EEP II Midterm Examination 2005-06, PGP I / FPM I/ ABM I, III Term Duration: 30 Minutes.

Closed Book February 25, 2006 Name:. Section:.. Signature: State whether the following sentences are true or false. Indicate with F/T. All questions carry equal marks (2). There will be negative marking. For a wrong answer one mark would be deducted. (In the rare instance when you are convinced that there is ambiguity, please state your assumption / clarifycatory remark). ANSWER (True/False ) T T T T F F F F T F F T F STATEMENT Favourable movements in income terms of trade benefited the growth and learning in the Korean economy. The incremental capital output ratios have declined in the post 1991 period. Lack of autonomy has contributed to the inefficiency in the public sector in India. Big business accepted Mahalanobis model as it provided them opportunities in many new import substitution industries. The policy of broad banding reduced the flexibility in expanding production capacities. Some export of entrepreneurial capital (outward FDI) from India took place in the 1979-85 period. Currency depreciations in India have not shown any appreciable impact on exports from the country. The fact of PPP GDP being higher than exchange rate GDP necessarily implies that the currency is undervalued. In Korea, support for import substitution was often linked to eventual export competitiveness with stringent export targets. East Asian currencies during were generally overvalued relative to India's rupee. Korea focussed on industries, so agricultural performance was not crucial to its success. Late industrialisation has meant that plant sizes tend to be big. Most of the savings for the rising investments in the Mahalanobis plan were to come from the large consumer goods sector.

EEP2/2005-06 MidTermExam, IIMA/ PGP-I/PGPABM-I/FPM-I

T City roads are generally non-excludable. F The Mahalanobis Plan saw the challenge of growth and development as raising the stock of inventories. F Korea continued its dependence on external aid through the eighties. F Direct to home (DTH) telecasts are making television services non-excludable. T Lack of demand for certain elective courses at IIMA can partly be attributed to the problems of information asymmetry. F The Lewis model will not work if marginal productivity in the agricultural sector is negative. F The critical minimum effort to launch industrialisation decreases with late industrialisation. F Late industrializing economies face higher technological uncertainties. F Korean economic growth was built exclusively on the demand from the external market. F Protection of various sectors in India that began with the Mahalanobis Plan proved to be a temporary phenomenon. T Endowments failure means that some people do not have endowments to participate in markets. F Wage rates rose significantly in the early phase of the Korean transformation. F The Korean state did not use multiple/dual exchange rates to support exporters. F Land reforms had no role to play in the success of Mahalanobis strategy. T The large firms (Chaebols) in Korea internalised imperfectly developed markets. F Agricultural growth played no role in the East Asian transformation process. F Policies specific to the small scale sector in India were initiated only in the eighties. T Information asymmetry can lead to market as well as government failure. F The manufacturing sector in India has seen the fastest growth among all sectors in the post 1991 period. T Korean economy first grew by absorbing idle factors of production. T The schism in the Indian labour market created by very high wage costs of the organised sector (as compared to the unorganized sector) has hindered the Lewisian processes of industrial transformation. F The Harrod-Domar model focuses only on the demand creating aspect of investment. F Harrod-Domar model recognizes that there are structural obstacles to transforming surplus into investment.

EEP2/2005-06 MidTermExam, IIMA/ PGP-I/PGPABM-I/FPM-I

T The bulk of the savings for the rising investments in the Mahalanobis Plan was to come from within the economy. T In late industrializing economies, starting the process of growth typically involves the realisation of coordination economies. F The policy focus on distribution related issues (redistribution) came up in India only during the 1980s. T Monopoly Restrictive Trade Practices Act (MRTPA) was enacted to reduce the growing industrial concentration in India. F Overall, growth of real wage rates in India has followed growth of GDP. F In India changes in the growth rates of agricultural output have usually followed the changes in the growth rates of per capita consumption. F The value of the Chinese currency has been higher than its structurally determined value for a long time. F One of the functions of high direct taxes in the NehruMahalanobis strategy was to encourage conspicuous consumption. F The Korean chaebol was not an instrument for realisation of coordination economies. T The market failure in primary education is more severe than in higher education. F The Mahalanobis Plan did not have the support of the big capitalists. T The consumption of television programmes is non-rivalarous. F Conventional definitions of market failure (based on information asymmetry, externalities etc.) also take into account the distribution of endowments in the economy. T The gains from trade realised in export led growth arise from dynamic efficiency gains. T Public investments in infrastructure are likely to increase private investments due to externalities. F The Korean state carried out land reforms in the 1960s. F American aid was unimportant in Korea's dependence upon external resources in the early phase of its growth. F Income taxes were heavy in Mahalanobis strategy to discourage the private sector from producing. F Export led growth is nothing but laissez faire because export led countries showed a great expansion in the volume of trade. F In the Mahalanobis plan, the share of investments going to the large consumer goods sector determined the rate of the economy. T Industrial licensing reduced competition between public and private sectors for financial resources. F The public policy implication of endogenous growth model is to underplay investments in human and knowledge capital as they lead to externalities. F Inverted tariff protection means that inputs attract lower import tariffs than do outputs.

