Eco2117 Chapter 12, Eco2117 Chapter 10, ECo2117 Chapter 8 Human Capital, Eco2117 Chapter 7: Urbanization, Chapter 6: population growth and economic development, ECo2117 Chapter 5: Poverty, Inequality and Development, ECO2117 Chapter 4, Week 1 - Econ...

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In order to ensure the war is not escalated any further, Syria should: a) focus on no longer provoking the US again after the first time, in early 2018 b) encourage the use of chemical weapons c) purchase more S-300 missile systems d) strengthen its economic and political ties to Russia

a) focus on no longer provoking the US again after the first time, in early 2018

Malthusian Population Trap Model Examples: Negative growth in Income: famine,

as income per capita increases to a certain point, a total income will be growing at a faster and higher rate, as money can be saved or invested leading to economic growth to a maximum point

5. One of the components of the human development index is a. the percentage 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. life expectancy at birth.

10. 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 U.S. is given by a. GNP price deflator. b. Human Development Index ranking. c. purchasing power parity. d. the exchange rate.

c. purchasing power parity.

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. the ability to meet basic needs.

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. none of the above.

7. What fraction of developing countries have recently experienced some form of significant interethnic conflict? a. less than one-tenth b. a tenth to one-quarter c. one quarter to one half d. over one half

d. over one half

6. 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. over 40

Big push example

government could invest in a steel firm which has strong forward linkages; by subsidising the steel firm so it either sold goods at a loss, or had enough invested in it that it benefited from large economies of scale

Basic Human Capital Approach

indirect ability to increase wellbeing by increasing incomes.

If a technological advance expands output and requires a smaller investment in capital goods, this technological advance:

is capital-saving.

Imperfect Markets

market in which theoretical assumptions of perfect competition are violated

Kuznet Ratio

measure of the degree of inequality between high and low income groups in a country (ratio of income received by top 20% and bottom 40% of population)

Cons of FDI

might lower domestic savings and investment rates, might reduce foreign-exchange earnings, don't contribute much to public revenue, don't help management skills

The DVCs are located:

primarily in Africa, Asia, and Latin America.

State industries are notoriously poor "incubators" for the development of profit-focused, entrepreneurial persons who may leave the firm to set up their own businesses. This statement is an argument in favor of:

privatizing state industries.

Scarcity rent

the premium or additional rent charged for the use of a resource or good that is in fixed or limited supply

commodity terms of trade

the ratio of a country's average export price to its average import price

Price elasticity of demand

the responsiveness of the quantity of a commodity demanded to a change in its price, expressed as the percentage change in quantity demanded divided by the percentage change in price

Income elasticity of demand

the responsiveness of the quantity of a commodity demanded to changes in the consumer' income, measured by the proportionate change in quantity divided by the proportionate change in income

foreign exchange gap

the shortfall that results when the planned trade deficit exceeds the value of capital inflows, causing output growth to be limited by the available foreign exchange for capital goods imports

Foreign-Exchange Earning

the sum total of all foreign currency receipts less expenditures during a given fiscal year

It is sometimes difficult to transfer the advanced technologies of the industrialized nations to the DVCs because:

the technologies of the IACs are frequently based on relatively expensive labor and relatively cheap capital.

Economic growth may hinge on whether individuals and institutions within a nation want growth badly enough to change their traditional ways of doing things. This statement refers to:

the will to develop

Free Market Analysis

• Markets alone are efficient • Competition is effective • Technology is freely available and nearly costless • Information is freely available and nearly costless • Government intervention is distortionary

Human capital is best defined as (a) the amount of wealth people have. (b) the amount of money people have to spend on schooling. (c) human capacities that raise productivity. (d) the average education level of the population.

Which of the following environmental problems are largely caused by persistent poverty? (a) Deforestation. (b) Soil erosion. (c) Ground water contamination. (d) All of the above.

(d) All of the above.

Which of the following is an argument in favor of the liberalization? (a) Increased technical efficiency. (b) Accelerated technical progress. (c) Decreased shortages of foreign exchange. (d) All of the above. (e) both (a) and (b) are correct.

(d) All of the above.

The informal sector exhibits (a) free entry (b) labor intensive methods (c) small, competitive firms (d) all of the above

(d) all of the above

1. The absolute poverty line (a) decreases as real income grows. (b) shows the average income of the lowest income group. (c) can be measured with the Lorenz curve. (d) none of the above.

(d) none of the above.

Describe some of the benefits and costs associated with the emergence of large cities in developing countries.

*Benefits* include - ability to learn from others that are located in close proximity - reduction in transportation costs - large availability of skilled labor. *Costs* include - congestion - pollution.

What is meant by the demographic transition? What are the differences in the demographic transition between the current developed economies and developing countries?

*Stage 1:* - High birthrates and death rates *Stage 2:* - Continued high birthrates, declining death rates *Stage 3:* - Falling birthrates and death rates, eventually stabilizing The demographic transition is broadly similar for middle income countries although death rates have fallen more quickly. In some low income countries birth rates remain stubbornly high, while death rates have declined.

how much has the volume of aid money from the ODA increased according to Todaro and Smith

- $5 billion in 1960 - $50 in 2000 - over $128 billion in 2008

how much GNI should a developed nation give to aid? give examples

- 0.7% examples: - Sweden gives +1% - Netherlands and Denmark give 0.7% - UK give 0.47%

In 2010, the United States had about ___ percent of the world's population and produced about ___ percent of the world output.

- 4.4 - 22

which NGO specialises in chronic disaster according to Werker and Ahmed

- Action Africa Health International - they provide food distribution, agricultural extension, environmental management, HIV/AIDs awareness - gain funding from UN organisations

Describe some of the causes of urban giantism in developing countries.

- First-City Bias - Hub and Spoke Transportation System - Location of Political Capital in Largest City

what are the advantages of NGOs

- less constrained by political imperatives - focus on local requirements - help poorest while TNCs invest in stable countries to create better prospects of profit

In what way is better protection of the environment a possible result of successful development?

- less environmental pollution - reduce poverty - increase health - increase productivity

what are the issue of who the beneficiaries are according to Easterly and Pfutze

- link to principle-agent theory - top down approach which can discourage local development

what are the sources of foreign aid?

- official develop assistance (ODA) (public) - unofficial development assistance (NGOS) (private)

what are the issues with accepting aid?

- once aid has been accepted, the ability for the recipient gov to extricate (remove) donor input in policy and economic affairs - can interfere with internal affairs

what is the issue with who the beneficiaries are

- principle-agent theory - top down approach = discourages local development

why do NGOs grow according to Werker and Ahmed

- rise in gov contracting - more entrepreneurs - increase in professionalisation

what are the three types of aid which are considered less effective according to Easterly and Pfutze

- tied aid - food aid - aid in the form of technical assistance

what are NGOs

- voluntary organisations - grass root organisations - provide emergency relief, protecting childcare, women rights and protecting the environment

The Harris-Todaro Migration Model Scenario: Assuming Migration is available and there is unemployment

-Assumes that rural works will migrate to urban areas to get try to get manufacturing job which has a certain probability Change of finding job =Labour roles in manufacturing employment/ total urban labour pool The result of migration results to: - Less supply of agriculture workers, thus wages rise, and in urban labour pool the wages will have more supply and wages may drop if the supply demand gap wasn't met previously

What is development economics? (RG ESPI)

-Combines economics and political economy Focuses on the efficiency allocation of of resources, and sustained growth. Including the economic, social, political, and institutional mechanisms need for major improvements in standard of living.

Free rider Solution

-If we combine the benefits that A and B get, we will have an aggregate benefit, To accomplish this, A will pay for Pa number of trees, and B will pay for the Pb number of trees, thus allowing us to reach Pm and Q* But this is difficult to do and people may not report the true benefit gainned, or sometimes the benefittors are those of low income

Public Good Ex. Lighthouse

-Light benefits everyone and one boat using light doesn't impact others -Light benefits all boats regardless if they paid fees

Criticisms of the Stages Model

-Necessary versus sufficient conditions -euro countires already possessed the necessary structural and institutional conditions to effectivley convert new capital into higher levels of output -insuff. focus on decreasing the capital output ratio

Pollution Externalities: Tax incentives

-To make the equilibrium meet Q*, we can have a tax for each unit of x

Income Poverty Formula

-Total Poverty Gap= Sum of headcount = (Absolute poverty line - persons income) -Average Poverty Gap (APG): Total poverty gap/population -Normalized Poverty Gap (NPG)= Average poverty gap / Absolute Poverty Line

In the Harrod-Domar growth model, if 12.5% of income is saved, the incremental capital output ratio is 2.5 and the rate of depreciation is 4%, what is the implied rate of growth?

Neoclassical counter revolution: component approaches

1) Free Market Analysis 2) Public Choice Theory 3) Market Friendly Approach

Decile

10% portion of any numerical quantity; a population divided into deciles would be divided into ten equal numerical groups

Suppose that Alpha's real output rose from $400 billion in year 1 to $428 billion in year 2. Its growth rate for this period was:

12%

Approximately what percent of the world's income is received by the poorest one-fifth of the world's population?

Sector

A subset of an economy, with four usages in economic development: technology, activity, trade, and sphere.

Nominal rate of protection

An ad valorem percentage tariff levied on imports

Nominal rate of protection

An ad valoreum percentage tarriff levied on imports

Gini coefficient

An aggregate numerical measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality). It is measured graphically by dividing the area between the perfect equality line and the Lorenz curve by the total area lying to the right of the equality line in a Lorenz diagram. The higher the value of the coefficient is, the higher the inequality of income distribution; the lower it is, the more equal the distribution of income

Traditional economics

An approach to economics that emphasizes utility, profit maximization, market efficiency and determination of equilibrium.

Subsistence economy

An economy in which production is mainly for personal consumption and yields little more than basic necessities of life.

Overvalued exchange rate

An official exchange rate set at a level higher than its real or shadow value

Undervalued exchange rate

An official exchange rate set at a level lower than its real or shadow value

Producer surplus

Area above the supply curve and below the price level where producers are selling for more or at their willingness-to-sell

Backward linkage

Backward linkages raise demand for an activity

Why is Labor not included in the Harrod Domar Model

Because labor is assumed to be abundant in developing countries

Capabilities Approach (Amartya Sen): Functionings vs utilities

Being happy or satisfied with what you have isn't the same as a functioning Ex. you can be sick but happy

How they are counteracting Poverty and Inequality (Program) : Brazil

Bolsa Familia

LDW: Export surplus argiculture goods and import manufactured goods, this results to LDW consuming more then its productions possibilities frontier

C is possible through the possibilities of free trade

Purchasing Power Parity (PPP)

Calculation of GNI using a common set of international prices for all goods and services.

Synthetic substitutes

Commodities that are artificially produced but can be substituted for the natural commodities

Specialization

Concentration of resources in the production of relatively few commodities

Specialization

Concentration of resources in the production of relatively few, specific goods

Social costs of education

Costs borne by both the individual and society from private education decisions, including government education subsidies

Newly industrializing countries (NICs)

Countries at a relatively advanced level of economic development with a substantial and dynamic industrial sector

Developing Countries

Countries of Asia, Africa, the Middle East, etc. that are presently characterized by low levels of living and other development deficits.

Box 2.5 - Institutions

Cultivators of property versus landlords areas with landlords had much lower agricultural cultivation and productivity in postcolonial period, significantly less access to schools, health centers, and roads, high infantry rate

All of the following contribute to low investment spending in DVCs except: A. low rates of saving. B. inadequacy of public capital goods (infrastructure). C. political instability. D. expensive labor.

D - expensive labor.

Which of the following is not a DVC policy likely to increase DVC economic growth? A. Encouraging direct foreign investment. B. Opening economics to world trade. C. Establishing independent central banks. D. Encouraging emigration of highly skilled workers.

D. Encouraging emigration of highly skilled workers.

Population growth remains high in most DVCs: A. because religious and sociocultural considerations favor large families. B. because children may provide economic security for aging parents. C. because children provide agricultural labor in rural areas. D. for all of these reasons.

D. for all of these reasons.

You are a lobbyist hired by a less developed country to try to prevent a developed country from increasing trade barriers against labor-intensive manufactured imports such as textiles. Make your case, arguing from both developed and developing country perspectives, in terms of who gains and who loses.

Developing countries - able to export more - boost economy - trade creation Developed countries - decrease on supplying domestic goods

Factor Endowment theory country focus

Developing countries encouraged to focus on production of labour and land intensive primary products for export • Import manufactured goods (capital intensive production) from developed countries

Damage in ______ once the nation discovers its most advantageous products to specialize

Diversification

Advantages of Incumbency

Easier to maintain a average lower cost of output because they are already established Firms need access to significant amounts of capital in order to cover the costs while they build up a customer base

Self-sustaining growth

Economic growth that continues over the long run based on saving, investment, and complementary private and public activities.

Infrastructure

Facilities that enable economic activity and markets, such as transportation, communication, and distribution networks

Dual exchange rate (parallel exchange rate)

Foreign exchange-rate system with a highly overvalued and legally fixed rate applied to capital and intermediate goods imports and a second, illegal (or freely floating) rate for imported consumption goods

Growth Strategy in the Harrod Domar Model

Increase savings

Global warming

Its getting hot in here

Child Labour Model Children working low adult unskilled labour wages

Once A is low enough then children will have children working At T all adults and children are working

Static efficiency breakdown

Supply is equal to the marginal cost in competitive markets

Diminishing marginal utility

The concept that the subjective value of additional consumption lessens as total consumption becomes higher

Social profit

The difference between social benefits and social costs, both direct and indirect

Natural increase

The difference between the birth rate and the death rate of a given population

Income inequality

The disproportionate distribution of total national income among households

Self-Esteem

The feeling of worthiness that a society enjoys when its social, political, and economic systems promote human values.

Educational certification

The phenomenon by which particular jobs require specified levels of education

Environmental capital

This that measure the quality of the environment, like forests, soil quality, etc. that affect environmental accounting

Conditional cash transfer (CCT) programs

Welfare benefits provided conditionally based on family behavior such as children's regular school attendance and health clinic visitations

Complementarities

When the agent performs and action and it incentivizes others to do the same

Export earnings instability

Wide fluctuations in developing country earnings on commodity exports resulting from low price and income elasticities of demand leading to erratic movements in export prices

Progresa/Opportunidades : Mexico

a conditional cash transfer program

Multinational Corporation

a corporation with production activities in more than one country

Why is Nigeria's life expectancy lower than the life expectancy for the US? a. Health Standards are significantly lower, with more than half the population not having access to basic sanitary facilities. b. Nigerians follow an unhealthy diet. c. Most Nigerians have a genetic disorder that prevents them from living past the age of 60. d. The constant social instability in Nigeria.

a. Health Standards are significantly lower, with more than half the population not having access to basic sanitary facilities.

Which of the following is listed as a "Critical Question" in the list on pp. 11 -14 of the textbook? a. How can the extremes between rich and poor be so very great? b. How can the "digital divide" be addressed? c. How can tariffs and quotas be used to protect jobs in developing countries? d. What are the ways that developing countries can pay for needed infrastructure, such as roads and harbors? e. All of the above

a. How can the extremes between rich and poor be so very great?

