Dev Econ Final Exam

Which is a measure of inequality? a. Range b. Average Productivity c. Growth Accounting d. Factor Endowment

Answer: A, the rest deal with economic growth not inequality

Interest rates on loans can vary based only on the characteristics of the loaner.

Answer: FALSE. Reason: Interest rates on loans can vary based on not only characteristics of the loaner, but also on the location of the loaner. Two people with the same characteristics and the same intentions with the loan may have different interest rates because they are located in two different areas. Interest rate variation does not solely depend on the loaners characteristics.

T/F: Economic Development is possible without Economic Growth

Answer: False, Economic Growth is possible without Economic Development but Economic growth is necessary condition for economic development.

Which response, referring to the need for security in old age and high poverty rates, is not a reason that increases demand for children. They vary in productivity and in poor societies, children are less likely to become educated and able to generate enough income to take care of their aging parents. Parents may want to have a boy, because the boy will be able to care for them better in their old age. If they do not conceive a boy right away, they may keep trying until they do. Many children die before they become adults in poor societies. Because of this, parents need to have more children if they want some to survive in order to take care of them in their old age. If there is extreme poverty, children might move away from the parents, and take the income they make and the support with them.

B is correct. Although gender bias is a reason that parents may have more children in developing countries, it is not a reason that parents will have more children in order to help them in their old age and help with high poverty rates.

What is NOT an implication of the Harris Todaro Model? A) Excess Migration B) Higher Employment C) Urban Planning D) Adverse Effects of Rural Education

B) Higher Employment. The implication of the Harris Todaro Model is higher unemployment.

Which of the following causes a commitment problem in economic transactions? A) Asymmetry of Information. B) One party not honoring prior promises. C) When an individual acts in self-interest leading to least optimal outcome. D) Adverse selection.

B, when one party does not hold their prior commitments and it reduces bargaining power. This can be solved by formal contracts.

Poor families generally have more children than rich families. Which of these is NOT a possible explanation. A. A shift in preferences due to non-economic forces (social norms). B. Geography C. The opportunity cost of having children, especially for women, increases with economic development. D. Institutional factors (economic development of a given country)

B. Geography. The answer is irrelevant to the question because it does not explain why a family would choose to have fewer children.

Which one of the following is not a part of the economics of fertility choices? (hint: pay attention to the bolded words) a: Shifts in Cost of Children b: Shifts in Income c: Shifts in Social Norms of Gender Bias d: Shifts in the Cost of Consumer Goods

C is the correct answer, shifts in the cost of children, income, and cost of consumer goods are all part of the economic determinants of fertility rates and choices. However, even though shifts in social norms of gender bias are a part of the fertility choices topic, social norms are not part of the economic reasons for OR lack of fertility.

In which measure of inequality do we construct a graph to reflect the wealth that is held by different portions of individuals in a given economy? A) Gini Coefficient B) Mean Absolute Deviation C) Lorenz Curve D) Coefficient of Variation

C) Lorenz Curve

True/ False: The commitment problem is a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power.

FALSE, this is the hold-up problem. The commitment problem happens when a party doesn't honor prior commitments made to another party.

Informal institutions are those are legally codified, and they are based on social norms, accepted and expected standards of behavior.

FALSE. Informal institutions are those that are NOT legally codified. Informal institutions are enforced in an informal way by using peer pressure, feelings of guilt, and moral obligations

What is the best measure of poverty? Headcount, Headcount Ratio, Poverty Gap Ratio, Income Gap Ratio, or FGT?

FGT because it takes into account the level of inequality where the other measures of poverty do not.

True/False - Formal Institutions are based on morals and social norms?

False - Formal Institutions are written rules. For example, speed limits. Speed limits are written rules.

T/F: Formal lenders are the major source for credit in developing countries.

False, it is actually the informal lenders that supply more credit in developing countries.

T/F: Many poor families in developing countries are poor because they have so many children.

False, poor families in developing countries have so many children to survive and possibly get out of poverty.

The primary role of institutions is to regulate human behavior.

False, the primary role of institutions is to help reduce transaction costs. These are the costs associated with buying or selling merchandise, borrowing money, or investing in a business.

Import Substitution is a better development strategy than Export Promotion.

False. Export Promotion is a better development strategy because Import Substitution creates a lack of incentive for protected industries while Export Promotion promotes competition.

True/False - An economy can prosper even with a benevolent autocrat.

False. It is possible for an economy to grow with a benevolent autocrat but it can never truly prosper. It will only prosper through democracy and when proper rights are given to citizens.

True/ False Relative poverty is measured using a cut off point like the poverty line?

False: Absolute poverty uses the poverty line and other cut off points, relative poverty uses a benchmark like unable to meet basic needs

Formal institutions (Laws) are set and never change based on informal institutions (Societal Norms)?

False; Formal institutions evolve with the informal institutions (culture and societal norms). They are complementary.

True/False: A change of the economy from service based to agriculture based is structural change.

False; a structural change occurs when an agriculture based economy shifts to a service based one.

