4. According to Kuznets, in the process of development female?
inequality in an economy will normally (a) 30 (c) 70
(a) first rise and then fall. (b) 50 (d) 90
(b) first fall and then rise.
(c) remain about the same. C 15. About how many girls and women are said to be
(d) show no definite pattern. "missing" in LDCs?
(a) 2 million (c) 100 million
D 5. Poverty is better studied with size distribution (b) 20 million (d) 2 billion
measures than those based on factor distribution because
(a) labor income may be highly concentrated in well-paid D 16. Which of the following groups is(are) more likely to be
modern sector workers. poor?
(b) some poor farmers may receive a sizable share of (a) minorities (c) women
income in rent. (b) indigenous people (d) all of the above.
(c) income from nonmarket activities such as foraging may
be important. A 17. Distribution of income according to percentiles, such
(d) all of the above. as the highest 40% or lowest 20% is known as the
_______________ distribution of income.
C 6. The number of people in the world who are absolutely (a) size (c) GNP-weighted
poor is closest to (b) functional (d) equal-weighted
(a) a quarter-billion. (c) one and a half billion.
(b) a half-billion. (d) two billion. B 18. Brazil's growth rate during the 1960's was 6.0% when
poverty weights were used to evaluate growth, compared
D 7. With modern sector enrichment growth, inequality will with 8.2% when GNP weights were used to evaluate
(a) first rise and then fall. growth. One can conclude from these numbers that
(b) first fall and then rise. (a) average income growth was greater for poor households
(c) remain about the same. than for rich households.
(d) none of the above. (b) average income growth was greater for rich households
than for poor households.
A 8. With modern sector enlargement growth, inequality will (c) more and more households were falling below the
(a) first rise and then fall. poverty line.
(b) first fall and then rise. (d) the size distribution of income was getting worse.
(c) remain about the same.
(d) all of the above. D 19. The poverty gap is the
(a) absolute number of people below the international
D 9. Higher income countries tend to have lower levels of poverty line.
absolute poverty because (b) percentage of the population below the international
(a) more employment opportunities poverty line.
(b) more public assistance (c) consumption (measured in dollars) necessary to bring
(c) greater entrepreneurship opportunities. everyone below the poverty line up
(d) all of the above. to the line.
(d) percentage of a country's total consumption necessary
D 10. One of the characteristics of the poor is that they are to bring everyone in the country below
(a) more likely to be employed in the modern industrial the poverty line up to the line.
sector.
(b) more likely to come from small families. D 20. The functional distribution of income refers to the
(c) more likely to be well educated. distribution of income between
(d) more likely to live in a rural area.
(a) individuals or households.
(b) rural individuals or households.
(c) urban individuals or households.
(d) the factors of production (land, labor and capital).
Chapter 6 Population Growth and Economic
Development: Causes, Consequences, and
Controversies
 Chapter 7 Urbanization and Rural-
Urban Migration Theory and Policy
A 1. An argument supporting promotion
of the urban informal sector is
C 6. According to the United Nations,
Millennium Development Goals Report,
the annual growth in % of slum
population from 1990-2001 has been the
largest in:

(a) the formal sector is incapable of (a) Latin America and the Caribbean
providing enough employment. (b) South-East Asia
(b) informal sector workers are poorly (c) Sub-Saharan Africa
educated. (d) Southern Asia
(c) it uses a relatively high capital
intensity. A 7. For what percentage of urban
(d) it would reduce urban bias. population growth is rural-urban
migration responsible?
A 2. Rural-urban migrants differ from
the rest of the rural population in that (a) between 35% and 60%.
they are more likely to be (b) between 40% and 80%.
(c) between 50% and 70%
(a) well educated (d) between 50% and 90%.
(b) poor
(c) female D 8. According to UN projections, what
(d) all of the above proportion of the world's urban
population will reside in the urban areas
A 3. Other things constant, the of developing countries by 2025?
elimination of factor price distortions in
developing countries would (a) two fifths.
most likely (b) one half.
(c) two thirds.
(a) decrease rural-urban migration. (d) four fifths.
(b) have little effect on rural-urban
migration.
(c) increase rural-urban migration.
(d) increase urbanization.