14. Neutral technological progress occurs when a. higher output levels are achieved with the same quantity and combinations of factor inputs. b. higher output levels are achieved by more capital intensive methods. d. higher output levels are achieved by more labor intensive methods. e. higher output levels are achieved.

a. higher output levels are achieved with the same quantity and combinations of factor inputs.

9. Which measure uses a common set of international prices for all goods and services produced? a. purchasing power parity income levels b. GNP price deflators c. foreign exchange rate conversions to U.S. dollars d. the exchange rate

a. purchasing power parity income levels

Incomplete information

absence of information that producers and consumers need to make efficient decisions resulting to underperforming markets

Transfer pricing

an accounting procedure often used to lower total taxes paid by multinational corporations in which intracorporate sales and purchases of goods and services artificially invoiced so that profits accrue to the branch offices located in low-tax countries while offices in high-tax countries show little or no taxable profits

13. About how many malnourished children under age five are there in the developing world? a. 20 million b. 150 million c. 500 million d. 1 billion e. 2 billion

b. 150 million

Which of the following is a monetary policy objective of the Central Bank of Nigeria? a. Attract foreign direct investment to stimulate employment opportunities. b. Achieve price and exchange rate stability. c. Increase government expenditure by 50%. d. Increase the interest rate.

b. Achieve price and exchange rate stability.

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

b. Brazil.

22. Developing countries are starting to converge with developed countries in the long run in what respect? a. Growth rate b. Income inequality c. Population d. Per capita income

b. Income inequality

A subsistence economy is a. a very low income economy. b. an economy in which people make what they consume. c. an economy in which people receive food for pay. d. all of the above.

b. an economy in which people make what they consume.

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. universal primary education.

Which of the following statements about Nigeria is incorrect? a. The Nigerian Naira is Nigeria's official currency. b. Nigeria is located in West Africa. c. Nigeria's largest export partner is France. d. Mothers in Nigeria have on average about 5 children.

c. Nigeria's largest export partner is France.

3. Which of the following is not an upper middle-income country? a. Brazil b. South Africa c. Pakistan d. Argentina

c. Pakistan

23. Which region in the world has the lowest GNI per capita based on the World Bank Atlas method? a. Sub-Saharan Africa b. East Asia/Pacific c. South Asia i. Latin America/The Caribbean

c. South Asia

Which of the following statements is most accurate about Nigeria? a. Nigeria is a high-income country. b. Nigeria's advanced education laws lifted school life expectancy to 18 years old. c. The Nigerian government plans to build more hospitals containing state-of the art equipment and faculties. d. Nigeria's rural development is highly advanced.

c. The Nigerian government plans to build more hospitals containing state-of the art equipment and faculties.

. Amartya Sen defined "capabilities" as: a. Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable. b. Total gross national income divided by total population. c. The freedoms that people have, given their personal features and their command over commodities. d. all of the above.

c. The freedoms that people have, given their personal features and their command over commodities.

Forward linkage

forward linkages lower the costs of using an industry's output

The exports of the DVCs consist largely of:

high-technology goods

what leads to the need for public policy intervention?

market failures

New Human Development Index (NHDI)

most widely used measure of comparative status of socioeconomic development. Combines education, health, and adjusted real income per capita.

Harrod Domar Model - rate of growth of GDP is determined by ______ and _________

national savings ratio and national capital output ratio

______ growth is much easier than ______ growth

sustaining, ititiating

The Two sector model focuses on labor ______ -growth of output and employment in the _____ sector

transfer modern

Absolute Poveerty

unable to meet the minimum levels of food, clothing, health care, shelter, and other essentials.

Underemployment occurs when:

when workers are working fewer hours than they desire or when they are working less productively than they are capable.

Is the following assertion true or false? Explain. The Kuznets inverted-U hypothesis is an empirical fact corroborated by the process of economic development of every country.

This statement is false. While there seems to be some statistically correlation for certain countries, between the distribution of income, and the level of economic growth/development, we see that by digging deeper that the level of economic development is not the cause how equal or not equal the distribution of income is. The texbook states that the inverted U occurs due to a statistically fluke as Kuznets happened and doesn't hold true

Malthusian Population Trap

Thomas Malthus proposed a relationship between population growth and economic development • Land is fixed - as the population grows, each member of the population has less land to work - each member's marginal contribution to food production declines - per capital food production declines (income per capita) • Growth in food supply falls behind population growth -Result is stable population living at or slightly above poverty level, to avoid this population growth must be limited -Model fails technology development and micro economic family size decisions

Are developing country cities too large, too small, or about right in size? Justify your answer with evidence from developing economies.

Too large. Cities are capital intensive, the largest cities are increasingly found in the developing countries, and there are many urban biases causing the distortion.

Income per capita

Total gross national income of a country divided by its total population.

Average product

Total output divided by total factor input

North-South trade models

Trade and development theories that focus on the unequal exchange between the North developed countries and the South developing countries in an attempt to explain why the South gains less from trade than the North

Critique of the assumptions of the traditional neoclassical model of trade 6

Trade gains accrue to national • Foreign owned operations • Few linkages to wider economy • GDP>GNI if economy is foreign owned • Gains from trade accrue largely to nonnationals

Free trade

Trade in which goods can be imported and exported without any barriers in the forms of tariffs, quotas, or other restrictions

international commodity agreement

a formal agreement by sellers of a common internationally traded commodity (e.g., coffee, sugar) to coordinate supply to maintain price stability

two-gap model

a model of foreign aid comparing savings and foreign exchange gaps to determine which is the binding constraint on economic growth

Resource Endowment

a nation's supply of usable factors of production, including mineral deposits, raw materials, and labour.

infant industry

a newly established industry, usually protected by a tariff barrier as part of a policy of import substitution

uncertainty

a situation in which neither the actual outcome nor even the precise probabilities of the various possible outcomes are known

risk

a situation in which the probabilities of the various possible outcomes are know, not the actual outcome is not

In which of the following ways has the U.S helped Honduras? a) Created the U.S strategy for Engagement in Central America, reducing violence and improving economic opportunities b) Borrowing large amounts of money to be invested in education and health c) Sending food and volunteers to help areas in need d) Providing military aid in exchange for signing a defense contract with the U.S.

a) Created the U.S strategy for Engagement in Central America, reducing violence and improving economic opportunities

HONDURAS: What was the theory in psychology used in the presentation to compare individual needs to a nation's needs? a) Maslow's Hierarchy of Needs b) McClelland's Human Motivation Theory c) Murray's System of Needs d) Alderfer's ERG Theory

a) Maslow's Hierarchy of Needs

The Malthusian population trap model has been criticized on the grounds that it (a) ignores the role of technological progress. (b) assumes that population growth is primarily determined by individual choice over the number of children to have. (c) both (a) and (b) are correct. (d) neither (a) nor (b) is correct.

(a) ignores the role of technological progress.

Developing countries have not benefited as much as expected from their higher education programs because of (a) lack of program focus on the needs of the country. (b) increasing returns to scale in each individual's education. (c) graduates get jobs in the private sector. (d) all of the above.

(a) lack of program focus on the needs of the country.

Studies show that improved education of women in developing countries leads to (a) lower infant mortality. (b) better designed, market based development policies. (c) lower international dependence. (d) all of the above.

(a) lower infant mortality.

In Ecuador, as a share of a firm's revenue, the cost of bribes is highest for (a) micro enterprises. (b) small enterprises. (c) medium enterprises. (d) large enterprises.

(a) micro enterprises.

8. 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) misguided government policies

6. The big-push theory argues that coordination failures may arise because of (a) pecuniary externalities. (b) technological externalities. (c) lack of human capital. (d) all of the above.

(a) pecuniary (financial) externalities.

Malthusian Population Trap Model: Not taking account technological progress

Technological growth shifts the income growth curve of all levels, and the population trap is gone

Divergence

Tendency for per capita income (or output) to grow faster in higher-income countries than in lower-income countries so that the income gap widens across countries over time (as was seen in the two centuries after industrialization began).

Convergence

Tendency for per capita income (or output) to grow faster in lower-income countries than in higher-income countries so that lower-income countries are "catching up" over time.

Neoclassical counterrevolution

The 1980s resurgence of neoclassical free-market orientation toward development problems and policies, counter to the interventionist dependence revolution of the 1970s

Sustenance

The basic goods and services that are necessary to sustain an average human being at the bare minimum of living

Economists frequently urge governments of developing countries to replace import quotas with import tariffs as a first step in a strategy that aims to reduce import protection. What is the reasoning offered by economists to support this recommendation to developing countries?

The basic rational is the infant-industry argument. Tariff protection against the imported commodity is needed in order to allow the now higher-priced domestic producers enough time to learn the business and to achieve the economies of scale in production and the external economies of learning by doing that are necessary to lower unit costs and prices. With enough time and protection, the infant will eventually grow up, be directly competitive with developed country producers, and no longer need this protection.

Private benefits

The benefits that accrue directly to an individual economic unit. For example, private benefits of education are those that directly accrue to a student and his or her family

New protectionism

The erection of various nontariff trade barriers by developed countries against the manufactured exports of developing nations

New Protectionism

The erection of various nontarriff trade barriers by developed countries against the manufacture experts of developing nations

Net international migration

The excess of persons migrating into a country over those who emigrate from that country

Surplus labor

The excess supply of labor over and above the quantity demanded at the going free-market wage rate. In the Lewis two-sector model of economic development, surplus labor refers to the portion of the rural labor force whose marginal productivity is zero or negative

Flexible exchange rate

The exchange value of a national currency that is free to move up and down in response to shifts in demand and supply arising from international trade and finance

Organized money market

The formal banking system in which loanable funds are channeled through recognized and licensed financial intermediaries

Capabilities Approach (Amartya Sen): Capabilities

The freedom that a person has in the choice of functionings, given his personal features (conversion of characteristics into functionings) and their command over commodities Capabilities are a person's real freedoms or opportunities to achieve functionings. Ex. travelling is a functioning, the real opportunity to travel is the corresponding capability. Ex 2 Someone might, for example, have the formal freedom to vote in elections in the sense that she has the right to do so and that no one will stop her from doing so, but she might lack the substantial possibility to vote because the closest voting station is 200 kilometers away and she does not own a car and does not have access to other means of transportation.

Capabilities

The freedoms that people have, given their personal features and their command over commodities.

Economic Union

The full integration of two or more economies into a single economic entity

Economic union

The full integration of two or more economies into a single economic entity

Rate of population increase

The growth rate of a population, calculated as the natural increase after adjusting for immigration and emigration

Why might it be in the direct economic interest of the United States to finance rain forest conservation programs in the Amazon?

The health of rain forests have direct effects on the growth potential of the United States and the world in general. Rain forests like the Amazon have positive effects on climate change, which is a problem the whole world is facing. Further, rain forests are the most bio-diverse areas in the world, which is key for the biotechnology industry in the US to continue to innovate and grow.

Structural-change theory

The hypothesis that underdevelopment is due to under-utilization of resources arising from structural or institutional factors that have their origins in both domestic and international dualism. Development therefore requires more than just accelerated capital formation.

Free Trade

The importation and exportation of goods without any barriers in the form of tariffs, quotas, or other restrictions

Free trade

The importation and exportation of goods without any barriers in the form of tariffs, quotas, or other restrictions

Voluntary failure

The inability of nongovernmental organizations and the citizen sector more broadly to efficiently achieve social objectives in their areas of supposed comparative advantage

Disposable income

The income that is available to households for spending and saving after personal income taxes have been deducted

Gains and trade

The increase in output and consumption resulting from specialization in production and free trade with other economic units, including persons, regions, or countries

Gains from trade

The increase in output and consumption resulting from specialization in production and free trade with other economic units, including persons, regions, or countries

Marginal product

The increase in total output resulting from the use of one additional unit of a variable factor of production (such as labor or capital). In the Lewis two-sector model, surplus labor is defined as workers whose marginal product is zero

globalization

The increasing integration of national economies into expanding international markets

Globalization

The increasing integration of national economies into expanding international markets.

Unorganized money market

The informal and often usurious credit system that exists in most developing countries (especially in rural areas) where low-income farms and firms with little collateral borrow from moneylenders at exorbitant rates of interest

World Health Organization (WHO)

The key UN agency concerned with global health matters

Central bank

The major financial institution responsible for issuing a nation's currency, managing foreign reserves, implementing monetary policy, and providing banking services to the government and commercial banks

Economic integration

The merging to various degrees of the economies and economic policies of two or more countries in a region

Economic integration

The merging to various degrees of the economies and economic policies of two or more countries in a region

Factor endowment trade theory

Briefly explain the major argument of the factor endowment trade theory.

The neoclassical model of free trade, which postulates that countries will tend to specialize in the production of the commodities that make use of their abundant factors of production: - Impact of economic growth on trade patterns and the impact of trade on the structure of national economies and on the differential returns or payments to various factors of production. - Assumes away inherent differences in relative labor productivity by postulating that all countries have access to the same technological possibilities for all commodities.

10. 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 markets.

(b) the self-interested behavior of public officials.

The most important role of the World Trade Organization is (a) to promote market oriented economic policies. (b) to settle trade disputes. (c) to provide development assistance. (d) to help countries choose the appropriate level of a tariff or quota.

(b) to settle trade disputes.

15. About how many girls and women are said to be "missing" in LDCs? (a) 2 million (b) 20 million (c) 100 million (d) 2 billion

If the population growth rate is 2%, the incremental capital output ratio is 3, the saving ratio is 24%, and the depreciation rate is 5%, the rate of growth of income is (a) 1%. (b) 2%. (c) 3%. (d) 5%. (e) 8%.

Children under the age of 15 represent about __________ percent of the population of developing countries. (a) 25 (b) 29 (c) 30 (d) 61 (e) 75

14. About what percent of the world's poorest people are female? (a) 30 (b) 50 (c) 70 (d) 90

Which of the following is a major argument of trade optimists? (a) Industrial policy can increase productivity of developing country manufacturing efficiency. (b) New synthetic substitutes are constantly being discovered and improved. (c) Developing country efficiency would improve with trade liberalization. (d) All of the above.

The real price trendline for non fuel primary commodities from 1960-2005 has been (a) Unchanged (b) Steadily increasing (c) Steadily decreasing (d) First decreased and then increased.

The dependence on the export of one or two primary products for a majority of the revenue from exports is most severe in countries in (a) South Asia. (b) East Asia. (c) Sub Saharan Africa. (d) Latin America.

According to the United Nations, Millennium Development Goals Report, the annual growth in % of slum population from 1990-2001 has been the largest in: (a) Latin America and the Caribbean (b) South-East Asia (c) Sub-Saharan Africa (d) Southern Asia

During the 1990s, food production increased faster than population in all regions of the developing world except (a) Latin America. (b) East Asia. (c) Sub-Saharan Africa. (d) none of the above.

A resource that is publicly owned and allocated under a system of unrestricted access is known as (a) a socialist resource. (b) a collective resource. (c) a common property resource. (d) a transferable resource.

Sharecropping can be best understood as (a) a type of agreement preferred by peasants. (b) a type of agreement preferred by landlords. (c) a compromise between peasant and landlord preferences. (d) a type of agreement preferred by neither but given by tradition.

Projections place world population by 2050 at (a) between 4 and 6 billion. (b) between 6 and 8 billion. (c) between 8 and 10 billion. (d) between 10 and 12 billion.

