Econ 24 Midterm MC/TF Prep
True
Despite often having higher marginal tax rates, developing countries collect less tax revenue in both absolute terms and as a share of their GDP than do high income countries (in general).
False
Formal property's contribution to mankind is not the protection of ownership; squatters, housing organizations, mafias and even primitive tribes manage to protect their assets quite efficiently . . . .In the midst of their own poorest neighborhoods and shanty towns, there are trillions of dollars, all ready to be put to use if only the mystery of how assets are transformed into capital can be unraveled."
False
HIV prevalence has decreased throughout all of Sub-Saharan Africa
True
Hyperbolic discounting implies that agents treat the distant future differently than the near future.
C
In Vietnam and Ghana, we observe a movement away from self employment into formal employment with development. Which of the following explanations is not a plausible explanation for the decline in self-employment? A. With growth, capital markets develop and interest rates decline. B. None of the other answers (all are plausible explanations for the decline in self-employment) C. With growth, poorer countries get access to new technologies that diminish the importance of moral hazard problems in hired labor. D. With growth, the volume and scope of economic transactions increase (markets grow). E. With growth, there are fewer meaningful economic shocks (perhaps fewer shocks or for meaningful shocks because of the diminishing marginal utility of income).
B
In which of the following settings are we most likely to see mutual insurance functioning effectively. A. In rural, western Cote d'Ivoire where entire communities specialize in cocoa cultivation. Middlemen in pickups drive from farm to farm, collecting beans picked from large, standing bushes. B. In Kagera, Tanzania where stable communities fish, farm, and petty trade among themselves as well as other communities C. In Durban South Africa, with a rich, diverse source of industry and employment in a large, largely migrant urban population D. In Kenyan highlands, where large tea plantations bring through migrant workers for seasonal tea work.
False - Take a close look at the quality-quantity model. What's driving the increasing costs of having children?
Increases in non-labor income will decrease fertility in poor countries.
False
Increasing non-labor income can explain why total fertility rates have been falling as countries develop.
False - The exact outcome depends on both marginal utility and marginal cost. Hence, this absolute statement is false. In the fatalism model in class, we saw an example where increasing the marginal cost can increase the behavior. I think this is a pretty good explanation for what's going on right now with Omicron.
Information on the prevalence of disease in a country, presuming the information implies a higher prevalence rate than expected, will reduce risky behaviors, because people will know that the costs associated with those risky behaviors are higher.
True
Insecure property rights within the family can keep women from being able to realize returns to working capital.
False - Preventative health measures seem incredibly own-price elastic, even among people who stand to benefit.
It is counterproductive to provide preventative health measures at a subsidized or reduced price, because that just means that people who do not really need them will use them. Price is an important discriminator for preventative health measures.
False
It is possible to reduce poverty head count rates by taking money from the very poor and giving it to the barely poor.
False
Low income families use ROSCAs to save for unanticipated events like poor health or deaths in the family.
False
Low school quality implies that there is no value from building schools or encouraging education in low income economies.
False - Cardiovascular diseases
Malaria is the leading cause of death in developing countries.
False - Not always and everywhere
Measured returns to education are always higher for men than women.
A
Most anti-child labor projects "rescue" child laborers in the sense that they identify children who are currently in a job that could be characterized as child labor and remove them from that job. Which answer best describes the likely effect of "rescuing" child laborers? A. Rescuing could decrease or have no effect on child labor as some of those jobs held by children might be replaced by adults. B. Rescuing reduces child labor prevalence by reducing the number of children currently employed. C. Rescuing has no effect on child labor, because other children will step in to replace the "rescued". D. Rescuing will increase child labor, by forcing the now poorer households to go find alternative sources of income
False
Net financial transfers from donor countries to aid recipient countries through official development assistance are greater than remittance flows.
False - What's the difference between net and gross? Net doesn't account for repetition of grades while gross does, allowing gross enrollment to be over 100.
Net primary school enrollment rates above 100 are plausible in low income countries.
True
Payments for Ecosystem Services are analogous to CCTs for the whatever aspect of the environment is targeted.
False
Poor countries stay poor, because they lack access to the more advanced technologies available in rich countries.
False
Providing private (rather than public) access to contraceptive vouchers can increase contraceptive utilization rates and has no psychosocial costs for women.
False (The Haiti example is a counterpoint here)
Raising the threat of tax enforcement always (weakly) increases tax revenue through increased compliance incentives.