D 4. The informal sector exhibits

(a) free entry

(b) labor intensive methods
(c) small, competitive firms
(d) all of the above

A 5. If the rural wage is 4 and the

formal urban wage rate is 10, there will
be rural to urban migration if the formal
urban unemployment rate is

(a) 50% (b) 60%

(c) 70% (d) all of the above
 Chapter 8 Human Capital: Education and Health in
Economic Development
A 1. Developing countries have not benefited as much
as expected from their higher education programs
because of
(a) lack of program focus on the needs of the country.
(b) increasing returns to scale in each individual's
education.
(c) graduates get jobs in the private sector.
(d) all of the above.
D 2. Education of girls is a crucial development
investment because
(a) it leads to improved child health.
(b) it leads to reduced fertility.
(c) women do most of the work in agriculture.
(d) all of the above.
D 3. It is important to place particular stress on the role
of primary education in the development strategy
because of
(a) LDC's comparative advantage from basic skills
education.
(b) the law of diminishing returns.
(c) development emphasis on poverty alleviation.
(d) all of the above.
C 4. Credential inflation results from
(a) a combination of cost-push inflation and demand-pull
inflation.
(b) rigidities in the industrial sector.
(c) the need to select from among qualified applicants in
the modern sector.
(d) all of the above.
D 5. The fact that developed countries have strong,
widely attended university systems indicates that
(a) university expansion should be a development
priority.
(b) universities teach skills used on the job.
(c) developing countries place too much stress on
agriculture.
(d) none of the above.
A 6. An individual's demand for education is most
affected by
(a) direct and indirect costs of schooling.
(b) development priorities of the country.
(c) the desire to escape agricultural work.
(d) all of the above.
A 7. Concentration of resources on higher rather than
basic education in developing countries tends to lead to
(a) greater inequality.
(b) lower fertility.
(c) less international migration.
(d) more job creation.
C 8. The supply of public school places is determined by
(a) individuals' demand for education.
(b) direct and indirect costs of schooling.
(c) political processes, often unrelated to economic
criteria.
(d) all of the above.
A 9. Studies show that improved education of women in
developing countries leads to
(a) lower infant mortality.
(b) better designed, market based development policies.
(c) lower international dependence.
(d) all of the above.
C 10. Human capital is best defined as
(a) the amount of wealth people have.
(b) the amount of money people have to spend on
schooling.
(c) human capacities that raise productivity.
(d) the average education level of the population
A 11. Child labor is a widespread problem that applies
primarily to children
(a) between the ages of 5 and 14.
(b) between the ages of 10 and 14.
(c) between the ages of 12 and 14.
(d) between the ages of 12 and 16.
B 12. The World Bank approach to combating child labor
stresses
(a) making child labor legal under certain conditions.
(b) tackling the sources of poverty.
(c) encouraging families to migrate to richer countries.
(d) providing each child with a computer so that children
have an alternative to working.
B 13. The ILO approach to combating child labor
stresses
(a) encouraging parents to migrate to the cities in search
of work.
(b) banning child labor.
(c) tackling the sources of poverty.
(d) all of the above.
C 14. As the number of years of schooling completed
increases, the expected private return and private cost of
education
(a) increase at roughly the same rate.
(b) increase at different rates with expected private
return increasing at a slower rate than private cost.
(c) increase at different rates with expected private
return increasing at a faster rate than private cost.
(d) do not increase.
B 15. According to the 2005 UNDP Human Development
Report child mortality (under age 5) has declined in all
regions of the world except:
(a) South Asia
(b) Sub-Saharan Africa
(c) Middle East and North Africa
(d) None of the above
B 16. According to the Regional HIV and AIDS Statistics
data from WHO, which region of the world has the
largest number of adults and children living with HIV?
(a) South and South-East Asia
(b) Sub-Saharan Africa
(c) Latin America
(d) North America
 Chapter 9 Agricultural Transformation and Rural
Development A 10. In which of these developing regions has food
production per capita steadily fallen over the last quarter
D 1. Crops produced entirely for the market are known century?
as (a) Africa.
(a) basic crops. (b) East Asia.
(b) mixed crops. (c) South Asia.
(c) hybrid crops. (d) Latin America.
(d) cash crops.
A 11. In a world of perfect certainty, sharecropping would
A 2. An agrarian system refers to be less efficient than a farm owner working his own farm
(a) the pattern of land ownership. because
(b) the type of crops grown. (a) sharecroppers receive only half of their marginal
(c) the processing of agricultural commodities. product.
(d) an economy that has no industry. (b) paying a worker a wage gives him or her an incentive
to shirk.
B 3. The primary goal of an agricultural extension (c) sharecroppers are exploited by landlords.
service is to (d) renting farmland concentrates risk on the renters.
(a) bring new areas under cultivation. (e) all of the above.
(b) increase the yield per hectare.
(c) introduce land reform. C 12. During the 1990s, food production increased faster
(d) assist rural-urban migration. than population in all regions of the developing world
except
C 4. Which of the following is an important factor in the (a) Latin America.
success of agrarian land reform policies? (b) East Asia.
(a) the introduction of sharecropping. (c) Sub-Saharan Africa.
(b) the introduction of tenant farming. (d) none of the above.
(c) farmer training programs.
(d) the introduction of more capital intensive methods. C 13. The African agrarian system is characterized by
(a) absentee landlords.
D 5. It is important to place particular stress on the role (b) a dual agrarian system known as latifundio-
of women in rural development programs because minifundio.
(a) women have received less training in the past. (c) land fragmentation.
(b) women perform a large majority of the work in the (d) shifting cultivation.
rural sector.
(c) women tend to allocate more resources to their D 14. The system of land tenure in which tenant farmers
children's health and education. pay a fixed share of their crop to landowners is called
(d) all of the above. (a) communal farming.
(b) collective farming.
C 6. Sharecropping can be best understood as (c) latifundio-minifundio system.
(a) a type of agreement preferred by peasants. (d) sharecropping.
(b) a type of agreement preferred by landlords.
(c) a compromise between peasant and landlord A 15. Absentee landowners characterize the agrarian
preferences. system of
(d) a type of agreement preferred by neither but given by (a) Asia.
tradition. (b) Latin America.
(c) Sub-Saharan Africa.
A 7. A program through which new ideas, methods, and (d) all of the above.
advice are offered to farmers to increase farm yields is
known as
(a) agricultural extension.
(b) agricultural mechanization.
(c) an agrarian system.
(d) land reform.