Sectors where the development process leads to a more rapid expansion of demand than supply of goods, or factor markets, are known as (a) the crisis in planning. (b) input-output analysis. (c) bottlenecks. (d) infant industries.

15. International dependence theories distinguish between two groups of countries known as (a) rich-poor. (b) developed-developing. (c) center-periphery. (d) independent-dependent.

A plan that sets targets to cover all major aspects of the national economy is known as a/an _____ plan: (a) interindustry (b) complete (c) comprehensive (d) economic

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

Which of the following is an important factor in the success of agrarian land reform policies? (a) the introduction of sharecropping. (b) the introduction of tenant farming. (c) farmer training programs. (d) the introduction of more capital intensive methods.

The Malthusian population trap assumes that (a) contraception is unavailable. (b) technological progress may be rapid. (c) fertility increases with per capita income. (d) all of the above.

. 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.

As the number of years of schooling completed increases, the expected private return and private cost of education (a) increase at roughly the same rate. (b) increase at different rates with expected private return increasing at a slower rate than private cost. (c) increase at different rates with expected private return increasing at a faster rate than private cost. (d) do not increase.

Developing countries might be unable to respond smoothly to changing international price signals because of (a) a lack of government regulation. (b) an abundance of skilled labor. (c) inelastic supply curves. (d) limited foreign exchange

The ratio of a country's average export price to its average import price is (a) its absolute advantage. (b) its comparative advantage. (c) its terms of trade. (d) its exchange rate.

An example of a biomass fuel is (a) coal. (b) nuclear fuel. (c) manure. (d) oil.

Sustainable development means (a) emphasizing the role of the market. (b) emphasizing the role of government. (c) meeting the present generation's needs without compromising the needs of future generations. (d) maintaining output growth at a constant rate.

6. The number of people in the world who are absolutely poor is closest to (a) a quarter-billion. (b) a half-billion. (c) one and a half billion. (d) two billion. (e) four billion.

The supply of public school places is determined by (a) individuals' demand for education. (b) direct and indirect costs of schooling. (c) political processes, often unrelated to economic criteria. (d) all of the above.

According to the Prebisch-Singer thesis (a) demand for primary products has steadily fallen. (b) profits of primary producers have steadily fallen. (c) primary producers' terms of trade have steadily fallen. (d) prices of primary products have risen over time

Which of the following conditions does not characterize perfect property rights markets? (a) universality (b) exclusivity (c) sustainability. (d) enforceability.

4. The new growth theory attempts to explain (a) the rate of population growth within a country. (b) the rate of capital accumulation within a country. (c) the factors that determine the size of the Solow residual. (d) why there are diminishing returns to capital.

Credential inflation results from (a) a combination of cost-push inflation and demand-pull inflation. (b) rigidities in the industrial sector. (c) the need to select from among qualified applicants in the modern sector. (d) all of the above

A shadow price is: (a) the price in the previous period. (b) the price in the next period. (c) the social value of a good or service. (d) the market value of a good or service. (e) none of the above.

The effective rate of protection is (a) value added with protection divided by value added without protection. (b) value added with protection. (c) value added without protection. (d) (value added with protection minus value added without protection) divided by value added without protection.

(d) (value added with protection minus value added without protection) divided by value added without protection.

Which of the following geographic regions is expected to experience the largest percentage increase in its population between 2003 and 2050? (a) Asia and Oceania. (b) Latin America. (c) North America. (d) Africa.

(d) Africa.

Which of the following is a major argument of trade pessimists? (a) Increased productivity of developed country agriculture. (b) Increased efficiency in industrial use of raw materials. (c) Protectionism against labor-intensive manufactures. (d) All of the above.

(d) All of the above.

Which of the following is a direct implication of the view that childbearing is an economic decision? (a) People will not have additional children unless they can earn a profit from doing so. (b) Social factors have no effect on childbearing decisions. (c) Compulsory education will increase fertility because educated children have the potential to earn higher salaries. (d) Fertility should fall with improved opportunities for women to work in jobs outside the home.

(d) Fertility should fall with improved opportunities for women to work in jobs outside the home.

In South Asia and Sub-Saharan Africa, about what share of the labor force works in agriculture? (a) One tenth. (b) One third. (c) One half. (d) Two thirds.

(d) Two thirds

16. Which of the following groups is(are) more likely to be poor? (a) minorities (b) indigenous people (c) women (d) all of the above.

(d) all of the above.

3. In contrast to the earlier neoclassical models of economic growth, in endogenous growth models, there is more emphasis on (a) human capital. (b) externalities. (c) increasing returns to scale. (d) all of the above.

(d) all of the above.

4. 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) all of the above.

5. Poverty is better studied with size distribution measures than those based on factor distribution because (a) labor income may be highly concentrated in well-paid modern sector workers. (b) some poor farmers may receive a sizable share of income in rent. (c) income from nonmarket activities such as foraging may be important. (d) all of the above.

(d) all of the above.

9. Higher income countries tend to have lower levels of absolute poverty because (a) more employment opportunities (b) more public assistance (c) greater entrepreneurship opportunities. (d) all of the above.

(d) all of the above.

A major cause of environmental degradation in developing countries is (a) population growth. (b) rural poverty. (c) rapid urbanization. (d) all of the above.

(d) all of the above.

Education of girls is a crucial development investment because (a) it leads to improved child health. (b) it leads to reduced fertility. (c) women do most of the work in agriculture. (d) all of the above.

(d) all of the above.

It is important to place particular stress on the role of primary education in the development strategy because of (a) LDC's comparative advantage from basic skills education. (b) the law of diminishing returns. (c) development emphasis on poverty alleviation. (d) all of the above.

(d) all of the above.

It is important to place particular stress on the role of women in rural development programs because (a) women have received less training in the past. (b) women perform a large majority of the work in the rural sector. (c) women tend to allocate more resources to their children's health and education. (d) all of the above.

(d) all of the above.

Nontariff barriers (a) decrease foreign exchange earnings. (b) reduce the quantity of goods exported. (c) lower the effective price received for exports. (d) all of the above.

(d) all of the above.

The rate of natural increase in the population of developing countries is most correlated with (a) advances in developed country technology (b) increases in developing country income (c) an increase in the fertility rate (d) all of the above.

(d) all of the above.

Which of the following factors has led to poor plan performance? (a) unanticipated changes, such as in terms of trade. (b) corruption of government officials. (c) foreign firms are less subject to the constraints of the plan than domestic ones. (d) all of the above. (e) none of the above

(d) all of the above.

Which of the following policies may decrease the level of capital intensity in industry? (a) an increase in the cost of capital (b) a decrease in the minimum wage (c) an increase in the elasticity of substitution (d) all of the above.

(d) all of the above.

Which of the following will cause the largest reduction in the birthrate? (a) the population becomes less religious (b) public healthcare improves (c) education becomes more available (d) an increase in the opportunity cost of a woman's time

(d) an increase in the opportunity cost of a woman's time

1. The Solow residual helps explain growth that derives from (a) increasing the size of the labor force. (b) increasing the size of the capital stock. (c) increasing the capital-labor ratio. (d) anything except increases in the size of the labor force or the capital stock.

(d) anything except increases in the size of the labor force or the capital stock.

Debt-for-nature swaps are most generally (a) beneficial only to the developing country. (b) beneficial only to the developed country. (c) beneficial only to the bank which can write off the debt. (d) beneficial to all countries.

(d) beneficial to all countries.

Crops produced entirely for the market are known as (a) basic crops. (b) mixed crops. (c) hybrid crops. (d) cash crops.

(d) cash crops.

The number of live births per 1000 people in the population per year is the (a) hidden momentum of population growth. (b) population growth rate. (c) demographic transition. (d) crude birth rate.

(d) crude birth rate.

An economic community (a) attempts to raise prices by restricting quantity. (b) seeks to stabilize commodity prices. (c) seeks concessional loans. (d) imposes a common external tariff. (e) none of the above.

(d) imposes a common external tariff.

Which of the following statements is true? (a) larger countries (in terms of size) tend to be more open (in terms of larger share of exports in GDP) than smaller countries and developing countries tend to be less open than developed economies. (b) larger countries (in terms of size) tend to be less open (in terms of lower share of exports in GDP) than smaller countries and developing countries tend to be less open than developed economies. (c) larger countries (in terms of size) tend to be more open (in terms of larger share of exports in GDP) than smaller countries and developing countries tend to be more open than developed economies. (d) larger countries (in terms of size) tend to be less open (in terms of lower share of exports in GDP) than smaller countries and developing countries tend to be more open than developed economies.

(d) larger countries (in terms of size) tend to be less open (in terms of lower share of exports in GDP) than smaller countries and developing countries tend to be more open than developed economies.

10. One of the characteristics of the poor is that they are (a) more likely to be employed in the modern industrial sector. (b) more likely to come from small families. (c) more likely to be well educated. (d) more likely to live in a rural area.

(d) more likely to live in a rural area.

16. Which of the following is an assumption of the Lewis two-sector model? (a) surplus labor 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) none of the above.

7. With modern sector enrichment growth, inequality will (a) first rise and then fall. (b) first fall and then rise. (c) remain about the same. (d) none of the above.

(d) none of the above.

The fact that developed countries have strong, widely attended university systems indicates that (a) university expansion should be a development priority. (b) universities teach skills used on the job. (c) developing countries place too much stress on agriculture. (d) none of the above.

(d) none of the above.

Which of the following is not an argument in favor of export promotion over import substitution? (a) international competition compels domestic producers to become more efficient. (b) exposure to world markets provides greater opportunities to learn new technologies. (c) producing for export permits greater specialization and economies of scale. (d) outward-looking development promotes larger firms.

(d) outward-looking development promotes larger firms.

Developing Countries' Diversity in problems (11): International relations

- Developing nations are in weak bargaining positions in economic relations and are dependent on developed nations when it comes to environment protection, which in the long term impacts developing nations the most

Market-friendly approach

The notion historically promulgated by the World Bank that successful development policy requires governments to create an environment in which markets can operate efficiently and to intervene only selectively in the economy in areas where the market is inefficient

More developed countries (MDCs)

The now economically advanced capitalist countries of western Europe, North America, Australia, New Zealand, and Japan.

Replacement fertility

The number of births per woman that would result in stable population levels

Crude birth rate

The number of children born alive each year per 1,000 population

Crude birth rate

The number of children born alive each year per 1,000 population.

Total fertility rate (TFR)

The number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with the prevailing age-specific fertility rates

Death rate

The number of deaths each year per 1,000 population

Capital-labor ratio

The number of units of capital per unit of labor

Life expectancy at birth

The number of years a newborn child would live if subjected to the mortality risks prevailing for the population at the time of the child's birth

Social System

The organizational and institutional structure of society including its values, attitudes, power structure, and traditions

Asset ownership

The ownership of land, physical capital (factories, buildings, machinery, etc.), human capital, and financial resources that generate income for owners

Demographic transition

The phasing-out process of population growth rates from a virtually stagnant growth stage, characterized by high birth rates and death rates through a rapid-growth stage with high birth rates and low death rates to a stable, low-growth stage in which both birth and death rates are low

Hidden momentum of population growth

The phenomenon whereby population continues to increase even after a fall in birth rates because the large existing youthful population expands the population's base of potential parents

Current account

The portion of a country's balance of payments that reflects the market value of the country's "visible" (e.g., commodity trade) and "invisible" (e.g., shipping services) exports and imports

Capital Account

The portion of a country's balance of payments that shows the volume of private foreign investment and public grants and loans that flow into and out of the country

Capital account

The portion of a country's balance of payments that shows the volume of private foreign investment and public grants and loans that flow into and out of the country

Value added

The portion of a product's final value that is added at each stage of production.

Planning process

The procedure for drawing up and carrying out a formal economic plan

Development

The process of improving the quality of all human lives and capabilities by raising people's levels of living, self-esteem, and freedom

Structural transformation

The process of transforming an economy in such a way that the contribution to national income by the manufacturing sector eventually surpasses the contribution by the agricultural sector. More generally, a major alteration in the industrial composition of any economy.

Headcount index

The proportion of a country's population living below the poverty line

Dependency burden

The proportion of the total population aged 0 to 15 and 65+, which is considered economically unproductive

Youth dependency ratio

The proportion of young people under age 15 to the working population aged 16 to 64 in a country

False-paradigm model

The proposition that developing countries have failed to develop because their development strategies (usually given to them by Western economists) have been based on an incorrect model of development, one that, for example, over stresses capital accumulation or market liberalization without giving due consideration to needed social and institutional change

Project appraisal

The quantitative analysis of the relative desirability (profitability) of investing a given sum of public or private funds in alternative projects

Social rate of discount

The rate at which a society discounts potential future social benefits to find out whether such benefits are worth their present social cost

Commodity terms of trade

The ratio of a country's average export price to its average import price

Core values of development economics (SSF)

The realization of human potential, such as economic economic and social equality, the elimination of poverty, universal education, rising levels of living, national independence, etc. 1) Increased sustenance (food, shelter, etc). 2) Increased self esteem (increased respect, dignity, and self determination) 3) Freedom (increase economic, and social choices)

Neoclassical price incentive model

A model whose main proposition is that if market prices are to influence economic activities in the right direction, they must be adjusted to remove factor price distortions by means of subsidies, taxes, or the like so that factor prices may reflect the true opportunity cost of the resources being used

Monopolistic market control

A situation in which the output of an industry is controlled by a single producer (or seller) or by a group of producers who make joint decisions

Risk

A situation in which the probabilities of the various possible outcomes are known, but the actual outcome is not known

Balanced Trade

A situation in which the value of a country's exports and the value of its imports are equal

Balanced trade

A situation in which the value of a country's exports and the value of its imports are equal

Absolute Poverty

A situation of being unable to meet the minimum levels of income, food, clothing, healthcare, shelter and other essentials

Less developed countries

A synonym for developing countries

Rationing

A system of distribution employed to restrict the quantities of goods and services that consumers or producers can purchase or be allocated freely in the face of excess demand and inflexible prices; can be accomplished with coupons, points, limits on who can borrow, administrative decisions with regard to commodities, industrial licenses for the importation of capital goods, and the like

Regressive tax

A tax structure in which the ratio of taxes to income tends to decrease as income increases

Progressive income tax

A tax whose rate increases with increasing personal incomes

Production function

A technological or engineering relationship between the quantity of a good produced and the quantity of inputs required to produce it

Divergence

A tendency for per capita income to grow faster in higher-income countries than in lower-income countries so that the income gap widens over time

Lewis two-sector model

A theory of development in which surplus labor from the traditional agricultural sector is transferred to the modern industrial sector, the growth of which absorbs the surplus labor, promotes industrialization, and stimulates sustained development.

Stages-of-growth model of development

A theory of economic development, associated with the American economic historian Walt W. Rostow, according to which a country passes through sequential stages in achieving development.

Population-poverty cycle

A theory to explain how poverty and high population growth become reinforcing

Cost-benefit analysis

A tool of economic analysis in which the actual and potential private and social costs of various economic decisions are weighed against actual and potential private and social benefits

Wage-price spiral

A vicious cycle in which higher consumer prices (e.g., as a result of devaluation) cause workers to demand higher wages, which in turn cause producers to raise prices and worsen inflationary forces

Economic plan

A written document containing government policy decisions on how resources will be allocated among various uses so as to attain a targeted rate of economic growth or other goals over a certain period of time

Explain what is meant by "investment in children," describing the goals and methods of the parents.