A
Recast the tragedy of the commons to be about firewood extraction from the forest. In place of # goats, it is number of trips to the forest to collect firewood. Suppose that the marginal cost is just the opportunity cost of time which we will assume is the wage the agent can earn by working. Which of the following best reflects the relationship between opportunity costs and excess extraction from the forest? A. Higher wages reduce excess extraction. Sufficiently high wages will lead the household to turn elsewhere to meet their household energy needs. B. Higher wages increase excess extraction as household turn more towards the forest to meet their household energy needs. C. If opportunity costs increase in the amount extracted, the tragedy of the commons increases as more firewood is removed. D. If opportunity costs decrease in the amount extracted, the tragedy of the commons decreases as more firewood is removed.
True
Reducing taxes can increase tax revenue. An increase in compliance is a necessary (but not sufficient) condition for that to happen.
False
Risk and expected returns are negatively correlated
True
Stunting reflects long-term, cumulative nutritional status.
A
Suppose a taxi drive in urban Delhi earns $150 per day. Suppose a taxi driver in Delhi borrows $100 at the start of each week to pay for gas for the week's driving. Suppose the taxi driver pays the loan back at the end of each week for $110. Suppose taxi drivers in Delhi drink Kingfisher as a part of their recreation and Kingfisher is about $1 per beer. How many Kingfishers would they have to give up each week in order to be debt free after 10 weeks? Assume they start with 0 savings. A. 7 B. 21 C. 3 D. 14
A (Is there a binding constraint on minimum wages in urban areas? You'd obviously want to be clear on what assumption you are making related to that if this were an exam.)
Suppose an outbreak of black sigatoka decimates the Cavendish banana production in Latin America. That would leave the Philippines as the world's dominant producer of bananas. Assume this increases the price of bananas in PH and that bananas are principally grown in rural areas. What impact would the black sigatoka outbreak have on urban wages in the Philippines? Pick the best answer. A. Urban wages would increase or be unchanged B. Urban wages would decrease or be unchanged C. Urban wages would stay the same D. Urban wages would increase E. Urban wages would decrease
True - This question is trying to get you to think about how the shape of the returns to education influence decisions to invest in education. Suppose the returns are linear in education. How does that change your answer?
Suppose the returns to education are convex rather than concave. Suppose the poor face higher interest rates. In that case, we would expect the poor to invest more in education so long as they can borrow freely.
False
T/F: Better sanitation through protected wells and latrines cannot improve the lives of the global poor, because of concerns like fecal contamination of storage vessels, arsenic poisoning, etc.
True
T/F: Food expenditures appear to be more income elastic than calories.
False
T/F: Improving teacher quality is a necessary condition for improving educational achievement in developing countries.
False
T/F: International trade contributes to famines as high income countries consume food stuffs that would otherwise go to countries suffering acute food shortages.
False
T/F: Net financial transfers from donor countries to aid recipient countries through official development assistance are greater than foreign direct investment.
False
T/F: The effects of in utero traumas persist because of the rapid growth of higher cognitive functions in utero.
True
T/F: The global population living in extreme poverty generally spends more than half their total budget on food.
True
T/F: USAID provides more development assistance per year than the World Bank.
True
Tenancy reform raises output by mitigating the moral hazard problem intrinsic to sharecropping and hired in labor.
False
The LEAP program solidified the idea that the private sector provides clear welfare gains when the public government fails in providing quality education.
False
The World Bank is the largest provider of development assistance in the world.
B (You should be able to answer without a calculator)
The consumer loan default rate is 7.7 percent in Brazil. The current interbank interest rate in Brazil is 7.5 percent per year. Assume there's no risk built into this rate. What should the marginal product of capital be in Brazil if the neoclassical model of capital markets holds? A. 5.78 B. 8.08 C. 80.80 D. 57.8
True
The expansion of palm production in Indonesia reduced poverty and killed babies.
False - In general, everything in economics is the outcome of both supply and demand, so anything that is one sided is going to be false.
The fact that private health providers in Udaipur provide so many shots of sugar water illustrates how such providers are exploiting their patients.
True
The farm size - productivity relationship is more accurately characterized as U-Shaped.
True
The fertility of older women appears to be more elastic to information about and access to contraceptives.