D 8. In South Asia and Sub-Saharan Africa, about what

share of the labor force works in agriculture?
(a) One tenth.
(b) One third.
(c) One half.
(d) Two thirds.

B 9. In South Asia and Sub-Saharan Africa, about what

share of output is contributed by agriculture?
(a) One tenth.
(b) One fifth.
(c) Two fifths.
(d) One half.
 Chapter 10 The Environment and Development
D 1. A major cause of environmental degradation in
developing countries is:
(a) population growth.
(b) rural poverty.
(c) rapid urbanization.
(d) all of the above.
C 2. Sustainable development means
(a) emphasizing the role of the market.
(b) emphasizing the role of government.
(c) meeting the present generation's needs without
compromising the needs of future generations.
(d) maintaining output growth at a constant rate.
A 9. The portion of a country's overall assets that is
directly related to the environment, such as forests and
soil quality, is known as
(a) environmental capital.
(b) debt for nature swaps.
(c) protected areas.
(d) common property assets.
B 10. The free rider problem is a situation in which
(a) effluents such as CFCs combine with ozone and
decrease concentrations of that protective chemical.
(b) one agent secures benefits that others pay for.
(c) there are excessive subsidies given to polluting
buses or other forms of mass transit.
(d) perfect property rights exist.

D 3. Which of the following environmental problems are A 11. International resources shared by all countries
largely caused by persistent poverty? such as oceans and air are known as

(a) Deforestation. (a) global commons.

(b) Soil erosion. (b) free rider problems.
(c) Ground water contamination. (c) nonrenewable resources.
(d) All of the above. (d) cooperative resources.

B 4. Which of the following conditions is violated if there B 12. The annual income that can be consumed without
is a free rider problem? diminishing the total capital assets of a nation is

(a) universality (a) purchasing power parity income.

(b) exclusivity (b) sustainable national income.
(c) transferability (c) environmental capital stock.
(d) enforceability (d) per capita income.

