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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
11. Economic growth is necessary and sufficient to eradicate most of absolute poverty.
a. true b.* false
12. Income level or GDP is criticized as an indicator of development mainly because it takes no account of
the distribution of income.
a.* true b. false
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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
16. All but one of the following are methods to represent overall income inequality:
a. variance b. Gini coefficient c. ratio of the top income decile to the lowest income decile d. Lorenz curve
e.* GDP per capita
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
22. If the development process is characterized by what we have called "modern sector enlargement", 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
23. If the development process is characterized by what we have called "modern sector enlargement", the
relationship between GNP per capita and poverty 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
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
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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
28. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3, 5), and the
poverty line in both countries is 2.5, by the headcount measure which country has more poverty?
a. C b. D c.* poverty is the same in C and D d. we cannot tell from the information given
29. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3, 5), and the
poverty line in both countries is 2.5, by the average income shortfall measure which country has more
poverty?
a. C b.* D c. poverty is the same in C and D d. we cannot tell from the information given
30. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3, 5), and the
poverty line in both countries is 2.5, by the Lorenz curve which country has more inequlity?
a. C b. D c. inequality is the same in C and D d.* we cannot tell from the information given.
31. The empirical evidence indicates that today's developing countries are undergoing a demographic
transition very similar to what the developed countries experienced in the past.
a. true b.* false
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
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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
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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.
65. If a country experiences a rapid increase in per-capita income due to discovery of new oil reserves, then
it is experiencing:
a.* growth but not necessarily development. b. development but not growth. c. both growth and
development. d. neither growth nor development.
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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.
70. Which of the following statements is consistent with Hirschman'ss theory of unbalanced growth?
a. A country should focus on industry, because agriculture is not a dynamic sector. b. To initiate the
industrialization process a country requires a "big push." c. When certain industries are developed first,
linkage effects will induce the development of new industries. d.* All of the above.
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
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80.In the Harrod-Domar model, it is assumed that the elasticity of substitution between capital and labor is
a. Infinite, b. One, c. Between zero and one, d.* Zero
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
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
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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
100. In a non-Harris-Todaro world, if it is observed that poverty is highly correlated with unemployment then
which choice of techniques is likely to reduce poverty
a.* Labor intensive techniques, b. Capital intensive techniques, c. Profit maximizing techniques, d. None of
the above
101. If the birth rate is 6% and the death rate is 2%, the natural rate of population increase is
a. 0 .3% b. 3.0% c.* 4.0% d. 8.0%
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
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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
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
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