Which of the following is NOT one of the important economic transaction problems institutions can solve? A. Hold Up problems B. Informational problems C. Commitment problems D. Efficiency problem

The answer is D, the other 3 are specific problems we covered in the slides that institutions can solve and the efficiency problem is not a part of that.

T/F: In the long run, does per capita income growth arise from increases in total factor productivity.

True, increase in total factor productivity is the ultimate source of long run per capita income , it results from intentional and deliberate decisions of economic agents to invest in human capital.

T/F: The Balanced Growth of Sectors approach is growing all sectors at the same pace. It has the possibility of reducing bottlenecks (excess supply).

True. With Balanced growth, an all sector based approach is needed, so what we get from one sector can help the other sector leading to complementarity.

One of the following is NOT contained in the Harris-Todaro model: a.) It is important to keep urban minimum wages higher b.) There will always be excess migration of wages in urban areas are higher than rural income. c.) Migration involves considerable risk. d.) Workers decision to migrate is based on differential in their expected life time earnings if they continue to live in rural areas vs urban areas

a

At what level Gini Coefficient do counties become concerning for development

above or equal to .5

Increased accumulation of capital where labor is large has a.long run growth effect b. short run growth effect c. effect on both d. effect on neither

b

What is the greatest failure of the Lewis Model? A. Labor can be moved from agriculture to industry at no cost. B. The model fails to account why people migrate or move from rural to urban areas. C. The labor market in the modern sector is competitive, and given excess labor in the agricultural sector wages remain low regardless of demand. D. Profits from the modern sector are reinvested only in that sector

b

What is the international poverty line that the world bank uses A)$0.5 B) $1 C)$2 D)$5

b

Which is a major/core driver of population growth? A. Head Count Ratio B. Net Migration C. Capital D. Poverty

b

Which of the following assumptions is true about the steady-state in the solow growth model? a. output equals zero b. assumes there is a diminishing MPK c. poorer countries will hit their peak growth d. productivity is zero, capital intensity is at peak

b

What type of economic transaction problem may occur within the a sale of a car at a dealership? a. The Commitment Problem b. Asymmetric Information c. Cooperation Problem d. Collaboration Problem

b Because the seller may have more information about the internal integrity of the vehicle and its history than the buyer.

2. Which of the following is not a circumstance of why people are trapped in poverty? A. Lack of skills B. Lack of education C. Lack of inheritance D. Unstable labor market

c

Inter-linkages is one of the characteristics of a credit market, Which of the following is not a reason for it? A. Creates efficient surplus. B. Allows hidden interest. C. Weakens the enforcement of contracts. D. Provides information.

c

There are 5 basic forms of ownership and tenancy contracts, which one is NOT a basic form? Farmer Ownership Communal Ownership Complex Land Ownership Fixed Land Rental Sharecropping

c

What four shifts mark the differences in fertility choices for people in many countries? A. Income, Cost of Children, Job availability, Education available B. Income, Time available, Age distribution, Death rate C. Income, Cost in consumer goods, Preferences, Cost of children D. Income, Cost of Children, Cost in consumer goods, Education available

c

Out of the four countries listen which ones has received the most amount of US foreign aid? a. Israel b. Egypt c. Iraq d. Afghanistan

c. iraq

Which of the following is not a reason that allows countries to produce more? Endowment Productivity Capital Efficiency

capital

What are the two-sector models? a. Traditional and Economic b. Modern and Development c. Economic and Capital d. Traditional and Modern

d

Which one of the following is NOT an economic transaction problem? A. Cooperation B. Coordination C. Commitment D. Communication

d

Who helped develop the Neoclassical growth model and also has won a nobel prize? A)Thomas Robert Malthus B)Paul Romer C)Carl Marx D) Robert Solow

d. solow

what 2 rights are essential to development?

economic, political

The hold-up problem is caused by there being a written out contract explaining all of the terms and demands involved in the business interaction.

false

T/F: The most important factor to introduce to developing countries is advancements in technology, which will lift them out of poverty.

false This is known as the technocratic solution to poverty in which states that poverty is a set of technical problems that can be solved by introducing technology to the developing country. We see that empowering individuals to make improvements on their own is a much more effective solution than purely technology-based solutions.

True/False: Institutions are unintentional constraints (rules) placed by laws, rules, regulations (formal) and social norms, cultures, religious beliefs and values (informal) on human behavior.

false because institutions are INTENTIONAL constraints.

Which of the following institutions provides the most financial loans to poor people in developing countries? Formal Institutions Informal Institutions Formal and Informal provide equal amounts of loans None of the above

informal

(True/False) The primary role of institutions is to help reduce transaction costs (the costs associated with buying or selling merchandise, borrowing money, or investing in a business.

true

T/F Adverse selection is a transaction problem that occurs when a product or service is selected by a certain group of people who offer the worst return to the seller.

true

T/F: Inequality worldwide has shown an increase in trend?

true

T/F: You can have economic growth without economic development?

true

The benefits of growth are seldomly evenly distributed.

true

The only way to equalize the income distribution and to get more money into the poor communities, is to take from the rich?

true

True/False: Well functioning institutions are a necessary condition for a developing country to grow.

true