B 5. A major cause of environmental degradation in C 13. An example of a biomass fuel is

developing countries is
(a) coal.
(a) debt for nature swaps. (b) nuclear fuel.
(b) poverty. (c) manure.
(c) a lack of public transportation. (d) oil.
(d) land reform.
C 14. Which of the following conditions does not
A 6. The "cost of rainforest preservation" can be lowered characterize perfect property rights markets?
for developing countries by
(a) universality
(a) the development of alternative rainforest products. (b) exclusivity
(b) research on agriculture in rainforest soils. (c) sustainability.
(c) encouraging rainforest settlement of the poor. (d) enforceability.
(d) subsidies for activities like cattle raising.
B 15. In what way do developing countries make the
D 7. Debt-for-nature swaps are most generally largest contribution to the global concentrations of
greenhouse gases?
(a) beneficial only to the developing country.
(b) beneficial only to the developed country. (a) vehicle emissions.
(c) beneficial only to the bank which can write off the (b) deforestation.
debt. (c) mining.
(d) beneficial to all countries. (d) irrigation.

C 8. A resource that is publicly owned and allocated

under a system of unrestricted access is known as

(a) a socialist resource.

(b) a collective resource.
(c) a common property resource.
(d) a transferable resource.
 CHAPTER 11 Development Policymaking and the
Roles of Market, State and Civil Society C 9. A shadow price is:
(a) the price in the previous period.
D 1. Development plans have often failed because (b) the price in the next period.
(a) they have been insufficiently specific about projects. (c) the social value of a good or service.
(b) they have overlooked noneconomic considerations. (d) the market value of a good or service.
(c) they have been overambitious. (e) none of the above.
(d) all of the above.
(e) none of the above. D 10. Which of the following is a reason for the failure of
development plans?
C 2. Sectors where the development process leads to a (a) unreliable data.
more rapid expansion of demand than supply in goods or (b) unanticipated economic disturbances.
factor markets are known as (c) lack of political will.
(a) the crisis in planning. (d) all of the above.
(b) input-output analysis. (e) none of the above.
(c) bottlenecks.
(d) infant industries. B 11. Which of the following is not a rationale for
development planning?
A 3. The price reflecting the true social opportunity costs (a) capital market failures.
of a resource is known as (b) rent seeking behavior.
(a) a shadow price. (c) attitudinal or psychological impact.
(b) an equilibrium price. (d) all are rationales for development planning in
(c) a world price. developing countries.
(d) a price index.
B 12. If the incremental capital output ratio is 3 and the
D 4. Which of the following factors has led to poor plan ratio of saving to national income is 9%, according to the
performance? Harrod-Domar model the growth rate of income is

(a) unanticipated changes, such as in terms of trade. (a) zero.

(b) corruption of government officials. (b) 3%.
(c) foreign firms are less subject to the constraints of the (c) 6%.
plan than domestic ones. (d) 12%
(d) all of the above.
(e) none of the above. A 13. If the population growth rate is 2%, the incremental
capital output ratio is 3, the saving ratio is 24% and the
A 5. An example of an institutional requirement for the depreciation rate is 5%, the rate of growth of income per
operation of effective private markets is person is

(a) enforcement of contracts. (a) 1%.

(b) the ability of government to correctly project trends. (b) 2%.
(c) the ability of advertisers to influence consumers. (c) 3%.
(d) all of the above (d) 5%.
(e) 8%.
A 6. An example of a market-facilitating legal practice is
C 14. If the population growth rate is 2%, the incremental
(a) clearly established property rights. capital output ratio is 3, the saving ratio is 24%, and the
(b) corruption of government officials. depreciation rate is 5%, the rate of growth of income is
(c) extensive licensing requirements for starting firms.
(d) all of the above. (a) 1%.
(e) none of the above. (b) 2%.
(c) 3%.
C 7. A plan that sets targets to cover all major aspects of (d) 5%.
the national economy is known as a/an _____ plan: (e) 8%.

(a) interindustry A 15. In Ecuador, as a share of a firm's revenue, the cost

(b) complete of bribes is highest for
(c) comprehensive
(d) economic (a) micro enterprises.
(b) small enterprises.
B 8. Which of the following is a rationale for development (c) medium enterprises.
planning? (d) large enterprises.

(a) government failure.

