Econ 314 Test 1

On which of the following does the neoclassical counter-revolution school most blame underdevelopment? (a) misguided government policies (b) relatively rigid cultural traditions (c) the legacy of colonialism (d) unfair trade practices on the part of developed countries

A

Which of the following is an assumption of the Lewis two- sector model? (a) surplus labor in the rural sector (b) high unemployment in the urban modern sector (c) rising real urban wages (d) rising marginal product of labor in the rural sector

A

Describe some of the advantages and disadvantages of the Lewis two-sector model.

A big disadvantage of the Lewis two-sector model is the fact that some of its key assumptions aren't true in many developing countries. One assumption is that the rate of labor transfer and employment creation in the modern sector in proportional to the rate of modern sector capital accumulation. Sometimes, capitalists profits are reinvested in other things not just to duplicate existing capital. Another assumption is that there is excess labor in rural areas when there is full employment in urban areas. Data indicates that there is little labor surplus in rural, developing countries. A final assumption is its diminishing returns in the modern industrial sector. There is a significant amount of evidence that shows increasing returns prevailing in that sector. Some advantages of this system are the fact that it's simple and a rough reflection of the historical experience of economic groth in western nations. It also tends to push countries in the direction of industrialization/modernization when all they've known is rural farming practices. It provides people with jobs in a more modern and effective environment.

How is happiness related to development?

According to Armartya Sen, happiness does not solely arise from commodities, but more from functionings, or what a person can do with these commodities. Sen says that happiness comes from freedom of choice or control. He also says that most people group happiness with utility, but very poor people tend to be most happy because they have learned to appreciate small comforts to avoid disappointment. However, recently, economists have studied the relationship between happiness and income. Economists have found that the average level of happiness or satisfaction directly increases with a country's average income.

6. The Millennium Development Goals include a. eliminating the proportion of people living on less than $1 per day. b. universal primary education. c. increasing exports by one half. d. all of the above.

B

In the public choice (or new political economy) approach to development the emphasis is on (a) growth in the rural sector. (b) the self - interested behavior of public officials. (c) the dependence of LDCs on former colonial powers. (d) the inherent efficiency of developing country market

B

The linear stages theory of economic growth fails to recognize that increased investment is (a) both a necessary and a sufficient condition. (b) a necessary but not a sufficient condition. (c) a sufficient but not a necessary condition. (d) neither a necessary nor a sufficient condition.

B

The underlying assumption of the Harrod - Domar growth model is that (a) the incremental capital - output ratio is given by k = Y/K. (b) growth is mainly determined by capital accumulation. (c) growth can be sustained only if agricultural productivity rises. (d) developing countries save too much and invest too littl e.

B

3. Development economics must have a scope wider than traditional economics because a. values and attitudes play little role in the pace of development. b. people in developing societies do less utility-maximizing. c. transformation of social institutions is necessary for development. d. all of the above.

C

7. The core values of development include a. increasing income per person. b. reducing the inequality of income. c. the ability to meet basic needs. d. all of the above.

C

A situation in which government intervention in the economy worsens the economic outcome is termed (a) neoclassical failure. (b) socialism (c) government failure. (d) dependency revolution.

C

The neoclassical counter-revolution school supports (a) trade restrictions. (b) state-owned enterprises. (c) eliminating government regulations. (d) limitations on foreign investors

C

4. A good definition of the meaning of development is the a. elimination of absolute poverty. b. improvement in the quality of life. c. fulfillment of the potential of individuals. d. all of the above.

D

5. Which of the following is not an important objective of development? a. increases in per capita income b. the expansion of available choices c. increases in individual and national self-esteem d. all of the above are important objectives of development

D

Development economics is the study of the a. alleviation of absolute poverty b. transformation of institutions c. allocation of resources in developing countries d. all of the above

D

The market-friendly approach to development emphasizes (a) self-interested behavior of public officials in LDCs. (b) the dependence of LDCs on former colonial powers. (c) the inherent efficiency of markets in developing countries. (d) that markets in LDCs fail sometimes and selective interventions can promote economic development.

D

The supply curve of labor to industry in the Lewis model is horizontal if there is surplus labor in agriculture. This condition persists as long as (a) the marginal product of labor is less than the average product of labor in agriculture. (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

D

Which of the following are components of economic growth (a) growth in labor force. (b) technological progress. (c) investment. (d) all of the above.

