NAME: _________________________________________ ECO007 – ECONOMIC DEVELOPMENT

COURSE & SECTION:_______________________________

DATE & TIME:____________________________________ P3 EXAM 45 POINTS

Multiple Choice – Population, Poverty & Inequality, Education, The Global Financial Crisis of 2008-2009

_______1. Countries with chronic balance of payments deficits eventually need to borrow abroad, often from the
_______ as the lender of last resort.
A. U.S. C. IMF
B. OECD D. OPEC

_______2. Government's use of coordinated policies to achieve national economic objectives is

A. commanding heights. C. public physical policy.
B. entrepreneurial programs. D. development planning.

_______3. When people leave an area to go elsewhere that is called:

A. immigration. C. population transfer.
B. migration. D. net-migration.

_______4. The following were the results of the global recession in 2008 except:
A. stock market crashed C. bankruptcy of financial institutions
B. unemployment rate rose D. high percentage of export in terms of GDP

_______5. Policies adopted in Asia to reduce population growth include the following except
A. One-child policy
B. Additional tax imposed on families that had more than 2 children
C. Banning the use of contraceptives
D. Improvement in women's education

_______6. It is defined as the proportion of families (or population) with per capita income below the poverty line
or threshold.

A. GNP per capita C. GDP per capita

B. poverty incidence D. marginalized population

_______7. The selling of portfolios of loans is called ______________________.

A. Short-term financing C. securitization
B. bonds D. mortgage loan

_______8. Refers to the number of years a person expects to live

A. life expectancy rate C. death rate
B. birth rate D. mortality rate

_______9. In the theory of demographic transition

A. when the economy is primarily agrarian, birth rate and death rate are both high.
B. when the economy is fully industrialized, birth rate decline while death rate rises.
C. when the economy begins to industrialize, birth rate, along with death rate, increases.
D. when the economy is fully industrializes, birth rate continues to rise while death rate declines.

_______10. A global financial services firm whose bankruptcy in 2008 was largely caused by — and accelerated —
the subprime mortgage crisis is
A. Bank of America C. Lehman Brothers
B. Bear Stearns D. Fannie Mae and Freddie Mac

_______11. I. In its extreme case, inequality can be seen when one individual may have everything while the rest
of the society lives with nothing.
II. The poverty line is the chosen level of income or consumption below which one is considered poor.
A. both statements are true C. both statements are false
B. statement I is true D. statement II is true
_______12. Why might a school be unable to maintain adequate educational quality and student discipline?
A. similarities between parental and school norms.
B. students' success in school
C. ease of teaching
D. segregation

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_______13. I. In some nations, the population growth rate is negative, meaning that fewer people are added to
the population through birth and immigration than are lost through death and emigration.
II. Although men obviously are important in the reproductive process, the measure of fertility
focuses on women because pregnancy and childbirth are more easily quantified than biological
fatherhood.
A. both statements are true C. both statements are false
B. only statement I is false D. only statement I is true

_______14. The following are used to measure poverty except

A. Headcount Ratio C. Capital Gap Ratio
B. Poverty Gap Ratio D. Income Gap Ratio

_______15. It is defined as the unequal distribution of income and opportunity between different groups in society
A. global poverty incidence C. economic inequality
B. marginal income difference D. poverty measurement index

_______16. I. One of the issues in poverty measurement is the differences in the components of poverty line
per country or region which depends on their prevailing socioeconomic standards.
II. Poverty, as experienced by countries, households and the people within them is experienced
evenly.
A. both statements are true C. both statements are false
B. only statement I is true D. only statement II is true

_______17. I. In analyzing PPP, differences in consumption reflects the differences in costs for the same bundle of
consumption goods in different countries.
II. Income differences have major welfare consequences and because a study of these striking
differences will shed light on how the economies of different nations function and how they sometimes
fail to function.
A. both statements are true C. both statements are false
B. only statement I is false D. only statement II is false

_______18. I. The overly optimistic attitude of homeowners who took out mortgages against inflated house values
and defaulted when house prices dropped largely contributed to the market collapse of 2008.
II. A bailout is a value transfer from a government to a financially distressed private entity.
A. both statements are false C. only statement I is false
B. only statement I is true D. both statements are true

_______19. I. In general, the global financial crisis of 2008 is a story of a financial market that underestimated the
risk of defaults and did not anticipate the housing bust.
II. Securitization became suspect (risky) because of both the decline in real estate prices and increases
in mortgage default rates.
A. both statements are false C. only statement I is true
B. both statements are true D. only statement II is true

_______20. I. The Global Financial Crisis of 2008 showed that market economies remain susceptible to collapse or
near-collapse as the vulnerability of short-term debt is one of the inherent features of banks necessary
for market economies to function.
II. Mortgage leverage declined during the crisis.
A. both statements are true C. both statements are false
B. statement I is true, statement II is false D. statement I is false, statement II is true

_______21. I. International trade is benefitting poor countries.

II. Owing to changes in banking laws beginning in the 1980s, banks were able to offer to subprime
customers’ mortgage loans that were structured with balloon payments.
A. both statements are true C. only statement I is true
B. only statement II is true D. both statements are false

_______22. I. In 1999 the Depression-era Glass-Steagall Act (1933) was partially repealed, allowing banks,
securities
firms, and insurance companies to enter each other’s markets and to merge, resulting in the formation
of
banks that were “too big to fail”.
II. During the Global Financial Crisis of 2008, The Federal Reserve and the Bush administration spent
hundreds of billions of dollars to add liquidity to the financial markets.
A. both statements are true C. both statements are false