(b) market failure.
(c) failure of consumers to understand their preferences.
(d) all of the above are rationales for development
planning.
(e) none of the above are rationales for development
planning.
CHAPTER 12 INTERNATIONAL TRADE THEORY AND
DEVELOPMENT STRATEGY
C 1. The ratio of a country's average export price to its
average import price is
(a) its absolute advantage.
(b) its comparative advantage.
(c) its terms of trade.
(d) its exchange rate.
C 2. According to the Prebisch-Singer thesis
(a) demand for primary products has steadily fallen.
(b) profits of primary producers have steadily fallen.
(c) primary producers' terms of trade have steadily fallen.
(d) prices of primary products have risen over time.
A 3. The purpose of commodity buffer stocks is
(a) to moderate price fluctuations.
(b) to raise commodity prices.
(c) to encourage commodity substitution.
(d) to guarantee national security.
C 4. Developing countries might be unable to respond
smoothly to changing international price signals because
of
(a) a lack of government regulation.
(b) an abundance of skilled labor.
(c) inelastic supply curves.
(d) limited foreign exchange.
A 5. Autarchy as used in the text refers to
(a) an economy that does not trade.
(b) an economy that trades primary products in
exchange for manufactures.
(c) developing country dictatorships.
(d) the caste system and related social structures.
D 6. Which of the following is an argument in favor of the
liberalization?
(a) Increased technical efficiency.
(b) Accelerated technical progress.
(c) Decreased shortages of foreign exchange.
(d) All of the above.
(e) both (a) and (b) are correct.
A 7. Which of the following is an argument in favor of
trade liberalization?
(a) Increased investment.
(b) Infant industry.
(c) Fluctuating export earnings.
(d) Increased government revenue.
B 8. Which of the following is an argument in favor of
interventionist trade policies?
(a) Cheaper capital goods.
(b) Declining terms of trade.
(c) Decreased losses from rent-seeking activities.
(d) All of the above.
(e) None of the above.
B 9. Guiding the market through strategic coordination of
business investments to increase export market shares
is known as
(a) development planning.
(b) industrial policy.
(c) shifting terms of trade.
(d) all of the above.
(e) none of the above.
A 10. The opening of export markets for primary
products can provide employment for previously
underutilized land and labor. The term for this is
(a) vent for surplus.
(b) comparative advantage.
(c) Prebisch-Singer thesis.
(d) barter trade.
D 11. Which of the following statements is true?
(a) larger countries (in terms of size) tend to be more
open (in terms of larger share of exports in GDP) than
smaller countries and developing countries tend to be
less open than developed economies.
(b) larger countries (in terms of size) tend to be less
open (in terms of lower share of exports in GDP) than
smaller countries and developing countries tend to be
less open than developed economies.
(c) larger countries (in terms of size) tend to be more
open (in terms of larger share of exports in GDP) than
smaller countries and developing countries tend to be
more open than developed economies.
(d) larger countries (in terms of size) tend to be less
open (in terms of lower share of exports in GDP) than
smaller countries and developing countries tend to be
more open than developed economies.
C 12. The dependence on the export of one or two
primary products for a majority of the revenue from
exports is most severe in countries in
(a) South Asia.
(b) East Asia.
(c) Sub Saharan Africa.
(d) Latin America.
C 13. The real price trendline for non fuel primary
commodities from 1960-2005 has been
(a) Unchanged
(b) Steadily increasing
(c) Steadily decreasing
(d) First decreased and then increased.
A 14. The nominal rate of protection shows the extent to
which the domestic price of imported goods exceeds
(a) what the price would be without tariffs.
(b) the cost of intermediate inputs.
(c) the social opportunity costs of the good.
(d) the no-trade equilibrium price.
D 15. The effective rate of protection is
(a) value added with protection divided by value added
without protection.
(b) value added with protection.
(c) value added without protection.
(d) (value added with protection minus value added
without protection) divided by value added without
protection.
A 16. The average level of effective protection has
exceeded 300% for which of the following countries?
(a) Pakistan and Uruguay.
(b) Argentina and Brazil.
(c) Philippines and Mexico.
(d) India and China.
D 17. An economic community
(a) attempts to raise prices by restricting quantity.
(b) seeks to stabilize commodity prices.
(c) seeks concessional loans.
(d) imposes a common external tariff.
(e) none of the above.
B 18. The long-run social benefits of infant industry
protection are more likely to be realized if
(a) investors believe that tariff barriers are permanent.
(b) investors believe that tariff barriers are transitory.
(c) tariff barriers increase over time.
(d) tariff barriers are replaced with quotas over time.
E 19. Which of the following factors makes the success
of economic integration more likely?
(a) Nationalism.
(b) Desire for prestige projects.
(c) Diverse economic systems.
(d) All of the above.
(e) None of the above.
A 20. Why is it impossible that all industries in a
developing country qualify as infant industries?
(a) You cannot have a comparative advantage in
everything.