First two or three as consumer goods Additional children as investment goods to work on farms Parents goals include higher farm or non farm income in the medium run, and retirement security in the long run

Critique of the assumptions of the traditional neoclassical model of trade 2

Fixed Technology and Consumer Tastes and Preferences • Rapid technological change in reality • Consumer tastes and preferences influenced by advertising

Health and Education Indicators

Health: % malnutrition of kids under 5, average life expectancy, birth rate, under 5 mortality rate Education: literacy rate, primary school completion rate

Which of the following is not inversely related to per capita income? A. Mortality rates for children under five years of age. B. Adult illiteracy rates. C. Per capita energy consumption. D. Population growth rates.

C - Per capita energy consumption.

Which of the following does *not* correlate positively with economic growth? A. Output per capita. B. Life expectancy. C. The percentage of the population engaged in agriculture. D. The literacy rate.

C - The percentage of the population engaged in agriculture.

Which of the following is generally not an effective strategy to promote DVC growth? A. Microlending. B. Human capital development. C. Fighting wars against neighbors to obtain resources and stimulate aggregate demand through arms spending. D. Controlling inflation.

C- Fighting wars against neighbors to obtain resources and stimulate aggregate demand through arms spending.

Industrial Policies

Deliberate effort by government to guide the market by coordinating and supporting specific industrial activities

Industrial policy

Deliberate effort by governments to guide the market by coordinating and supporting specific industrial activities

Derived demand

Demand for a good that emerges indirectly from demand for another good

Pros of FDI

Filling savings, foreign-exchange, revenues, and management gaps

Portfolio Investment

Financial investments by private individuals, corporations, pension funds, and mutual funds in stocks, bonds, certificates of deposits, and notes issued by private companies and the public agencies

Microfinance

Financial services, including credit, supplied in mall allotments to people who might otherwise have no access to them or have access only on very unfavorable terms. Includes microsavings and microinsurance as well as microcredit

Economic institutions

"Humanly devised" constraints that shape interactions in an economy including formal rules, laws, contracts, etc.

To be classified as a low-income developing country, annual per capita income in 2014 needed to be:

$1,045 or less.

1) Todaro Model: Mathematical logic

(Expected probability of employment * average real income in urban area ) vs Rural Income aka average real income in rural sector The migration decision is a rational decision. Migration can continue even when unemployment is high.

International Free trade Ratio

(P agiculture)/(P manufacturing) incentives LDW to make agriculture goods

If the population growth rate is 2%, the incremental capital output ratio is 3, the saving ratio is 24% and the depreciation rate is 5%, the rate of growth of income per person is (a) 1%. (b) 2%. (c) 3%. (d) 5%. (e) 8%.

(a) 1%.

The world rate of population growth is closest to (a) 1%. (b) 2%. (c) 3%. (d) 4%.

(a) 1%.

If the rural wage is 4 and the formal urban wage rate is 10, there will be rural to urban migration if the formal urban unemployment rate is (a) 50% (b) 60% (c) 70% (d) all of the above

(a) 50%

In which of these developing regions has food production per capita steadily fallen over the last quarter century? (a) Africa. (b) East Asia. (c) South Asia. (d) Latin America.

(a) Africa.

In order to ensure that Syria implements social policy to accommodate and ready its population for significant economic growth, Syria Should: (a) Allocate more funding for public education (b) Refrain from establishing labor laws (c) Completely isolate itself from global trade in order to have total control over its assets (d) Sell all of its oil assets to western corporate interests

(a) Allocate more funding for public education

Absentee landowners characterize the agrarian system of (a) Asia. (b) Latin America. (c) Sub-Saharan Africa. (d) all of the above.

(a) Asia.

Which of the following is an argument in favor of trade liberalization? (a) Increased investment. (b) Infant industry. (c) Fluctuating export earnings. (d) Increased government revenue

(a) Increased investment.

The average level of effective protection has exceeded 300% for which of the following countries? (a) Pakistan and Uruguay. (b) Argentina and Brazil. (c) Philippines and Mexico. (d) India and China.

(a) Pakistan and Uruguay.

Which of the following is a nontariff barrier policy tool? (a) Sanitary regulations. (b) Average duties. (c) Phased liberalization. (d) Ad valorem tax.

(a) Sanitary regulations.

In a world of perfect certainty, sharecropping would be less efficient than a farm owner working his own farm because (a) sharecroppers receive only half of their marginal product. (b) paying a worker a wage gives him or her an incentive to shirk. (c) sharecroppers are exploited by landlords. (d) renting farmland concentrates risk on the renters. (e) all of the above.

(a) sharecroppers receive only half of their marginal product.

17. Distribution of income according to percentiles, such as the highest 40% or lowest 20% is known as the _______________ distribution of income. (a) size (b) functional (c) GNP-weighted (d) equal-weighted

(a) size

2. 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) surplus labor in the rural sector

In stage III of the demographic transition, (a) the birth rate and the death rate are relatively low. (b) the birth rate and the death rate are relatively high. (c) the birth rate is relatively high and the death rate is relatively low. (d) the birth rate is relatively low and the death rate is relatively high.

(a) the birth rate and the death rate are relatively low.

The "cost of rainforest preservation" can be lowered for developing countries by (a) the development of alternative rainforest products. (b) research on agriculture in rainforest soils. (c) encouraging rainforest settlement of the poor. (d) subsidies for activities like cattle raising.

(a) the development of alternative rainforest products.

An argument supporting promotion of the urban informal sector is: (a) the formal sector is incapable of providing enough employment. (b) informal sector workers are poorly educated. (c) it uses a relatively high capital intensity. (d) it would reduce urban bias.

(a) the formal sector is incapable of providing enough employment.

An agrarian system refers to (a) the pattern of land ownership. (b) the type of crops grown. (c) the processing of agricultural commodities. (d) an economy that has no industry.

(a) the pattern of land ownership.

2.In endogenous growth models, it is assumed that (a) there are external economies from public or private investments. (b) there are diminishing marginal returns to capital. (c) growth is explained by forces outside the model. (d) the capital-labor ratio is constant.

(a) there are external economies from public or private investments.

The purpose of commodity buffer stocks is (a) to moderate price fluctuations. (b) to raise commodity prices. (c) to encourage commodity substitution. (d) to guarantee national security.

(a) to moderate price fluctuations.

According to UN projections, what proportion of the world's urban population will reside in the urban areas of developing countries by 2025? (a) two fifths. (b) one half. (c) two thirds. (d) four fifths.

(a) two fifths.

The opening of export markets for primary products can provide employment for previously underutilized land and labor. The term for this is (a) vent for surplus. (b) comparative advantage. (c) Prebisch-Singer thesis. (d) barter trade

(a) vent for surplus.

Rural-urban migrants differ from the rest of the rural population in that they are more likely to be (a) well educated (b) poor (c) female (d) all of the above

(a) well educated

The nominal rate of protection shows the extent to which the domestic price of imported goods exceeds (a) what the price would be without tariffs. (b) the cost of intermediate inputs. (c) the social opportunity costs of the good. (d) the no-trade equilibrium price.

(a) what the price would be without tariffs.

If the incremental capital output ratio is 3 and the ratio of saving to national income is 9%, according to the Harrod-Domar model the growth rate of income is (a) zero. (b) 3%. (c) 6%. (d) 12%.

(b) 3%.

Approximately how many women were estimated to be "missing" in China? (a) 20-30 million (b) 35-48 million (c) 44-50 million (d) 52-58 million

(b) 35-48 million

At present, approximately how many years would it take for the world's population to double? (a) 35. (b) 58. (c) 96. (d) 211.

(b) 58.

Which of the following is an argument in favor of interventionist trade policies? (a) Cheaper capital goods. (b) Declining terms of trade. (c) Decreased losses from rent-seeking activities. (d) All of the above. (e) None of the above

(b) Declining terms of trade.

Which of the following is not a reason why the prospects for the further expansion of developing country commodity exports are likely to be limited? (a) Low income elasticities for these products. (b) Low likelihood of development of further synthetic substitutes. (c) Continued agricultural protection despite trade agreements. (d) Declining terms of trade

(b) Low likelihood of development of further synthetic substitutes.

What is essential for Syria to gradually reach its economic goals in order to maintain price stability? (a) Price stability implies avoiding prolonged inflation but not deflation. (b) Lowering the inflation rate gradually to achieve price stability, which will ensure confidence from foreign investment due to reduced risk in currency fluctuation (c) Maintaining high and non-stable inflation is central to achieving maximum employment and the highest possible rate of economic growth. (d) Avoid large swings in economic activity, low inflation, and excessive volatility in foreign exchange and financial markets.

(b) Lowering the inflation rate gradually to achieve price stability, which will ensure confidence from foreign investment due to reduced risk in currency fluctuation

In South Asia and Sub-Saharan Africa, about what share of output is contributed by agriculture? (a) One tenth. (b) One fifth. (c) Two fifths. (d) One half.

(b) One fifth.

What key approach should Syria take to ensure foreign investment and low risk confidence? (a) Exacerbate its war in order to attain control over more territory (b) Price stability by maintaining a stable inflation rate (c) Establish state ownership of all oil assets (d) Declare war against the US

(b) Price stability by maintaining a stable inflation rate

According to the 2005 UNDP Human Development Report child mortality (under age 5) has declined in all regions of the world except: (a) South Asia (b) Sub-Saharan Africa (c) Middle East and North Africa (d) None of the above

(b) Sub-Saharan Africa

According to the Regional HIV and AIDS Statistics data from WHO, which region of the world has the largest number of adults and children living with HIV? (a) South and South-East Asia (b) Sub-Saharan Africa (c) Latin America (d) North America

(b) Sub-Saharan Africa

Which of the following countries provides the best example of a successful import substitution development strategy? (a) Chile. (b) Taiwan. (c) Argentina. (d) Botswana.

(b) Taiwan.

11. Which of the following policies might increase labor intensity in industry? (a) a decline in the cost of credit (b) a decline in the minimum wage rate (c) a decline in the elasticity of substitution (d) all of the above.

(b) a decline in the minimum wage rate

18. 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) a necessary but not a sufficient condition.

21. Brazil's growth rate during the 1960's was 6.0% when poverty weights were used to evaluate growth, compared with 8.2% when GNP weights were used to evaluate growth. One can conclude from these numbers that (a) average income growth was greater for poor households than for rich households. (b) average income growth was greater for rich households than for poor households. (c) more and more households were falling below the poverty line. (d) the size distribution of income was getting worse.

(b) average income growth was greater for rich households than for poor households.

The ILO approach to combating child labor stresses (a) encouraging parents to migrate to the cities in search of work. (b) banning child labor. (c) tackling the sources of poverty. (d) all of the above

(b) banning child labor.

In what way do developing countries make the largest contribution to the global concentrations of greenhouse gases? (a) vehicle emissions. (b) deforestation. (c) mining. (d) irrigation.

(b) deforestation.

Which of the following conditions is violated if there is a free rider problem? (a) universality (b) exclusivity (c) transferability (d) enforceability

(b) exclusivity

13. 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 little.

(b) growth is mainly determined by capital accumulation.

3. The false paradigm model attributes lack of development to (a) inadequate attention to price incentives. (b) inappropriate advice from rich country economists. (c) low levels of savings and investment. (d) a lack of government regulation.

(b) inappropriate advice from rich country economists.

The primary goal of an agricultural extension service is to (a) bring new areas under cultivation. (b) increase the yield per hectare. (c) introduce land reform. (d) assist rural-urban migration.

(b) increase the yield per hectare.

Guiding the market through strategic coordination of business investments to increase export market shares is known as (a) development planning. (b) industrial policy. (c) shifting terms of trade. (d) all of the above. (e) none of the above.

(b) industrial policy.

The long-run social benefits of infant industry protection are more likely to be realized if (a) investors believe that tariff barriers are permanent. (b) investors believe that tariff barriers are transitory. (c) tariff barriers increase over time. (d) tariff barriers are replaced with quotas over time.

(b) investors believe that tariff barriers are transitory.

Which of the following is a rationale for development planning? (a) government failure. (b) market failure. (c) failure of consumers to understand their preferences. (d) all of the above are rationales for development planning. (e) none of the above are rationales for development planning.

(b) market failure.

The free rider problem is a situation in which (a) effluents such as CFCs combine with ozone and decrease concentrations of that protective chemical. (b) one agent secures benefits that others pay for. (c) there are excessive subsidies given to polluting buses or other forms of mass transit. (d) perfect property rights exist.

(b) one agent secures benefits that others pay for.

12. According to the dependence theory, the developing world is known as the (a) backward areas. (b) periphery. (c) first world. (d) center.

(b) periphery.

The hidden momentum of population growth is caused by (a) the demographic transition. (b) population age structure. (c) the opportunity cost of a woman's time. (d) children's contribution to income.

(b) population age structure.

A major cause of environmental degradation in developing countries is (a) debt for nature swaps. (b) poverty. (c) a lack of public transportation. (d) land reform.

(b) poverty.

Which of the following is not a rationale for development planning? (a) capital market failures. (b) rent seeking behavior. (c) attitudinal or psychological impact. (d) all are rationales for development planning in developing countries.

(b) rent seeking behavior.

The Ahluwalia-Chenery welfare index (a) is a method used to measure changes in absolute poverty. (b) shows the value judgement implications of using the change in income per capita as a measure of the change in development. (c) is a method used to measure changes in inequality. (d) is a method used to measure the growth rate of GDP.

(b) shows the value judgement implications of using the change in income per capita as a measure of the change in development.

7. The O-ring theory places emphasis on (a) education of the labor force. (b) skill complementarities. (c) purchases of machinery and equipment by firms. (i) none of the above.

(b) skill complementarities.

3. Kuznets' inverted-U hypothesis (a) implies that things must get worse before they get better. (b) suggests that inequality will worsen and then improve as a country grows. (c) suggests that inequality will improve and then worsen as a country grows. (d) points out six characteristics of modern economic growth.

(b) suggests that inequality will worsen and then improve as a country grows.

The annual income that can be consumed without diminishing the total capital assets of a nation is (a) purchasing power parity income. (b) sustainable national income. (c) environmental capital stock. (d) per capita income.

(b) sustainable national income.

The World Bank approach to combating child labor stresses (a) making child labor legal under certain conditions. (b) tackling the sources of poverty. (c) encouraging families to migrate to richer countries. (d) providing each child with a computer so that children have an alternative to working.

(b) tackling the sources of poverty.

2. The Gini coefficient provides a measure of (a) the level of poverty. (b) the level of relative inequality. (c) disguised unemployment. (d) the rate of growth.

(b) the level of relative inequality.

5. Which of the following approaches does not offer an international dependence explanation of underdevelopment? (a) the false paradigm model (b) the neoclassical counter-revolution (c) the dualistic development model (d) the neocolonial dependence model

(b) the neoclassical counter-revolution

O-Ring Theory

High Skilled with high skilled , low skilled with low skilled -firms will hire workers with similar skills to perform tasks -workers performing same task in high skill firm receives higher wages than low skilled -wages increase at an increasing rate as skills increase

Explain the reasons for the hidden momentum of population growth and state its implication for population levels.