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 B. only statement I is true D. only statement II is true
_______23. I. Understanding the origins of modern economic growth are not only interesting and important in
their own right, but also holds the key to understanding the causes of cross-country differences in
income per capita today.
II. Education, at all levels, enhancing skills, and training policies can be used alongside social assistance
programs to help people out of poverty and to reduce inequality.
A. both statements are true C. both statements are false
B. only statement I is true D. only statement II is true

_______24. I. For any two countries, the one with the bigger per capita GDP will have a more equitable distribution
of income.
II. Population growth is higher in high income countries rather than in low income countries.
A. both statements are true C. both statements are false
B. only statement I is true D. only statement II is true
_______25. I. There is a strong positive correlation between economic growth and poverty.
II. There is not enough food produced in the world to feed the world's population.
A. both statements are true C. both statements are false
B. only statement I is false D. only statement II is false

_______26. Which of the following describes why income inequality is bad for economic development?
A. Income inequality may threaten political stability, because people are dissatisfied with their economic
situation and place blame on political authorities.
B. Income inequality reduces the pool of people with resources, such as education, to improve
productivity.
C. Income inequality may increase distrust and deter commitment amongst people in the marketplace,
making contracts enforcement difficult.
D. All of the above.

________27. Which of the following factors tend not to lead to a decrease in population growth?
A. When health conditions improve and parents no longer fear some of their children will die
B. When more women join the labor market and thus decide to have fewer children
C. When the population has access to modern contraception
D. When men are more educated than women

________28. Which of the following indicates a classification which does not determine a country’s level of
development?
A. level of industrialization C. level of income
B. GDP per capita D. population

________29. Which of the following is a goal of economic development?

A. economic growth C. reduction of poverty
B. improvement of human development D. all of the above

________30. I. There is a clear positive relationship between population density and per capita income.
II. It is only after a country has developed that the factors that led to development can be clearly
delineated.
A. both statements are true C. both statements are false
B. only statement I is false D. only statement II is false

________31. Which of the following characteristics are most likely found in developing countries?
A. high population growth rates.
B. large number of people living in poverty.
C. very traditional methods of agricultural production.
D. all of the above
E. none of the above

________32. PPP is
A. a theory that tells us that exchange rates between currencies are in equilibrium when their purchasing
power is the same in both countries.
B. GDP divided by exchange rate.
C. a measure of income inequality.
D. a measure of infant mortality in developing countries.
________33. Infant mortality
A. is defined as the annual number of deaths of infant under 1 year old per 1,000 live births.
B. reflects the availability of primary education, the rights of employment and social security.

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 C. is life expectancy up to age 3.
D. reflects the availability of hospitals and childcare facilities, and the parents’ wealth.

________34. I. Inequality tends to follow an inverted U shaped pattern, first increasing and then decreasing with
growth in per capita income.
II. The overwhelming majority of the world’s poor live in sub-Saharan Africa, South Asia, and East
Asia.
A. both statements are true C. both statements are false
B. only statement I is false D. only statement II is false

________35. A period of rapid population growth occurring between a preindustrial, stable population
characterized by high fertility and mortality rates and nearly equal birth and death rates in a late modern
period.
A. the industrial transition C. the demographic transition
B. the population transition D. the agricultural transition

________36. Which of the following is not a possible cost of high fertility rates and rapid population growth?
A. increasing returns to natural resources, with a direct impact on average food consumption.
B. increased urbanization and congestion.
C. a higher labor force growth rate and higher unemployment.
D. a working population that must support a larger number of dependents.

________37. The total fertility rate (TFR) is

A. the total number of children born in a country in a given year divided by labor force.
B. the number of children born to the average woman during her reproductive years.
C. the number of births in a country divided by total population in a given year.
D. the number of women age 15-45 in a country divided by total population.

________38. The emigration of highly-skilled people from the developing countries is known as
A. the brain drain. C. productivity
B. human capital deterioration. D. labor degradation

________39. Labor productivity is higher in developing countries such as Japan and Germany than in low
developing country due to
A. higher formal education and training.
B. better health and physical condition of the labor force.
C. Both a and b are correct.
D. None of the above is correct.

________40. Which of the following is not TRUE about education in least developed countries (LDC)?
A. Public expenditure per student for higher education is about ten times as high as for primary
education.
B. The expansion of primary education redistributes benefits from the rich to the poor.
C. Economists unanimously agree that LDCs should put greater priority on primary education.
D. Boys are sent to school far more often than girls.

________41. The last big independent investment banks on Wall Street which voluntarily transform themselves
into bank holding companies subject to far greater regulation of Fed is/are known as
A. Fannie Mae and Freddie Mac C. Lehman Brothers
B. Morgan Stanley and Goldman Sachs D. Bank of America

________42. Which of the following is not a major cause of global financial crisis of 2008?
A. securitization of mortgage backed securities C. high inflation rate
B. deregulation of financial system D. high subprime mortgages

________43. The two key factors that trigger speculative attacks on emerging market currencies are
A. deterioration in bank balance sheets and severe fiscal imbalances.
B. deterioration in bank balance sheets and low interest rates abroad.
C. low interest rates abroad and severe fiscal imbalances.
D. low interest rates abroad and rising asset prices.

________44. Financial crises in advanced economies might start from a

A. debt deflation. C. mismanagement of financial innovations
B. currency crisis D. currency mismatch

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 ________45. When the value of loans begins to drop, the net worth of financial institutions falls causing them to
cut back on lending in a process called
A. capitulation. C. releveraging
B. deleveraging. D. deflation.
End of P3 exam

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