(b) You cannot have an absolute advantage in
everything.
(c) This would violate international law.
(d) This would reduce the terms of trade.
B 21. Which of the following is not a reason why the
prospects for the further expansion of developing country
commodity exports are likely to be limited?
(a) Low income elasticities for these products.
(b) Low likelihood of development of further synthetic
substitutes.
(c) Continued agricultural protection despite trade
agreements.
(d) Declining terms of trade.
D 22. Which of the following is a major argument of trade
pessimists?
(a) Increased productivity of developed country
agriculture.
(b) Increased efficiency in industrial use of raw materials.
(c) Protectionism against labor-intensive manufactures.
(d) All of the above
C 23. Which of the following is a major argument of trade
optimists?
(a) Industrial policy can increase productivity of
developing country manufacturing efficiency.
(b) New synthetic substitutes are constantly being
discovered and improved.
(c) Developing country efficiency would improve with
trade liberalization.
(d) All of the above.
B 24. Which of the following countries provides the best
example of a successful import substitution development
strategy?
(a) Chile.
(b) Taiwan.
(c) Argentina.
(d) Botswana.
A 25. Which of the following is a nontariff barrier policy
tool?
(a) Sanitary regulations.
(b) Average duties.
(c) Phased liberalization.
(d) Ad valorem tax.
D 26. Nontariff barriers
(a) decrease foreign exchange earnings.
(b) reduce the quantity of goods exported.
(c) lower the effective price received for exports.
(d) all of the above.
B 27. The most important role of the World Trade
Organization is
(a) to promote market oriented economic policies.
(b) to settle trade disputes.
(c) to provide development assistance.
(d) to help countries choose the appropriate level of a
tariff or quota.
D 28. If the equilibrium exchange rate is 15 pesos per
dollar and the central bank fixes the exchange rate
at 17 pesos per dollar then we can conclude that the
peso
is
(a) appreciated.
(b) depreciated.
(c) overvalued.
(d) undervalued.
A 29. In most less developed countries, the initial target
of import substitution is to promote domestic production
of
(a) consumer goods.
(b) food and other agricultural goods.
(c) capital goods.
(d) manufactured intermediate goods.
D 30. Which of the following is not an argument in favor
of export promotion over import substitution?
(a) international competition compels domestic
producers to become more efficient.
(b) exposure to world markets provides greater
opportunities to learn new technologies.
(c) producing for export permits greater specialization
and economies of scale.
(d) outward-looking development promotes larger firms.
 CHAPTER 13 Balance of Payments, Debt, Financial
Crises, and Stabilization Policies
B 1. The flow of private foreign investment and grants
and loans is included in a country's
(a) current account.
(b) capital account.
(c) cash account.
(d) none of the above.
A 2. Debt service payments appear in
(a) the current account.
(b) the capital account.
(c) the cash account.
(d) errors and omissions.
C 3. A typical IMF stabilization package involves
(a) erecting barriers against foreign investment.
(b) overvaluing the exchange rate.
(c) liberalization of exchange controls.
(d) a reduction in interest rates.
(e) all of the above.
A 4. The need for exchange controls may arise from
(a) overvalued exchange rates.
(b) export promotion policies.
(c) a current account surplus.
(d) all of the above.
B 5. Which of the following was not a factor contributing
to the debt crisis in Latin America?
(a) The oil shocks.
(b) Trade liberalization in many developing countries.
(c) An increase in global interest rates.
(d) A lack of investment opportunities in the developed
countries.
(e) All of the above.
D 6. Special Drawing Rights are financial assets created
by
(a) the World Bank.
(b) the United National Development Program.
(c) multinational corporations.
(d) the International Monetary Fund.
D 7. Debt equity swaps may lead to
(a) increased foreign ownership.
(b) greater domestic inflation.
(c) lower debt servicing requirements.
(d) all of the above.
(e) none of the above.
D 8. A significant problem of a dual exchange rate
system is that it
(a) is difficult to administer.
(b) leads companies to pursue rent-seeking behavior.
(c) promotes black markets.
(d) all of the above.
(e) none of the above.
B 9. A country with high inflation, rising budget and trade
deficits, and a rapidly expanding money supply
(a) is in transition.
(b) has macroeconomic instability.
(c) is practicing import substitution.
(d) is practicing export promotion.
A 10. Exchange of developing country debt (at a
discount) for private ownership of state-owned
assets is called
(a) debt-equity swaps.
(b) debt restructuring.
(c) the Brady Plan.
(d) debt-nature swaps.
E 11. The debt service ratio is the ratio of
(a) external debt to the size of the service sector.
(b) external debt to total GNP.
(c) internal debt to the size of the service sector.
(d) internal debt to total GNP.
(e) none of the above.
C 12. The debt service ratio is defined as
(a) the ratio of total debt to export earnings.
(b) the ratio of total debt to GDP.
(c) the ratio of payments on foreign debt to export
earnings.
(d) the ratio of payments on foreign debt to GDP.
C 13. If the current account is a deficit of 25 then
(a) the capital account is a surplus of 25.
(b) the cash account is a surplus of 25.