D

Which of the following demonstrates international interdependence? A. The Oil shocks b. The debt crisis c. Global warming d. All of the above

D

Which of the following is a criticism of the neoclassical counter - revolution school's approach? (a) markets are not competitive in developing countries. (b) externalities are common in developing countries. (c) inequality may worsen when interventions are removed in developing countries. (d) all of the above

D

Which of the following is an assumption of the Lewis two - sector model? (a) surplus l abor in industry. (b) positive marginal product of labor in agriculture. (c) an upward sloping labor supply curve in industry. (d) none of the above.

D

Which of the following is not a policy proposal of the neoclassical counter - revolution school? (a) promoting free trade (b) privatizing state - owned enterprises (c) welcoming multinational corporations (d) promoting trade unions

D

Provide a definition of development economics. Justify your choice carefully.

Development economics has a broader scope than neoclassical economics and political economy. Development economics not only concerns itself with the efficient resource allocation in a microeconomics approach and growth of output in macroeconomics approach, but also it deals with the economic, political, social, cultural, and institutional mechanism. Moreover, it is the study of problems of poverty and inequality living of developing countries.

. In defining development to include more than just the growth of per capita income, there is an implicit assumption that the growth of per capita income alone is not sufficient to guarantee the reduction of poverty and the growth of self-esteem. Is it possible that there could be growth of per capita income without the achievement of these other objectives?

It is true, the growth of per capita income alone is NOT enough to reduce poverty and help grow self-esteem. The reason why is because per capita income is measured as total resources/total population and this is just the average income. This doesn't exactly measure the improvement of living standards in developing countries because we don't know if income is equally distributed or not. Also, if a country has a high level of income but poor education and health, then this is not a good sign, it is considered "growth without development."There is also no increase in functions, and in order for a person to function there needs to be a growth of self-esteem and education. Also, you need self-esteem in order to contribute to society and to gain the feeling of independence. Those who live in poverty don't have the knowledge to expland choices or capability to make valuable actions. You need a good education and health alongside of growth per capita income in order to function and reduce poverty and increase self-esteem.

Explain why purchasing power parity measures of income levels tend to show a smaller difference between poor and rich countries.

PPP measures the number of units of developing country currency required to purchase a basket of goods and services in the developing country market that costs one dollar in the US. It shows a smaller difference because the prices for services are cheaper in these developing countries than they are in the US.

Why are women often referred to as playing a central role in economic development?

Studies have shown that women play a major role in development economics. Globally, women can be seen as having primary responsibilities of child rearing and caring. Economists go on to say that women tend to provide resources and values to next generations that could determine/alter future poverty levels of the next generations. Thus, analysts suggest by investing in women socially and economically, they will pass good values on to future generations which will positively aid society's economic development.

An example of an upper-middle income country is A. India b. Brazil c. Indonesia d. Nigeria

b

One of the components of the human development index is a. the %age of the population who are high school graduates b. the average daily intake of protein c. life expectancy at birth d. the number of doctors per hundred people in the population.

c

The number of units of developing country currency required to purchase a basket of goods and services in a developing country that costs one dollar in the US is given by a. GNI price deflator b. Human development index ranking c. purchasing power parity d. the exchange rate

c

Which of the following is not an indicator that is used to compute the Human Development Index? a. life expectancy at birth b. real GDP per capita c. infant mortality rate d. adult literacy rate

c

Conditions of today's developed countries at the start of their industrialization differ from conditions in the developing world in that a. population growth rates were higher b. more advanced technology was available c. there were more opportunities for development assistance. d. none of the above

d

How many people still live on less than the equivalent of $1.25 per day (new definition of "extreme poverty")? a. 100 million b. 500 million c. 1.4 billion d. 2.2 billion

d

Most successful examples of modern economic growth have occurred in a country with a. A temperate-zone climate b. a market economy c. exports of manufactured goods d. all of the above

d

What fraction of developing countries have recently experienced some form of significant interethnic conflict? a. less than 1/10 b. 1/10 to 1/4 c. 1/4 to 1/2 d. over 1/2

d

Which of the following is a low-income country? a. Mexico b. Thailand c. Turkey d. Bangladesh

d

Which of the following is not an indicator that is used by the World Bank in measuring the level of economic development? a. life expectancy at birth b. adult literacy rate. c. infant mortality rate d. none of the above are used by the World Bank

d

What percent of the world's nations have at least five significant ethnic populations? a. 0-10 b. 10-20 c. 20-30 d. 30-40 e. over 40

e