EEP2/2005-06 MidTermExam, IIMA/ PGP-I/PGPABM-I/FPM-I

EEP2/2005-06 MidTermExam, IIMA/ PGP-I/PGPABM-I/FPM-I

F The non-capitalist sector of the Lewis model is characterised by the marginal product of labour being equal to the wage rate. T Presence of under-utilized labour in the non-capitalist sector is critical for the functioning of the Lewis model. F Export led industrialisation is not possible for India since the country is large. F Rent seeking behaviour refers to the behaviour of landlords who seek higher rents from their tenants. T Restrictions on the grant of industrial licenses to the MRTP companies effectively reduced competition in the economy among large players. F The rate of growth of employment in the organized sector has been rising since early 1980s. F Korea pursued laissez faire policies because the price ratio of its exportables to importables was close to the international price ratios for the same baskets. F Foreign Exchange Regulation Act (FERA) affected the availability of foreign exchange and had no effect on the functioning of the MNCs in India. F East Asian economies sought to reap static and not dynamic efficiencies. F Issues relating to the efficiency of the public sector enterprises and its impact on other sectors were raised in the late 1990s. T Export growth in the East Asian economies have helped reap economies of scale. F The Industrial Policy Resolution of 1956 was clearly to liberalise the economy. T Vicious circle of poverty leads to lower rates of consumption and savings. F Everything else being the same, an undervalued currency is likely to reduce openness of the economy. T Toll roads are a mechanism to make roads excludable. F Export led growth policies do not contribute to Chinese growth today. F The role of foreign investment in the Indian economy was much larger during the 1965-79 period than in the 1955-65 period. F Natural monopoly arises whenever there are scale economies. F When the price ratio of Pm/Pnt and Px/Pnt is raised then there is less incentive to produce more tradables. (m importables; xexportables; nt non-tradables). F The endogenous growth model assumes decreasing returns to aggregate capital. F The Bombay Plan did not envisage a large role for the public sector. F The pursuit of import substitution and export promotion are necessarily contradictory. T Externalities contribute to increasing marginal returns to capital investments in endogenous growth models.

EEP2/2005-06 MidTermExam, IIMA/ PGP-I/PGPABM-I/FPM-I

F Korea and the East Asian countries because they focussed on exports of manufactures did not have to face falling (price) terms of trade. F Korean trade regimes were laissez faire (free market based). F Market failures related to insider trading are due to externalities. F During 1965-75, the terms of trade consistently moved against industry, in India F There is evidence to suggest that changes in agricultural growth in India are preceded by changes in industrial growth. F Indias import substitution policies did not lead to shrinkage in the relative size of the tradables sector. F The share of private sector employment in the organized sector has fallen in the 1990s. F Credit rationing was not used in the East Asian economies during their transformation process. F Enhancing the stock of capital goods was not critical for the success of the Nehru-Mahalanobis strategy. F Inter-sectoral consistency plans are not an instrument of realising coordination economies. F Many large countries have been able to industrialise without prior development of agriculture. F In order to increase demand the Mahalanobis strategy argued for few indirect taxes. T Import liberalization enhances contestability in markets. F The ability of the Korean government to keep wages low hindered the substitution of non-tradables by tradables. F Terms of trade shift in favour of agriculture in a country at an early stage of development need only worry the labour intensive industries. T Late industrialisation has generally meant greater role of the state. F The political clout of large farmers in the Indian economy was large during the Nehru-Mahalanobis period. T Highly concentrated industrial structure in the Korean economy did not become dysfunctional because external and domestic competition was high.

EEP2/2005-06 MidTermExam, IIMA/ PGP-I/PGPABM-I/FPM-I