(c) the capital account is a surplus of 25 if the cash
account is zero.
(d) the cash account is a deficit of 25.
D 14. The basic transfer is defined as
(a) net capital inflow.
(b) interest payments on foreign debt.
(c) net capital inflow divided by interest payments on
foreign debt.
(d) net capital inflow minus interest payments on foreign
debt.
B 15. The concept of odious debt implies
(a) an excessive debt.
(b) a debt that is not the responsibility of the nation's
people.
(c) a large debt burden.
(d) the total external debt of a nation's people.
CHAPTER 14 Foreign Finance, Investment, Aid, and
Conflict: Controversies and Opportunities
C 1. An argument in favor of foreign direct investment is
that it tends to
(a) reduce inequality.
(b) promote rural development.
(c) increase access to modern technology.
(d) decrease local ownership.
(e) none of the above.
(c) increase access to modern technology.
C 2. Which of the following is an argument against
MNCs?
(a) A reduction in inequality.
(b) An increase in the use of labor intensive technology.
(c) A deterioration of the balance of payments accounts.
(d) An increase in government tax revenue.
(e) None of the above.
E 3. One of the significant criticisms of MNCs is
(a) the relatively low wages they pay.
(b) on balance they bring in more capital than officially
registered.
(c) increased monetary policy effectiveness.
(d) all of the above.
(e) none of the above.
C 4. The amount of foreign aid in proportion to
developed countries' GNP has
(a) increased over time.
(b) remained fairly stable over time.
(c) decreased over time.
(d) fluctuated widely but has shown no clear trend.
B 5. MNCs can often decrease their tax liability through
(a) use of more capital-intensive techniques.
(b) use of transfer pricing.
(c) use of more foreign input sources.
(d) bargaining with the host country.
(e) none of the above.
D 6. A motivation of developed countries in providing
development assistance is
(a) the creation of markets.
(b) geopolitical influence.
(c) genuine humanitarian concern.
(d) all of the above.
(e) none of the above.
B 7. With tied aid
(a) MNC investment depends on tax concessions.
(b) aid recipients must use the aid to purchase goods
and services from the donor.
(c) aid recipients must follow World Bank/IMF
conditionality.
(d) all of the above.
B 8. The developing area receiving the largest share of
direct foreign investment is
(a) Africa. (b) Asia.
(c) Latin America. (d) Transition economies.
B 9. Which of the following is not a type of portfolio
investment?
(a) Investment in stocks.
(b) Multinational corporation investment.
(c) Investment in commercial paper.
(d) All are types of portfolio investment.
(e) None are types of portfolio investment.
B 10. The best explanation for the late 1994/early 1995
collapse of the Mexican peso and stock market is
(a) free movement of capital internationally is
destabilizing for a developing country.
(b) portfolio investments were camouflaging overvalued
exchange rates.
(c) debt for equity swaps had created imbalances in the
ownership structure of the economy.
(d) the potential benefits of NAFTA had been oversold.
C 11. In the two-gap model, which of the following gaps,
when binding, leads to foreign aid having the largest
impact on GNP?
(a) Fiscal gap. (b) Savings gap.
(c) Foreign exchange gap. (d) None of the above.
B 12. Voluntary organizations that work with and on
behalf of mostly local grassroots organizations in
developing countries are termed
(a) international organizations.
(b) nongovernmental organizations.
(c) multilateral institutions.
(d) equity organizations.
B 13. A model comparing savings and foreign exchange
constraints to see which is binding for economic growth
is known as a
(a) project appraisal.
(b) two gap model.
(c) computable general equilibrium.
(d) trickle down model.
C 14. Which of the following countries meets regularly
the UN target for the provision of foreign aid
(as a percent of GNI)?
(a) Japan. (b) United States.
(c) Denmark. (d) France.
E 15. During 1990-2003, as a percentage of total
resource flows to developing countries, the share
of official flows has
(a) remained relatively constant.
(b) increased by a relatively small percentage.
(c) increased by a relatively large percentage.
(d) decreased by a relatively small percentage.
(e) decreased by a relatively large percentage.
D 16. As a percentage of GNI, which of the following
countries provides the greatest amount
of foreign aid?
(a) United Kingdom. (b) United States.
(c) Italy. (d) Sweden.
B 17. As an absolute amount (billions of dollars), which
of the following countries provides
the greatest amount of foreign aid?
(a) United Kingdom. (b) United States.
(c) Italy. (d) Sweden.
B 18. The direct benefits of out-migration to a developing
nation include:
(a) Loss of skilled workers. (b) Increased remittances.
(c) Job growth. (d) Larger capital formation.
A 19. The largest recipient of remittances in dollars in
the year 2008 was:
(a) India. (b) Mexico.
(c) Pakistan. (d) Philippines.
CHAPTER 15 Finance and Fiscal Policy for
Development
B 1. A development bank
(a) accepts deposits from the poor.
(b) makes loans for industry expansion.
(c) is an agency such as the World Bank.
(d) all of the above.
(e) none of the above.
D 7. Macroeconomic stabilization involves
(a) reduction of inflation.
(b) reduction of government budget deficits.
(c) reduction of trade deficits.
(d) all of the above.
(e) none of the above.
D 8. Which of the following is an objective of
macroeconomic stabilization?