A
The following statements concern the poverty trap model discussed in class. Which of the following statements most accurately depicts the impact of a negative shock under the stipulated "if" clause? That is, don't evaluate the "if" clause. A. All statements are true. B. If wealth tomorrow is S shaped in wealth today, then a negative shock will create a poverty trap if it moves the agent to the part of the S curve that is below the 45 degree line. C. If wealth tomorrow is linear in wealth today with a slope equal to 1, then a negative shock will lead to permanently lower income. D. If wealth tomorrow is an inverted U in wealth today, then a negative shock will not lead to a poverty trap so long as the shock leaves the agent in the domain where the inverted U is above the 45 degree line.
True
The global population living on less than $1 per day generally spends more than half their total budget on food.
True
The inverse farm size - productivity relationship seems to largely owe to agency issues that stem from asymmetric information problems with hired in labor.
False
The marginal utility of consumption is lower for poor, because they consume less.
False
The observation that many families with businesses or farms simultaneously hire in labor and sell their own labor in the formal labor market implies that there are imperfections in the formal labor market that prevent market clearing.
False
The observation that microcredit may not be a tool for fighting extreme poverty implies that there is no role for microcredit in development policy.
False
The observation that most labor in rural areas of low income countries works on the family farm implies that the value of labor's marginal product on the family farm is greater than that of the market wage.
D (Don't need a calculator)
The population of Lesotho is 1,368,644. It is 34% urban. Employment in urban areas is 37% formal. The average monthly wage in informal work is 2136 Loti and 7815 Loti in formal work. Which of the following is the best guess for rural wages assuming expected wage equalization: A. 4976 Loti B. 1441 Loti C. 12462 Loti D. 4237 Loti
False - The wording here is a little tricky. You can get enough calories for dirty cheap, but the class discussion tried to emphasize that you cannot get the micronutrients you need for dirt cheap.
The prices of staples and high carbohydrate foods is sufficiently low that there cannot be nutrition based poverty traps.
True
Though child marriage is strongly associated with poverty, we have evidence that financial incentives can discourage child marriage even when those financial incentives are a small fraction of the cost of caring for a child.
False
Uninformed consumers of health care are easily exploited by their health care providers. The excessive use of shots and over-prescriptions by medical providers in poor communities is evidence that corrupt health care providers are exploiting uninformed consumers for their own profit.
True
VATs are common in developing countries, because they create incentives for firms to reveal information about their supply chain. This information helps tax authorities validate tax filings.
False
Wasting reflects long-term, cumulative nutritional status.
C
Which of the following is not a normative argument for state intervention in the provision of education? A. There are large externalities associated with education that leave even the uneducated better off in a more educated society. B. Individuals, everything else equal, would choose to send their children to school, but they are constrained to consume out of current income and cannot privately attain enough cash for school fees at the start of the year C. The private returns to education are large compared to other potential uses of capital D. Education requires an investment in educational infrastructure that is large compared to the return to education for any individual.
E
Which of the following most accurately defines son preference and preference for sons? A. Son preference is when a parent favors resource allocation towards male offspring and preference for sons is when a parent prefers male children. B. They are the same thing Son preference is when a parent wants offspring that are male and preference for sons is when a parent prefers male children. C. Son preference is when a parent prefers male children, and preference for sons is when a parent favors resource allocation toward male offspring. D. Son preference is when a parent favors resource allocation towards male offspring and preference for sons is when a parent wants offspring that are male. E. Son preference is when a parent favors resource allocation towards male offspring and preference for sons is when a parent wants offspring that are male.
True
While development may help reduce gender inequality, cultural beliefs seem to have some persistence. Even radical changes in economic conditions do not fully erase them.
Income effect is the opposite sign of a normal good and larger in magnitude compared to the normal substitution effect.
Why do we expect to see Giffen behavior for staple goods?
False
With complete markets for labor and land that function and clear, household decisions about leisure and consumption will not depend on the choices they make about how to operate their family farm or business.
False - The law of demand is that the own price elasticity is negative, and a Giffen good has an own price elasticity that is positive. This results when the income effect of a price change is larger than the substitution effect, and the income effect is negative as in an inferior good.
A Giffen good occurs when the law of demand is violated for luxury goods.
False
A Pareto Efficient equilibrium is a situation where no individual can be better off without making at least one individual worse off. Because households pool resources, their decisions are always Pareto efficient.
True - Just underscoring the point about how patronizing some of these discussions about transaction sex can be.
A great deal attention is paid to the problem of transaction sex in Sub-Saharan Africa. True or False: if you are involved in a sexual relationship where your partner occasionally gave you gifts or some spending money, then you are engaging in transaction sex.