High birthrates cannot be altered overnight. Even after a decline in birthrates to replacement levels, population growth continues because of a large youth population that widens the potential parent base. Implication: population will not stabilize until after a couple of generations.

What economic benefits might a developing country gain by reducing corruption? Discuss only economic benefits and provide examples from specific developing countries. (The student is asked to describe the economic benefits of reducing corruption. These include the growth enhancing effects described in the text and illustrated in Figure 11.3 for Ecuador. )

Higher growth, less burden on the poor, more resources for investment In the case of Ecuador, the text notes that the burden of corruption falls disproportionately on the poor so combating corruption could couple as a poverty reduction strategy.

Malthusian Population Trap Model

Horizontal: income per capita Vertical: income and population growth rates 2 Curves: -Population growth rate (population change delta/population) -Total income growth rate (total income change delta/population)

Microeconomic Theory of Fertility: House Hold's Problem

Households selects mix of goods and children which maximize utility, and whatever indifference curve (E) which intersects the budget constraint is the optimal number If house hold income goes up, budget line moves to the right, then they can move to a higher indifference curve, enabling higher utility, and higher goods and children. -Children are normal goods, and an increase income results to more children demanded

Returns to scale

How much output expands when all inputs are proportionately increased

What is human capital and why is it crucial to expand human capital as part of the development process?

Human capital is defined as human capacities that raise productivity. In particular, human capital is focused on the level of education and health within the population. As more human capital is accumulated, labor productivity rises, which is essential for sustained growth in the economy.

Dependence

The reliance of developing countries on developed-country economic policies to stimulate their own economic growth. Dependence can also mean that the developing countries adopt developed-country education systems, technology, economic and political systems, attitudes, consumption patterns, dress, and so on

Product cycle

In International trade, the progressive replacement of more developed countries by less developed countries in the production of manufactures of increasing complexity

Comprador groups

In dependence theory, local elites who act as fronts for foreign investors

Periphery

In dependence theory, the developing countries

Center

In dependence theory, the economically developed world

Factor price equalization

In factor endowment trade theory, the proposition that because countries trade at a common international price ratio, factor prices among trading partners will tend to equalize

Factor price equalization specialization

In factor endowment trade theory, the proposition that because countries trade at a common international price ratio, factor prices among trading partners will tend to equalize

Transparency (financial)

In finance, full disclosure by public and private banks of the quality and status of their loan and investment portfolios so that domestic and foreign investors can make informed decisions

Price elasticity of demand

The responsiveness of the quantity of a commodity demanded to a change in its price, expressed as the percentage change in quantity demanded divided by the percentage change in price

Box 4.2 Intervention

Increased the amount of care and quality of health when there was community monitoring

Microeconomic Theory of Fertility: Increase in income and increase in net price of children

Increasing income is going to shift budget line outward, but the increase price of children is going to make the budget line move to the right -Goods consumed by parents are up, and children consumed have decreased

Problems with Multiple Equilibria

Inefficient Advantages of Incumbency • Increasing returns in the modern sector can lead to a bad equilibrium. • A large incumbent modern firm may have advantage over a new (smaller) firm employing a new and better technology. Behavior and Norms • High corruption or low corruption equilibria • The importance of good institutions • Cooperative norms encourage cooperation Linkages • One way to solve coordination problems is to focus policy on encouraging industries with key linkages • When certain industries are developed first, their interconnections or linkages with other industries will facilitate or induce development of new industries Inequality, Multiple Equilibria, and Growth • High income and low income equilibria, related to access to credit • Poverty trap related to lack of access to schooling across generations due to a lack of access to credit

Box 2.4 - Inequality

Inequality --> Underdevelopment --> causes poor institutions and poor education

Income elasticity of demand

The responsiveness of the quantity of a commodity demanded to changes in the consumer's income, measured by the proportionate change in quantity divided by the proportionate change in income

Barter Transactions

The trading of goods directly for other goods in economies not fully monetized

Barter transactions

The trading of goods directly for other goods in economies not fully monetized

Currency substitution

The use of foreign currency (e.g., U.S. dollars) as a medium of exchange in place of, or along with, the local currency (e.g., Mexican pesos)

Net present value

The value of a future stream of net benefits discounted to the present by means of an appropriate discount (interest) rate

Child Labour Model Supply Curve

The vertical line is the supply of unskilled adult labour (A) - If the wages are high (WH) then no children will have to work -If wages are low (WL) then children will have to work

Human immunodeficiency virus (HIV)

The virus that causes the acquired immunodeficiency syndrome (AIDS)

Depreciation (of the capital stock)

The wearing out of equipment, buildings, infrastructure and other forms of capital.

Free-market analysis

Theoretical analysis of the properties of an economic system operating with free markets, often under the assumption that an unregulated market performs better than one with government regulation

Trade pessimists

Theorists who argue that without tariff protection or quantitative restrictions on trade, developing countries gain little or nothing from an export-oriented, open-economy posture

Trade optimists

Theorists who believe in the benefits of free trade, open economies, and outward-looking development policies

Big Push Model (compliments)

There are coordination failures associated with initializing industrialization, and require a push to get started -Model shows how the presence of market failures can lead to a need for a economy wide or public policy lead effort to get development underway/accelerate it - Starting from a subsistence economy, no workers have money to buy goods from the first industrialized firm - As each industrialized firm opens, workers spend their money on goods - The profitability of one industrialized firm depends whether other firms industrialize - The first industrialized firm also has to pay to train its workers - Once the first firm trains workers, other firms can attract these trained workers with a higher wage - Anticipating this, the first firm doesn't pay for training and industrialization doesn't happen - There is a positive externality of industrialization by an individual firm on other firms' profitabilities (percuniary externalities ) • This can lead to multiple equilibria • In some cases, a big push may be needed to get a sufficient number of sectors to industrialize, in order to generate enough income (though higher industrial sector wages and industrial sector profits) to get industrialization underway. • A pig push as a concerted economy-wide and probably public-policy led effort to get development under way.

Evaluate critically the following statement: In light of the experience of the last two decades, free trade is the best trade policy for most developing countries.

There has been a great deal of diversity in experiences regarding free trade for developing nations. Taiwan, South Korea, and other East Asian economies have benefited from it. On the other hand, there are many risks such as export dependence. There is also too much of an assumption of full employment, resource utilization, and ability to adjust to changes in world prices. Also does not account for tariffs.

Critically evaluate the following statement: Government policies to keep the price at which staple foods are bought and sold low helps to reduce poverty and inequality. Students must consider negative effects on rural areas.

These help the people live higher quality lives, as they are able to buy all their basic necessities. People are also more likely to participate in markets as buyers or sellers. Rural areas will be effected negatively in terms of profit bc of higher costs than urban areas.

How did active government industrialization strategy and industrial policies, including the collaboration between private and public sectors contribute to the East Asian development success?

They focused on the *degree of consistency* between the two sectors (rather than the extent of implicit or explicit conflict). - employed higher skills and higher technology (higher value). - Focus on industrial exports - Focus on more advanced products

Neglected tropical diseases

Thirteen treatable diseases, most of them parasitic, that are prevalent in developing countries but receive much less attention than tuberculosis, malaria, and AIDS

Under-5 mortality rate

Deaths among children between birth and 5 years of age per 1,000 live births

- Suppose that, for example in India, a minimum wage is instituted in the modern sector above the market clearing wage, while the rural traditional wage is market determined at a lower level than in the modern sector. (a) Describe the impact of this policy on the rural labor force, urban unemployment, and the rural wage. (b) Will the modern sector wage be equal to the traditional sector wage after markets equilibrate through migration? Explain. (c) What effect might moving costs have on the equilibrium you described in part (b)? (d) What effect might the introduction of factories to rural areas have on the equilibrium you described in part (b)?

(a) Use of the Todaro model is called for here. The rural wage will not necessarily change despite a reduction in the rural labor force as a result of migration. The minimum wage in the urban sector will encourage migration until the expected urban wage is equal to the rural wage. Urban unemployment will rise, both frommigration and the minimum wage. (b) Expected, not actual, urban wages will equal rural wages after equilibration. (c) With moving costs, there would be less migration (d) With rural development, there would be less migration if this increased the rural wage

Why is it impossible that all industries in a developing country qualify as infant industries? (a) You cannot have a comparative advantage in everything. (b) You cannot have an absolute advantage in everything. (c) This would violate international law. (d) This would reduce the terms of trade.

(a) You cannot have a comparative advantage in everything.

7. Implicit assumptions from which theories evolve are known as (a) a paradigm. (b) biases. (c) stylized facts. (d) normative economics.

(a) a paradigm.

The price reflecting the true social opportunity costs of a resource is known as (a) a shadow price. (b) an equilibrium price. (c) a world price. (d) a price index.

(a) a shadow price.

9. According to the theory of structural patterns of development, which of the following tends to occur as a country develops? (a) a shift from agriculture to industry and services (b) an increase in the percentage of income spent on food (c) growth of the rural sector (d) a decline in trade as a share of GNP

(a) a shift from agriculture to industry and services

A program through which new ideas, methods, and advice are offered to farmers to increase farm yields is known as (a) agricultural extension. (b) agricultural mechanization. (c) an agrarian system. (d) land reform

(a) agricultural extension.

Autarchy as used in the text refers to (a) an economy that does not trade. (b) an economy that trades primary products in exchange for manufactures. (c) developing country dictatorships. (d) the caste system and related social structures.

(a) an economy that does not trade.

For what percentage of urban population growth is rural-urban migration responsible? (a) between 35% and 60%. (b) between 40% and 80%. (c) between 50% and 70% (d) between 50% and 90%.

(a) between 35% and 60%

Child labor is a widespread problem that applies primarily to children (a) between the ages of 5 and 14. (b) between the ages of 10 and 14. (c) between the ages of 12 and 14. (d) between the ages of 12 and 16.

(a) between the ages of 5 and 14.

An example of a market-facilitating legal practice is (a) clearly established property rights. (b) corruption of government officials. (c) extensive licensing requirements for starting firms. (d) all of the above. (e) none of the above.

(a) clearly established property rights.

In most less developed countries, the initial target of import substitution is to promote domestic production of (a) consumer goods. (b) food and other agricultural goods. (c) capital goods. (d) manufactured intermediate goods.

(a) consumer goods.

In recent years, the fertility rate in developing countries has been (a) declining. (b) holding steady. (c) increasing. (d) showing no particular pattern.

(a) declining.

Other things constant, the elimination of factor price distortions in developing countries would most likely (a) decrease rural-urban migration. (b) have little effect on rural-urban migration. (c) increase rural-urban migration. (d) increase urbanization.

(a) decrease rural-urban migration.

The proportion of the total population aged 0-15 and over 65, is known as the (a) dependency burden. (b) unproductive population. (c) surplus labor. (d) population momentum.

(a) dependency burden.

An individual's demand for education is most affected by (a) direct and indirect costs of schooling. (b) development priorities of the country. (c) the desire to escape agricultural work. (d) all of the above

(a) direct and indirect costs of schooling.

An example of an institutional requirement for the operation of effective private markets is (a) enforcement of contracts. (b) the ability of government to correctly project trends. (c) the ability of advertisers to influence consumers. (d) all of the above.

(a) enforcement of contracts.

The portion of a country's overall assets that is directly related to the environment, such as forests and soil quality, is known as (a) environmental capital. (b) debt for nature swaps. (c) protected areas. (d) common property assets

(a) environmental capital.

4. According to Kuznets, in the process of development inequality in an economy will normally (a) first rise and then fall. (b) first fall and then rise. (c) remain about the same. (d) show no definite pattern.

(a) first rise and then fall.

8. With modern sector enlargement growth, inequality will (a) first rise and then fall. (b) first fall and then rise. (c) remain about the same. (d) all of the above.

(a) first rise and then fall.

International resources shared by all countries such as oceans and air are known as (a) global commons. (b) free rider problems. (c) nonrenewable resources. (d) cooperative resources.

(a) global commons.

Concentration of resources on higher rather than basic education in developing countries tends to lead to (a) greater inequality. (b) lower fertility. (c) less international migration. (d) more job creation.

(a) greater inequality.

Evidence presented in the text suggests that birthrates among developing countries are lower with (a) higher growth. (b) higher inequality. (c) higher GNP per capita. (d) all of the above.

(a) higher growth.

22. The poverty gap is the (a) absolute number of people below the international poverty line. (b) percentage of the population below the international poverty line. (c) consumption (measured in dollars) necessary to bring everyone below the poverty line up to the line. (d) percentage of a country's total consumption necessary to bring everyone in the country below the poverty line up to the line.

(d) percentage of a country's total consumption necessary to bring everyone in the country below the poverty line up to the line.

1. 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) promoting trade unions

The system of land tenure in which tenant farmers pay a fixed share of their crop to landowners is called (a) communal farming. (b) collective farming. (c) latifundio-minifundio system. (d) sharecropping.

(d) sharecropping.

The African agrarian system is characterized by (a) absentee landlords. (b) a dual agrarian system known as latifundio-minifundio. (c) land fragmentation. (d) shifting cultivation.

(d) shifting cultivation.

17. 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) that markets in LDCs fail sometimes and selective interventions can promote economic development.

5. The S-curve is used to illustrate (a) the typical path taken by the current account over time. (b) economic fluctuations in the economy. (c) the typical growth path of a developing economy. (d) the existence of multiple equilibria.

(d) the existence of multiple equilibria.

23. The functional distribution of income refers to the distribution of income between (a) individuals or households. (b) rural individuals or households. (c) urban individuals or households. (d) the factors of production (land, labor and capital).

(d) the factors of production (land, labor and capital).

14. 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) the marginal product of labor in agriculture is zero.

If the equilibrium exchange rate is 15 pesos per dollar and the central bank fixes the exchange rate at 17 pesos per dollar then we can conclude that the peso is (a) appreciated. (b) depreciated. (c) overvalued. (d) undervalued.

(d) undervalued.

Which of the following factors makes the success of economic integration more likely? (a) Nationalism. (b) Desire for prestige projects. (c) Diverse economic systems. (d) All of the above. (e) None of the above.

(e) None of the above.

Evidence suggests that population growth has negative effects on (a) economic growth. (b) poverty reduction. (c) environment. (d) education. (e) all of the above.

(e) all of the above.

Which of the following is a reason for the failure of development plans? (a) unreliable data. (b) unanticipated economic disturbances. (c) lack of political will. (d) all of the above. (e) none of the above

(e) none of the above

Development plans have often failed because (a) they have been insufficiently specific about projects. (b) they have overlooked noneconomic considerations. (c) they have been overambitious. (d) all of the above. (e) none of the above.

(e) none of the above.

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

(i) all of the above.

As an agent of economic development, in what areas do NGOs have a comparative advantage, compared to governments or markets?

- *Innovation Design* Tom's shoes- you can make it how you want. You can create a program to replicate how you want to help people for whatever reason. - *Program Flexibility* Government would give food stamps and Medicare. But non profit/NGO's could donate what they want and how they want. - *Trust and Creditability* NGO's are better because people don't trust the government from developing countries but they would trust an organzation.