D 2. Among the rationales for state owned (a) eliminating current account deficits.
enterprises is (b) controlling inflation.
(c) restoring fiscal balance.
(a) existence of monopoly. (d) all of the above.
(b) the need for capital formation.
(c) desirability of national control over strategic B 9. When it comes to the composition of tax
sectors of the economy. revenues from different sources,
(d) all of the above.
(e) none of the above. (a) developing countries derive the largest
portion of their revenue from income taxes and
C 3. Among the rationales for state owned developed countries from consumption taxes.
enterprises is (b) developing countries derive the largest
portion of their revenue from consumption
(a) that the private sector is inefficient. taxes and developed countries from income
(b) that there is unemployment of capable taxes.
managers. (c) both developing countries and developed
(c) desirability of national control over strategic countries derive the largest portion of their
sectors of the economy. revenue from income taxes.
(d) all of the above. (d) both developing countries and developed
(e) none of the above. countries derive the largest portion of their
revenue from consumption taxes.
B 4. Among the benefits of privatization of state
owned enterprises is D 10. In 1995-7, tax revenue as a percent of
GDP
(a) increased employment.
(b) improved efficiency. (a) was roughly equal between developing and
(c) reduced pollution. developed countries.
(d) all of the above. (b) was a few percentage points higher for
(e) none of the above. developed than for developing countries.
(c) was a few percentage points lower for
A 5. One of the characteristics of financial developed than for developing countries.
repression is (d) was much higher (approximately double) for
developed countries than for developing
(a) negative real interest rates. countries.
(b) lack of credit rationing. (e) was much higher (approximately double) for
(c) capital flowing to the highest rate of return. developing countries than for developed
(d) all of the above. countries.
(e) none of the above.

C 6. One of the characteristics of financial

repression is

(a) negative real interest rates.

(b) lack of credit rationing.
(c) capital flowing to the highest rate of return.
(d) all of the above.
(e) none of the above.