False
A majority of the world's poor live in Sub-Saharan Africa.
False
A majority of working children do so in manufacturing.
False
Adverse selection occurs when lenders are unable to prevent the willful ex-post default of borrowers.
600-700 thousand
Approximate deaths from malaria in the world
45-50 per 1000 live births
Approximate infant mortality rate in low-income country
200-300 million people
Approximate number of cases of malaria in the last year
160 million
Approximate number of child laborers in the world
650-750 thousand
Approximate number of people dying of HIV in the world
650-750 million
Approximate number of people living in extreme poverty in the world
38-43 million people
Approximate number of people who currently have HIV
570-740 million people
Approximate number of people with hookworm infections
False - In the slides, make sure you are attentive to the difference between labor market participation and wage labor market participation.
As we move from low to moderate levels of development, we typically see increases in female labor force participation.
True
Assume parents care about maximizing their children's wealth and (separately) their child's education. That is, education is a normal good. If parents can freely save and borrow at the market rate of interest, higher income families will invest more in education than lower income families.
False
Assume parents care only about maximizing their children's wealth. if parents can freely save and borrow at the market rate of interest, higher income families will invest more in education than lower income families.
False - This question asks you to think about the difference between p and w in the model used in class. There's an endowment income effect associated with w.
Because the total cost of schooling depends on both its direct costs and its opportunity costs, schooling responds to changes in direct costs in the same way it responds to changes in wages.
True - Trivers - Willard Hypothesis
Biological factors favor girls during crises like famines.
False
Calories appear to be more income elastic than food expenditures in general.
False - The definitiveness of this statement is the problem. More likely, children get paid lower wages, because they are less productive workers.
Children get paid lower wages, because they cannot advocate for themselves.
False - This question is a part of the sibling rivalry discussion. The idea from that discussion is that the implicit marginal cost of investment in either child is function of the other possible investments available to the family. Here, they can save or invest in each child. So long as the marginal return on investment in any one child is greater than 1, then the household will not be saving. The family will face an effective interest rate equal to the marginal return of investment in children minus one. It could just so happen that the implied interest rate is zero, but that is not necessarily the case.
Consider a credit constrained household with two children. The credit constraint is such that the household cannot borrow. They can only move resources into the future by investing in their children or saving. Their only savings mechanisms have a value that is tied to inflation such that they face a real interest rate on savings of 0. Given the interest rate on savings is zero, they will invest in each child until the marginal return on that investment is 1.
True - With every possible asset available, the usual market clearing logic will apply (uniform distribution isn't important to the problem, but I hope you looked it up). Suppose you varied this problem by having there be a minimum asset stock you needed to be able to convert that asset into work capacity. How would that change the problem?
Consider the capacity curve model in class. Suppose there is a continuous, uniform distribution of assets in an infinite population. In that case, we expect market clearing in employment.
A
Consider the two country (Basic) immigration model from class. Suppose the high income country has a binding minimum wage in the formal sector and no informal sector such that unemployment is the only option if not employed in the formal sector in the high income country. Suppose markets clear in the low income country. Which of the following best describes the equilibrium allocation of labor between the two countries if people are free to move across borders. A. Wages will be higher in the high income country and there will be more unemployment in the high income country. Unemployment will be lower if labor demand is more own price elastic in the low income country. B. Wages will be higher in the high income country and there will be more unemployment in the high income country. Unemployment will be higher if labor demand is more own price elastic in the low income country. C. Wages will be higher in the high income country and there will be more unemployment in the high income country. Unemployment will be higher if labor demand is more own price elastic in the high income country D. Wages will be higher in the high income country than the low income country. Unemployment will be higher in the low income country. E. Wages will be higher in the high income country than the low income country.
False - While this could be true, it is not necessarily true as the impact of the marginal utility of consumption on schooling depends on the relative weight of consumption, not the absolute weight. You can see this in the parameterized example developed in class. The impact of a change in q depends on mb, not on q alone.
Consider two households that differ in the weight they put on all inputs into their utility function. The household with a higher marginal utility of consumption today will choose less schooling than the household with a lower marginal utility of consumption today.
True
Corruption is both a cause of and caused by a lack of tax revenue. "Cause of" in that corrupt officials make private gains of resources that are meant for public benefit and "caused by" in the sense that a lack of compensation and enforcement of rules and regulations.