Classic Theories of Economic Development (4) (LSIN): Linear stages of growth theories (1950-1960s)

- Believed developed as sequential stages of economic growth -Believed that development means rapid aggregate economic growth driving by a mix of savings, investments, and foreign aid. The mix driving economic growth game from historical experiences -Focuses on accelerated capital accumulation

Classic Theories of Economic Development (4) (LSIN): Neoclassical free market counter revolution (1980s-1990s)

- Believed underdevelopment as a result of economic regulations, and government intervention - Economic efficiency and economic growth -3 component approach: free market, public choice, and market friendly approach -Neoclassical growth theory (Robert Solow) - Focus on freer markets, privatization, and deregulation

NHDI Formula

- Countries are ranked 0-1 (lowest developed = 0, highest developed=1) 3√(Life expectancy index ∗ education index ∗ standard of living index) The NHDI uses geometric mean vs arithmetic mean as if one of the sub indexes is zero, then the other sub indexes can't make up for it The geometric mean is better for penalizing accounting for skewed data

Traditional Theory of International Trade

- Countries specialize in activities where the gains from trade are the greatest. -The principle of comparative advantage • Under perfect competition, a country should (and will) specialize in the export of products that it can produce at the lowest relative cost. Terms of trade • The ratio/rate of a country's average export price to its average import price.

Common market

A form of economic integration in which there is free internal trade, a common tariff, and the free movement of labor and capital among partner states

Describe briefly five major characteristics or problems of developing countries' agricultural sector. Make reference to specific countries or regions where you can. (Answers may be expected to vary according to lecture topics, and might include a discussion of land ownership, available inputs, credit access, training program, etc.)

- Drought (and famine) - Food shortages (population growth) - Rural-urban migration - Market failures (effecting food prices) - Government neglect of the agricultural sector - Subsistence farming - No opportunities for insurance for farmers - Scarce capital - Low farmer incomes - rural/urban income inequalities - Threats from climate change/environmental instability - Sustainable development

Explain how international trade and trade policy helped Taiwan transform itself from an underdeveloped country to a high income country in a relatively short span of time. You might begin by discussing Taiwan's trade strategy. Why do you think international trade is of such vital importance to Taiwan?

- Emphasis on education - Infrastructure development - High rates of savings and investment - Working with agencies such as CETDC absorbing commercial ideas from Japan and US - Export-led growth in the 60 - Investment subsidies and benefits - Access to American Market thanks to Truman

What role should the government play with respect to the agricultural sector in developing countries in their attempt to alleviate poverty?

- Environmental externalities - Agricultural research and extension services - Economies of scale in marketing and exchange rate policies - Quality control & storage - Providing institutions and infrastructure - Pricing strategy (crop choice, urban cost of living, farm income) - Addressing poverty traps (complementary inputs and credit access)

Developing Countries' Diversity in problems (11): Imperfect Markets* (focus)

- Imperfect markets and incomplete information is more prevalent in developing countries notably in financial markets - Generally legal, and intuitional foundations for markets are extremely weak

Developing Countries' Diversity in problems (11): Agriculture and industry

- In developing countries agriculture and industry represent a greater share of employment vs developed countries -Developing countries tend to have lower levels of industrialization compared to developed countries meaning that developing nations have a higher dependence on primary exports instead of manufactured goods in medium+ income countries

Developing Countries' Diversity in problems (11) : Rural populations and urbanization

- In developing countries there is a greater share of the population living in rural areas vs developed countries - But there is going to be rapid urbanization with people moving from rural areas to cities.

who was the largest recipient of aid in 2008 according to Todaro and Smith

- Iraq - $9.9 billion

who are the four aid donors who don't have any tied aid according to Easterly and Pfutze

- Ireland, Norway, UK and European commission

5 Causes of underdeveloped markets

- Legal system doesn't enforce contracts nor validates property rights - Don't have a stable and trust worthy currency - Infrastructure of roads and utilities that result in low transport and communication costs to facilitate interregional trade - Don't have well developed and efficiently regulated system banking and insurance, with access to broad formal credit markets that select projects and allocate funds based on relative economic profitability and enforce rules of repayment - No substantial market information for consumers and producers about prices, quantities, and qualities of products, resources, and creditworthiness of potential borrowers -Lack social norms that facilitate successful long term business relations

Developing Countries' Diversity in problems (11)

- Lower Productivity (GPD/hours worked) and low living standards - Low Average levels of nutrition, health, skills/education, and human capital - High Inequality and extreme poverty - High population growth rates - Social divisions (fractionalization) - Rural populations and urbanization - Agriculture and industry: - Geography* (focus) - Imperfect Markets* (focus) - Colonization* (focus) - International relations

Microeconomic Theory of Fertility

- Microeconomics principles and optimization to explain family size decision making - Fertility as a rational economic choice. - A household chooses how many children to "consume" as part of their utility maximization problem - Children are a special kind of "good" -A household has a given set of preferences for children and other goods -Maximizes utility derived from consuming these goods subject to a budget constraint

Developing Countries' Diversity in problems (11) : High population growth rates

- Middle income countries, have lower birthrates - The challenge is that high birth rates means that the active labour force needs to support proportionally twice as many children then rich children

The Neocolonial Dependence Model

- Model believes that primary cause of underdevelopment is the unequal international capitalist system between rich and poor countries. Underdevelopment is externally induced. -International system of equitality: unequal power relationships between "center" and the "periphery" and makes self-reliance of poor countries difficult or impossible. Dominant countries exploit the dependent countries. - Developed countries lie at the center of develop countries - Developed world nations, alongside domestic elites, directly and indirectly control dependent developing nations' economies

Developing Countries' Diversity in problems (11): Colonization* (focus)

- Most developing countries were once colonies of EU, other foreign powers, and institutions focused on extraction of wealth, harming development, rather than developing wealth - Led to countries that have lacked institutions and formal organizations - While many of the countries decolonized the damage is still lingering - Colonization also led to racial discrimination, diseases, forced labour, and overall blocked opportunities of developing country native residents, making the rich richer, and the poor poorer

Public Choice Theory

- Politicians (exploit gov resources), bureaucrats, citizens (leverage political influence) and states (above power) are purely self-interested and use power and authority to selfish end -Believes that this will cause less efficient markets and less freedoms -Want government to have less power

Neoclassical Growth Theory

-Economic growth is the result of three factors: labor, capital, and technology -While an economy has limited resources in terms of capital and labor, the contribution from technology to growth is boundless.

Classic Theories of Economic Development (4) (LSIN): International dependence revolution (1970s+)

- Radical, and political -Focused on international, and domestic power relationships - 3 schools of thought: neocolonial dependence model, false-paradigm model, dualistic development thesis -Focused on eliminating poverty to expand employment opportunities, and inequality in economic growth

New economic development theories

- Recognise development is complicated and there are myriad barriers to to development. Themes of new development theories: 1) Recognising coordination problems among economic agents (firms, workers, consumers, etc.) 2) Increasing returns to scale, and other forms of investor organizations

Solow Neoclassical Growth Model/"exogenous" growth model

- The basic framework for studying convergence across countries • Rate of technological change is given exogenously (external factors) • The model implies that economies will conditionally converge to the same level of income , conditional on other things being equal: • Same rate of savings • depreciation • labour force • productivity growth In this model output is produced using labour, capital and technology • Key modification from Harrod-Domar model: substitutability between capital (K) and labour (L) • There are diminishing returns to using these inputs • There are constant returns to using both factors together • Output growth comes from • increases in the quality and quantity of labour • increases in capital (through savings and investment) • Improvements in technology • Closed economies (no external activity) with low savings grow more slowly in the short run compared to those with higher savings rates, and converge to lower per capita income levels • Open economices (with foreign investment and trade) converge at higher per capita income levels, because capital flows in from richer countries who have lower capital-labour ratios. • openness is thus as desirable for growth • Challenges • Technological progress is a "black box" • Long run growth in output comes from technological progress

which aid donors give the most tied aid according to Easterly and Pfutza

- US 72% - greece 77% - italy 92%

Classic Theories of Economic Development (4) (LSIN): Structural changes models (1960-1970s)

- Used modern economic theory and econometrics -By development they're referring to rapid sustained economic growth -Agricultural to industrialized, and service based economy - Focus on internal transformation (structural change) of domestic economy

why does the value of tied aid diminish?

- aid by source states you have to by X Y Z, so can't find a better deal - aid by project can result in non-high priority projects being selected based on gaining better economic returns

what is the definition of foreign aid?

- any flow of capital (goods and services) to a developing country that meets two criteria - non-commercial from donor point of view - characterised by concessional terms

1) Capital accumulation:

- capital accumulation results when there's a proportion of income savings that invested to increase future income on output. 1) new investments in land, and physical equipment. These investments can improve the quality of existing resources and increase productivity of resources using them. 2) new investments in human resources through improvements in health, education, and job skills. This results to improving the quality and the productivity of existing land resources

What are the primary determinants of agricultural labor productivity?

- farm size - age - the weather - labor costs. - output

what does Todaro and Smith (2012) say happens to aid over time

- flows of aid are calculate at nominal levels and tend to rise over time - but prices are deflated, so the actual volume of aid reduces

why do donors give aid?

- humanitarian reasons - political self-interest (political influence) - economic self-interest (interest bearing loans + aid tied to donor exports = substantial debt repayment and increase in import costs)

why do recipient countries accept aid?

- political self-interest (remain in power and economic/military and internal security reinforcements) - economic self-interest (helps economic structure and contributes to economic growth)

what are the disadvantages of NGOs

- voluntary failure (inability of NGOs to effectively achieve social objectives in their area of supposed comparative advantages) - fail to acheive social objectives - provide small amounts of aid compared to ODA and WB - advertising cost = 25% - limited with small database and have to be selective

what is bilateral aid

- when the aid is given directly to gov - based on political and military considerations

what is multilateral aid

- when the aid is given to an organisation (link UN or WB) - economically rational

what are the issues with tied aid?

- wish for more grants and freedom not tied aid - issues of corruption but IMF have put measures in place - Qs over how effect aid really it

Assume a closed economy. Suppose the incremental capital-output ratio is 3, and the depreciation rate is 4%. Using the Harrod-Domar growth equation, if the savings rate is 9%, what will be the rate of growth? What would the savings rate have to be to achieve 5% growth?

-1%; 27%.

Market failure

-A market's inability to deliver its theoretical benefits due to the existence of market imperfections such as monopoly power, lack of factor mobility, significant externalities, or lack of knowledge. Market failure often provides the justification for government intervention to alter the working of the free market -A phenomenon that results from the existence of market imperfections that weaken the functioning of a market economy

Static efficiency Net benefits

-ALlocation is efficient if it maxes net benefits - market determines the optimal consumption of a natural resource Total net social benefits are maximized when MC = MB of extracting one more unit This occurs at Q*, the optimal quantity of units extracted • At Q*, total net social benefits are maximized

Developing Countries' Diversity in problems (11) : Geography* (focus)

-Generally tropical or sub tropical countries and suffer more from tropical pests, parasites, endemic diseases, water resource constraints, and extreme heat vs their richer costal countries and have more difficulties transforming resources to wealth - This is related to the types of colonies that were established, ex. Certain colonies favoured extraction instead of development

Gini Coefficient For comparing countries

-Gini could be the same for two countries -Gini and Lorenz could be used for measuring other inequality, land, etc.

Kuznet's Inverted U Hypothesis

-In the early stages of economic growth, the distribution of income worsens and then improves at later stages. - The Kuznets curve reflects the relationship between a country's income per capita and its inequality of income (GINI Coefficient) -In empirical question and Kuznet never said why it occurred -Examples of countries such as Taiwan, South Korea, Costa Rica, and Sri Lanka to demonstrate that higher income levels can be accompanied by falling and not rising inequality.

Microeconomic Theory of Fertility: HouseHold Preferences

-Indifference curves -Higher curves result in higher level of utility, and things on the same curve result in a different mix of the goods and children but same level of utility

Methods to compare inequality of different countries (2)

-Lorenz Criterion - Gini Coefficient

Common property resource

-Negative externality, people don't take into the account that others are using the resource too, thus overuse of what is socially optimal. - Lack of coordination leads to an inefficient outcome total net social benefits are not maximize (market failure) • Privatization to achieve efficient allocation and increase in net social benefits • Does NOT address income inequality: owner of resource benefits which will be a private owner.

The Harris-Todaro Migration Model Deep Dive

-On the left vertical line is the agricultural wage, right vertical line is the manufacturing wage, and the bottom is the total labour force -Two curves, A agricultural labour demand, and M is manufacturing labour demand -Basically a labourforce graph combined together -Assumes that wages are perfectly flexible, and full employment by either or the two sectors -There will be an equilibrium between manufacturing and the agricultural wages

Classic Theories of Economic Development (4) (LSIN)

-Primary approaches from 1950-1990s 1) Linear stages of growth theories (1950-1960s) 2) Structural changes models (1960-1970s) 3) International dependence revolution (1970s+) 4) Neoclassical free market counter revolution (1980s-1990s)

Private benefits and Costs of education

-Private benefits of education: individual's higher wage employment opportunities -Private costs of education: individual's direct and indirect costs of education We can think of it as if someone got a masters vs just bachelors, the value of a masters will be way higher pay wise/likelihood of getting higher pay Optimal strategy: maximize the level of education possible

Free rider problem

-Protection of forests are a public good -Non excludable: those who don't help will still benefit -Non rival: one person's benefit doesn't reduce the benefit for others QB is the number of trees that B wants to protect -Both want to protect the tree but since B protected more trees then A needed, then A will not contribute but still benefit. THis is a market failure. A is incentivised to under contribute.

Dynamic Efficiency (Non depletable)

-Scarce resource, and we need to consider the future benefits -over a period of time, and considers the net present value of benefits over time -Assuming the resource isn't deplateable and assumes that you can consume as much as you want at any time.

Indirect taxes

-Taxes— including customs duties (tariffs), excise taxes, sales taxes, value-added taxes (VATs), and export duties— levied on goods purchased by consumers and exported by producers -Taxes levied on goods ultimately purchased by consumers including tariffs, sales taxes, etc.

Functional Distributions/Factor Share

-The total share of income received by each of the factors of production (land, labour, capital) regardless of ownership -Income is distributed by function: labourers receive wages, land owners receive rents, capitalists receive profits. -Each and every factor is paid in accordance to what it contributes to national output. -Does not take into account the important role and influence of non-market forces. Supply and demand curves are assumed to determine the unit prices of each productive factor. When these unit prices are multiplied by quantities employed on the assumption of efficient (minimum-cost) factor utilization, we get a measure of the total payment to each factor

5 Causes of imperfect markets

-Underdeveloped markets - Lack of economies of scale - Thin markets due to limited demand and sellers - Widespread externalities in production and consumption - Poorly regulated common property resources (fishing, grazing lands, water holes, etc.)

Neoclassical counter revolution: Challenging the Statist Model

-Underdevelopment in developing and developed countries is caused by poor resource allocation: incorrect pricing policies, and state intervention -Neoclassical want privatization of state enterprises, remove government regulations, price distortions (factor, product, and financial markets), promote free trade, export expansion, and foreign investment from developed nations to promote economic growth and efficiency. -They see that economic development isn't externally driven

Dynamic Efficiency Optimal Amount (Depletable)

-We need to ration the good over time, how much do we consume now, how much do we save for later? -As time goes by and the resource is more scarce then the price of the good will rise. Ps, is when the consumer is in different from using it now or tomorrow. -If price is lower the Ps then consumers will use it today -We look at the present value of the marginal benefit today vs tomorrow The price is higher then the marginal cost, the owner of the resource collects scarcity rent

Gini Coefficient Properties (4)

1) Anonymity principle: the measure does not depend on who has the higher income 2) Scale independence principle: the measure does not depend on the size of the economy or currency used 3) Population independence principle: the measure is not based on the number of income recipients 4) Transfer principle: if some income is transferred from a rich person to a poor person (not so much that they are now richer than the rich person), the new income distribution is more equal. Zero sum

Assumptions of the Lewis Two Sector Model

1) Assumes Labor surplus in rural areas and full employment in urban areas 2) Assumes constant urban wages 3) assumes diminishing returns in modern sectors

Three Components of Economic Growth

1) Capital Accumulation 2) Growth in Population and labor force 3) Technological progress,

Production Possibilities Frontier: 3 components of economic growth

1) Capital accumulation: new investments in land, physical equipment, and human resources through improvements in health, education, and job skills 2. Growth in population and hence eventual growth in the labor force 3. Technological progress—new ways of accomplishing tasks

How do we measure growth and development? (2)

1) Economic indicators: ex. GNI, GNI PPP 2) Health and education indicators: New human development index, etc.

Indicators of development (2)

1) Economic: GNI, PPP, GDP 2) Health and education: % malnutrition of kids under 5, average life expectancy, birth rate, under 5 mortality rate, literacy rate, primary school completion rate

Approaches of Market Fundamentalism (3)

1) Free Market Approach (1980s) 2) Public Choice Approach - self interest, government should not do anything 3) Market Friendly Approach - in the 1990s, markets are the best way of doing things, role of governement is to facilitate

Child Labour Model Assumptions

1) Household of high incomes then the children would never work 2) Adult labour and child labour are substitutes, no child work is due to parents working enough

Core Objectives of Development (GLC)

1) Increase the availability basic life-sustaining goods such as food, shelter, health, and protection 2) To raise levels of living, higher incomes, jobs, better education, and greater attention to cultural and human values 3) To expand the range of economic and social choices available to individuals and nations

Spillover Effects (3): Progresa

1) Increased spending could drive up prices 2) Enhanced decision making power for women 3) Decrease in wage inequality(in order to improve the # of high skilled workers and the distribution of income)

5 Sources of disparity between real income and actual advantages (IE SGP) (Amartya Sen)

1) Individual differences (disabilities, illness, age, gender) 2) Environmental diversities such as heating, clothing requirements of environment, or impact of pollution 3) Variations in social climate such as prevalence of crime, and violence, and social capital 4) Availability and distribution of goods within family such as food, shelter, health, and protection 5) Differences in perspectives some goods are essential due to customs and convents Ex. In high income countries, having clean/okay clothes is essential

Measuring Inequality Methods (2)

1) Size Distributions 2) Lorenz

Example of Empirical Patterns of Development (4)

1) Switch from Agriculture to Industry 2) Rural- urban migration and industrialization 3) Accumulation of human capital 4) Population growth increases and then decreases due to a decrease in family size

Factors that contribute to convergence or relative convergence (2)

1) Technology transfer: developing countries are able to skip steps and move to more advance technologies (advantage of backwardness) unlike developed countries which moved step by step 2) Factor accumulation: developing countries have low levels of human and physical capital and thus a small amount of investment leads to larger gains. In developed countries they have diminishing returns with this investment, as their levels of human and physical capital are high

Urban Migration Theory (2)

1) Todaro Model: Rural and urban migration as an economic 2) Harris Todaro Model: equilibrium model

Malthusian Population Trap Model Example Pop and Total Income Growth

1) When income growth rate is above population growth rate, thus the per capita is growing Higher per capita income results in population growth 2) Population growth rate is faster then income growth rate, thus income per capita falling, moving us back to step 1. 3) Per captia decreases population growth rate and income per capita goes up

Disputed Issues about MNCs in Developing Countries

1) international capital movements 2) displacement of indigenous production 3) extent of technology transfer 4) appropriateness of technology transfer 5) patterns of consumption 6) social structure and stratification 7) income distribution and dualistic development

Critisism of the Lewis Model 1) Rate of labor transfer and employment creation may not be.... 2) surplus labor in ______ areas and full labor in ____ areas

1) proportional to the rate of modern-sector capital accumulation, 2) rural, urban (assumption) assumes that everyone who is a surplus in agriculture moves over, which is not true

Limitations of GNI (3)

1)Does not account for the depletion of natural resources 2)Ignores non monetary transactions 3) does not take into account the distribution of income

3 Indicators of Development

1)Health 2)Education 3)Real Income

Customs union

A form of economic integration in which two or more nations agree to free all internal trade while levying a common external tariff on all nonmember countries

Customs unions

A form of economic integration in which two or more nations agree to free all internal while levying a common external tariff on all nonmember countries

Common Characteristics of Developing Countries(10)

1)Lower productivity 2)Lower human capital (education,skills) 3)Higher inequality and absolute poverty 4)Higher population growth rates (5/6 new people from developing countries) 5)Greater social fractualization(ethnic, religious, and linguistic) 6)Larger rural populations and rapid urban migration 7)Low industrialization and manufacturers exports 8)Geography(disease, landlocked, resources) 9)Under-developed financial markets 10)colonial legacy and external dependence

Two Sector Surplus model... made of of 1) 2)

1)traditional, overpopulated rural subsistence sector(zero marginal productivity of labor)(surplus) 2)high productivity, modern industrial sector

Critique of the assumptions of the traditional neoclassical model of trade 1

1. Assumes: Fixed, fully utilized, internationally immobile resources: • Not fixed or fully employed • Often determined by specialization; initial differences in factor downments can be emphasised through trade and lock LDW into production of goods requiring unskilled labour • Exacerbates inequality • Static efficiency, not dynamic efficiency • Alternative models: (dynamic) factor accumulation and uneven development (example: North-South models), qualitative differences • production for export markets;

1. Countries tend to be classified as more or less developed based on a. the literacy rate. b. the poverty rate. c. the level of income per capita. d. the types of goods they produce.

1. Countries tend to be classified as more or less developed based on a. the literacy rate. b. the poverty rate. *c. the level of income per capita. d. the types of goods they produce.

8 Millennium Development Goals

1. Eradicate extreme poverty and hunger 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, malaria, and other diseases 7. Ensure environmental sustainability 8. Develop a global partnership for development

The Harris-Todaro Migration Extended Model Variations (4)

1. Informal work: a migrant may find informal urban work 2. Human capital: potential migrants may have different levels of education 3. Positive externalities: migrates from one region could benefit future migrants from the same region 4. Fixed manufacturing wage: high urban sector wages as a result of imperfect information, efficiency wages, etc.

The Harris-Todaro Migration Model: Policy Implications

1. Minimize rural-urban economic opportunity imbalances, migration occurs despite of unemployment 2. Urban job creation can lead to higher levels of unemployment due to migration, making more jobs isn't a good enough solution, as it might increase migration making the problem worse 3. Indiscriminate education expansion can lead to increased migration and unemployment 4. Wage subsidies can lead to more unemployment due to induced migration 5. Integrated policies (urban + rural development) are needed

Malthusian Population Trap Model Criticisms (2)

1. Technological progress ignored: - Land is fixed and decreasing returns to scale • - Technological progress can augment quality of land (productivity increases) 2. Population increases with per capita income - No clear correlation between population growth and income per capita levels - Household income levels, not per capita income levels, matters for fertility rates Limited applicability to contemporary developing nations, and not support empirically

Reducing poverty and may not lead to slow growth (5)

1. Widespread poverty creates conditions in which the poor have no access to credit (less entrepreneurs) 2. The rich in many poor countries do not save and invest substantial proportions of their incomes unlike developed countries 3. Low incomes and low levels of living (Ex. health) can lower economic productivity, leading to slower growth 4. Raising incomes of the poor will increase demand for locally produced necessities - promotes growth 5. A reduction of mass poverty acts as a powerful incentive to participate in the development process - promotes growth

10. It is not possible for a country to experience a. economic development without economic growth. b. economic growth without economic development. c. economic growth and economic development simultaneously. d. both (a) and (b) are correct.

10. It is not possible for a country to experience *a. economic development without economic growth. b. economic growth without economic development. c. economic growth and economic development simultaneously. d. both (a) and (b) are correct.

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

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

12. A newly industrialized country is a. the same as a high income country. b. any country that has experienced sustained growth in industry. c. a special classification given to some upper-middle income countries that have achieved relatively advanced manufacturing sectors. d. any country that has moved out of lower income status.

12. A newly industrialized country is a. the same as a high income country. b. any country that has experienced sustained growth in industry. *c. a special classification given to some upper-middle income countries that have achieved relatively advanced manufacturing sectors. d. any country that has moved out of lower income status.

13. Which of the following is not a middle-income country? a. Brazil b. Thailand c. Pakistan d. Argentina

13. Which of the following is not a middle-income country? a. Brazil b. Thailand *c. Pakistan d. Argentina

Neocolonial dependence model

A model whose main proposition is that underdevelopment exists in developing countries because of continuing exploitative economic, political, and cultural policies of former colonial rulers toward less developed countries

14. Which of the following is a low-income country? a. Mexico b. Thailand c. Turkey d. India 15. One of the components of the human development index is a. the percentage 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.

14. Which of the following is a low-income country? a. Mexico b. Thailand c. Turkey *d. India 15. One of the components of the human development index is a. the percentage 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.

16. 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 17. What fraction of developing countries have recently experienced some form of significant interethnic conflict? a. less than one-tenth b. a tenth to one-quarter c. one quarter to one half d. over one half

16. 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 17. What fraction of developing countries have recently experienced some form of significant interethnic conflict? a. less than one-tenth b. a tenth to one-quarter c. one quarter to one half *d. over one half

18. Which of the following African countries has recently experienced widespread death and destruction due to ethnic or clan based conflict? a. Rwanda b. Zaire c. Somalia d. all of the above 19. Which measure uses a common set of international prices for all goods and services produced? a. purchasing power parity income levels b. GNP price deflators c. foreign exchange rate conversions to U.S. dollars d. the exchange rate

18. Which of the following African countries has recently experienced widespread death and destruction due to ethnic or clan based conflict? a. Rwanda b. Zaire c. Somalia *d. all of the above 19. Which measure uses a common set of international prices for all goods and services produced? *a. purchasing power parity income levels b. GNP price deflators c. foreign exchange rate conversions to U.S. dollars d. the exchange rate

Growth Breakdown of Brazil

1967-1980: Booming 1980-1990: Economic downturn, debt crisis, stagnant income and high inflation 2000- 2011: steady growth ~ 3.0% 2011-2014: 7% growth 2014: -0.7% ---> spending on the wrong things

2 8. 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 29. According to the theory of structural patterns of development, which of the following tends to occur as a country develops? a. A shift from agriculture to industry and services b. An increase in the percentage of income spent on food c. Growth of the rural sector d. A decline in trade as a share of GNP

2 8. 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 29. According to the theory of structural patterns of development, which of the following tends to occur as a country develops? *a. A shift from agriculture to industry and services b. An increase in the percentage of income spent on food c. Growth of the rural sector d. A decline in trade as a share of GNP

2. Which of the following demonstrates international interdependence? a. the oil shocks b. the debt crisis c. global warming d. all of the above.

2. Which of the following demonstrates international interdependence? a. the oil shocks b. the debt crisis c. global warming *d. all of the above.

Budget : Progresa

2.5 billion USD, ~4.0% of GDP, conservative

20. 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 U.S. is given by a. GNP price deflator. b. Human Development Index ranking. c. purchasing power parity. d. the exchange rate. 21. 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

20. 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 U.S. is given by a. GNP price deflator. b. Human Development Index ranking. *c. purchasing power parity. d. the exchange rate. 21. 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

36. The number of people in the world who are absolutely poor is closest to a. a quarter-billion. b. a half-billion. c. one billion. d. two billion. e. four billion. 37. With modern sector enrichment growth, inequality will a. first rise and then fall. b. first fall and then rise. c. remain about the same. d. None of the above.

36. The number of people in the world who are absolutely poor is closest to a. a quarter-billion. b. a half-billion. *c. one billion. d. two billion. e. four billion. 37. With modern sector enrichment growth, inequality will a. first rise and then fall. b. first fall and then rise. c. remain about the same. *d. None of the above.

22. 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 23. The false paradigm model attributes lack of development to a. Inadequate attention to price incentives. b. Inappropriate advice from rich country economists. c. Low levels of savings and investment. d. A lack of government regulation.

22. 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 23. The false paradigm model attributes lack of development to a. Inadequate attention to price incentives. *b. Inappropriate advice from rich country economists. c. Low levels of savings and investment. d. A lack of government regulation.

24. 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. 25. Which of the following approaches does not offer an international dependence explanation of underdevelopment? a. The false paradigm model b. The neoclassical counter-revolution c. The dualistic development model d. The neocolonial dependence model

24. 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. 25. Which of the following approaches does not offer an international dependence explanation of underdevelopment? a. The false paradigm model *b. The neoclassical counter-revolution c. The dualistic development model d. The neocolonial dependence model

26. The neoclassical counter-revolution school supports a. Trade restrictions. b. State-owned enterprises. c. Eliminating government regulations. d. Limitations on foreign investors. 27. Implicit assumptions from which theories evolve are known as a. A paradigm. b. Biases. c. Stylized facts. d. Normative economics.

26. The neoclassical counter-revolution school supports a. Trade restrictions. b. State-owned enterprises. *c. Eliminating government regulations. d. Limitations on foreign investors. 27. Implicit assumptions from which theories evolve are known as *a. A paradigm. b. Biases. c. Stylized facts. d. Normative economics.

3. Technological progress—new ways of accomplishing tasks (3)

3 classifications of technology progress (directly help) 1) Neutral: increase in output, with the same quantity and combination of factor inputs 2) Labour Saving: requires less labour to produce the same amount of products 3) Capital Saving: technology innovation that results in higher output for the same amounts of capital 2 Types of technology augmentation (can indirectly help): 1) labour augmenting: technology process that raises productivity/quality/skills of existing labour, by training, education, etc. 2) capital augmenting: technology process that raises productive use of capital by innovation and inventions

3. A subsistence economy is a. a very low income economy. b. an economy in which people make what they consume. c. an economy in which people receive food for pay. d. all of the above.

3. A subsistence economy is a. a very low income economy. *b. an economy in which people make what they consume. c. an economy in which people receive food for pay. d. all of the above.

Critique of the assumptions of the traditional neoclassical model of trade 3

3. Economic structures, diminishing returns to scale • Inflexible economic structures in reality • Economies of scale common • Monopolistic and oligopolistic market control in international commodities aren't accounted for • Instability in world markets for primary commodities

30. 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 markets. 31. The absolute poverty line a. decreases as real income grows. b. shows the average income of the lowest income group. c. can be measured with the Lorenz curve. d. None of the above.

30. 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 markets. 31. The absolute poverty line a. decreases as real income grows. b. shows the average income of the lowest income group. c. can be measured with the Lorenz curve. *d. None of the above.

32. The Gini coefficient provides a measure of a. the level of poverty. b. the level of relative inequality. c. disguised unemployment. d. the rate of growth. 3 Kuznets' inverted-U hypothesis a. implies that things must get worse before they get better. b. suggests that inequality will worsen and then improve as a country grows. c. suggests that inequality will improve and then worsen as a country grows. d. points out six characteristics of modern economic growth.

32. The Gini coefficient provides a measure of a. the level of poverty. *b. the level of relative inequality. c. disguised unemployment. d. the rate of growth. 33. Kuznets' inverted-U hypothesis a. implies that things must get worse before they get better. *b. suggests that inequality will worsen and then improve as a country grows. c. suggests that inequality will improve and then worsen as a country grows. d. points out six characteristics of modern economic growth.

34. According to Kuznets, in the process of development inequality in an economy will normally a. first rise and then fall. b. first fall and then rise. c. remain about the same. d. show no definite pattern. 35. Poverty is better studied with size distribution measures than with those based on factor distribution because a. labor income may be highly concentrated in well-paid modern sector workers. b. some poor farmers may receive a sizable share of income in rent. c. income from nonmarket activities, such as foraging, may be important. d. All of the above.

34. According to Kuznets, in the process of development inequality in an economy will normally *a. first rise and then fall. b. first fall and then rise. c. remain about the same. d. show no definite pattern. 35. Poverty is better studied with size distribution measures than with those based on factor distribution because a. labor income may be highly concentrated in well-paid modern sector workers. b. some poor farmers may receive a sizable share of income in rent. c. income from nonmarket activities, such as foraging, may be important. *d. All of the above.

Autarky

A closed economy that attempts to be completely self-reliant

38. With modern sector enlargement growth, inequality will a. first rise and then fall. b. first fall and then rise. c. remain about the same. d. All of the above. 39. Higher-income countries tend to have lower levels of absolute poverty because they a. have more employment opportunities. b. have more public assistance. c. have greater entrepreneurship opportunities. d. All of the above.

38. With modern sector enlargement growth, inequality will *a. first rise and then fall. b. first fall and then rise. c. remain about the same. d. All of the above. 39. Higher-income countries tend to have lower levels of absolute poverty because they a. have more employment opportunities. b. have more public assistance. c. have greater entrepreneurship opportunities. *d. All of the above.

In the Harrod-Domar model, if the savings rate is 20% and the incremental capital output ratio is five, abstracting from depreciation, what is the implied growth rate?

4. 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.

4. 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.

Critique of the assumptions of the traditional neoclassical model of trade 4

4. No role of national government • Government instruments: tariffs, quotas, etc. • Developed country governments protect own industries, influence world affairs • Government role in successful rapid development

40. One of the characteristics of the poor is that they are a. more likely to be employed in the modern industrial sector. b. more likely to come from small families. c. more likely to be well educated. d. more likely to live in a rural area. 41. Which of the following policies might increase labor intensity in industry? a. a decline in the cost of credit b. a decline in the minimum wage rate c. a decline in the elasticity of substitution d. All of the above

40. One of the characteristics of the poor is that they are a. more likely to be employed in the modern industrial sector. b. more likely to come from small families. c. more likely to be well educated. *d. more likely to live in a rural area. 41. Which of the following policies might increase labor intensity in industry? a. a decline in the cost of credit *b. a decline in the minimum wage rate c. a decline in the elasticity of substitution d. All of the above

42. Which of the following policies may decrease the level of capital intensity in industry? a. an increase in the cost of capital b. a decrease in the minimum wage c. an increase in the elasticity of substitution d. All of the above 43. The Ahluwalia-Chenery Welfare Index a. is a method used to measure changes in absolute poverty. b. shows the value judgement implications of using the change in income per capita as a measure of the change in development. c. is a method used to measure changes in inequality. d. is a method used to measure the growth rate of GDP.

42. Which of the following policies may decrease the level of capital intensity in industry? a. an increase in the cost of capital b. a decrease in the minimum wage c. an increase in the elasticity of substitution *d. All of the above 43. The Ahluwalia-Chenery Welfare Index a. is a method used to measure changes in absolute poverty. *b. shows the value judgement implications of using the change in income per capita as a measure of the change in development. c. is a method used to measure changes in inequality. d. is a method used to measure the growth rate of GDP.

44. About what percent of the world's poorest people are female? a. 30 b. 50 c. 70 d. 90 45. About how many girls and women are said to be "missing" in LDCs? a. 2 million b. 20 million c. 200 million d. 2 billion

44. About what percent of the world's poorest people are female? a. 30 b. 50 *c. 70 d. 90 45. About how many girls and women are said to be "missing" in LDCs? a. 2 million b. 20 million *c. 200 million d. 2 billion

46. Which of the following groups is (are) more likely to be poor? a. Minorities b. Indigenous people c. Women d. All of the above. 47. Distribution of income according to percentiles, such as the highest 40 percent or lowest 20 percent is known as the _______________ distribution of income. a. size b. functional c. GNP-weighted d. equal-weighted

46. Which of the following groups is (are) more likely to be poor? a. Minorities b. Indigenous people c. Women *d. All of the above. 47. Distribution of income according to percentiles, such as the highest 40 percent or lowest 20 percent is known as the _______________ distribution of income. *a. size b. functional c. GNP-weighted d. equal-weighted

48. What conclusion can be reached from the following data on income shares? Percentage of Income Received by Lowest 40% Highest 20% Bangladesh 17.3 45.3 Indonesia 14.4 49.4 a. absolute poverty is more widespread in Bangladesh b. the size distribution of income is more unequal in Indonesia c. Bangladesh had adopted a strategy of redistribution with growth d. growth in Bangladesh is calculated using poverty weights rather than income weights 49. Developing countries who have adopted capital intensive technologies tend to have a. relatively higher Gini coefficients. b. relatively lower Gini coefficients. c. Gini coefficients equal to one. d. Gini coefficients equal to zero.

48. What conclusion can be reached from the following data on income shares? Percentage of Income Received by Lowest 40% Highest 20% Bangladesh 17.3 45.3 Indonesia 14.4 49.4 a. absolute poverty is more widespread in Bangladesh *b. the size distribution of income is more unequal in Indonesia c. Bangladesh had adopted a strategy of redistribution with growth d. growth in Bangladesh is calculated using poverty weights rather than income weights 49. Developing countries who have adopted capital intensive technologies tend to have *a. relatively higher Gini coefficients. b. relatively lower Gini coefficients. c. Gini coefficients equal to one. d. Gini coefficients equal to zero.

5. 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.

5. 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.

50. The poverty gap is the a. absolute number of people below the international poverty line. b. percentage of the population below the international poverty line. c. consumption (measured in dollars) necessary to bring everyone living below the poverty line up to the poverty line. d. percentage of a country's total consumption necessary to bring everyone in the country living below the poverty line, up to the poverty line.

50. The poverty gap is the a. absolute number of people below the international poverty line. b. percentage of the population below the international poverty line. c. consumption (measured in dollars) necessary to bring everyone living below the poverty line up to the poverty line. *d. percentage of a country's total consumption necessary to bring everyone in the country living below the poverty line, up to the poverty line.

6. 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.

7. 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

7. 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

According to the United Nations, approximately what percentage of the world's income is received by the richest one-fifth of the world's population?

75 %

8. 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.

8. 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.

Over the next 15 years, ___ out of every 10 people added to the world's population will be born in developing countries.

9. 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.

9. 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.

Which of the following is characteristic of DVCs? A. A large percentage of the labor force is in agriculture. B. High levels of saving and investment. C. High labor productivity. D. High levels of training.

A - a large percentage of the labor force is in agriculture.

Quintile

A 20% proportion of any numerical quantity. A population divided into quintiles would be divided into five groups of equal size

Least developed countries

A UN designation of countries with low income, low human capital, and high economic vulnerability.

Nontariff trade barrier

A barrier to free trade that takes a form other than a tariff, such as quotas or (possibly arbitrary) sanitary requirements

When is a big push policy needed in a developing economy?

A big push policy may be needed when there: There is a subsistence economy trying to industrialize, and there is an investment issue, where there are pecuniary externalities and as such other firms may not want to be the first mover, knowing that the future costs will be lower as more firms invest in industrialization and develop the work's skills needed.

Foster-Greer-Thorbecke (FGT) index

A class of measures of the level of absolute poverty

Path dependency

A condition in which the past condition of an individual or economy, measured by the level of one or more variables, affects future conditions

Necessary condition

A condition that must be present, although it need not be in itself sufficient, for an event to occur. For example, capital formation may be a necessary condition for sustained economic growth (before growth in output can occur, there must be tools to produce it). But for this growth to continue, social, institutional, and attitudinal changes may have to occur.

Sufficient condition

A condition that when present causes or guarantees that an event will or can occur; in economic models, a condition that logically requires that a statement must be true (or a result must hold) given other assumptions.

Export Dependence

A country's reliance on exports as the major source of financing for development activities

Export dependence

A country's reliance on exports as the major source of financing for development activities

Production Possibilities curve

A curve on a graph indicating alternative combinations of two commodities or categories of commodities (e.g., agricultural and manufactured goods) that can be produced when all the available factors of production are efficiently employed. Given available resources and technology, the curve sets the boundary between the attainable and the unobtainable. This shows how the increase of a factor(s) of production will impact the production probabilities

Economic planning

A deliberate and conscious attempt by the state to formulate decisions on how the factors of production will be allocated among different uses or industries, thereby determining how much of total goods and services will be produced in one or more ensuing periods

Land reform

A deliberate attempt to reorganize and transform existing agrarian systems with the intention of improving the distribution of agricultural incomes and thus fostering rural development

Import substitution

A deliberate effort to replace consumer imports by promoting the emergence and expansion of domestic industries

Political will

A determined effort by persons in political authority to achieve certain economic objectives through various reforms

Increasing returns

A disproportionate increase in output that results from a change in the scale of production

Tariff

A fixed-percentage on the value of an important commodity levied at the point of entry into the importing country

Tariff

A fixed-percentage tax on the value of an imported commodity levied at the point of entry into the importing country

Managed float

A fluctuating exchange rate that allows central bank intervention to reduce erratic currency fluctuations

Currency board

A form of central bank that issues domestic currency for foreign exchange at a fixed exchange rate

Free-trade area

A form of economic integration in which free trade exists among member countries, but members are free to levy tariffs on nonmember countries

International commodity agreement

A formal agreement by sellers of a common internationally traded commodity (e.g., coffee, sugar) to coordinate supply to maintain price stability

Group lending scheme

A formal arrangement among a group of potential borrowers to borrow money from commercial or government banks and other sources as a single entity and then allocate funds and repay loans as a group, thereby lowering borrowing costs

Aggregate growth model

A formal economic model describing growth of an economy in one or a few sectors using a limited number of variables

Input-output model (interindustry model)

A formal model dividing the economy into sectors and tracing the flow of interindustry purchases (inputs) and sales (outputs)

Harrod-Domar growth model

A functional economic relationship in which the growth rate of GDP (g) depends directly on the national net savings rate (s) and inversely on the national capital-output ratio (c).

Common property resource

A good to which everybody has access, can lead to a Tragedy of the Commons situation where it becomes overused and degraded if not regulated properly

Exchange control

A governmental policy designed to restrict the outflow of domestic currency and prevent a worsened balance of payments position by controlling the amount of foreign exchange that can be obtained or held by domestic citizens

Lorenz curve

A graph depicting the variance of the size distribution of income from perfect equality

Kuznets curve

A graph reflecting the relationship between a country's income per capita and its inequality of income distribution

Population pyramid

A graphic depiction of the age structure of the population, with age cohorts plotted on the vertical axis and either population shares or numbers of males and females in each cohort on the horizontal axis

Rotating savings and credit association (ROSCA)

A group formed by formal agreement among 40 to 50 individuals to pool their savings and allocate loans on a rotating basis to each member

Devaluation

A lowering of the official exchange rate between one country's currency and all other currencies

Market Failure

A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare/public good ex. loss of biodiversity, introduction of invasive species

Imperfect market

A market in which the theoretical assumptions of perfect competition are violated

Elasticity of factor substitution

A measure of the degree of substitutability between factors of production in any given production process when relative factor prices change

O Ring Model

A model with strong complementarities amoung inputs in production - A firm with high-productivity workers can afford to hire more high productivity workers, because the value of the firm's output is higher - As a result, high productivity workers work with other high productivity workers, and low productivity workers with other low productivity workers • So, some firms and workers or even an entire economy can fall into a trap of low productivity, while others enjoy high productivity The key feature of the O-ring model is the way it models production with strong complementarities among inputs. Which proposes that tasks of production must be executed proficiently together in order for any of them to be of high value. 1) Workers performing the same task earn higher wages in a high-skill firm than in a low-skill firm; 2) Wages will be more than proportionately higher in developed countries than would be assumed by measurements of skill levels; 3) Workers will consider human capital investments in light of similar investments by those around them; 4) This model magnifies the effect of local bottlenecks which also reduce the expected returns to skill; 5) O-ring effects across firms can create national low-production traps. A production function withs tsrong complementarities among inputs, based on the products (i.e., multiplying) of the input qualities. Ex high quality workers, in developed countries, with strong skills will lead more strong skilled people to work there. This leads to a multiplying increase in the quality of the output

Purchasing Power Parity

A monetary measurement of development that takes into account what money buys in different countries based on a basket of goods. This is a calculation of GNI using a common set of inter-national prices for goods and services. PP provides a more accurate picture of the economic well being across various nations

Resource endowment

A nation's supply of usable factors of production

Infant industry

A newly established industry, usually protected by a tariff barrier as part of a policy of import substitution

Subsidy

A payment by the government to producers or distributors in an industry to prevent the decline of that industry, to reduce the prices of its products, or to encourage hiring and expand employment, increasing exports

Subsidy

A payment by the government to producers or distributors in an industry for such purposes as preventing the decline of that industry, expanding unemployment, increasing exports, or receding selected prices paid by consumers

Partial plan

A plan that covers only a part of the national economy (e.g., agriculture, industry, tourism)

Pecuniary externality

A positive or negative spillover effect on an agent's costs or revenues.

Workfare program

A poverty alleviation program that requires program beneficiaries to work in exchange for benefits

Multidimensional Poverty Index (MPI)

A poverty measure that identifies the poor using dual cutoffs for levels and numbers of deprivations, and then multiplies the percentage of people living in poverty times the percent of weighted indicators for which poor households are deprived on average

Commercialization

A process whereby an NGO (a not-for-profit organization) providing microfinance is converted into a for-profit bank

What is the main feature of the O-ring production function? Hint: the way inputs relate each other.

A production function withs strong complementarities among inputs, based on the products (i.e., multiplying) of the input qualities. Ex high quality workers, in developed countries, with strong skills will lead more strong skilled people to work there. This leads to a multiplying increase in the quality of the output

Capital-output ratio

A ratio that shows the units of capital required to produce a unit of output over a given period of time

Uruguay Round

A round of the General Agreement on Tariffs and Trade negotiations started in Uruguay in 1986 and signed in 1994, designed to promote international free trade

Uruguay Round

A round of the General Agreement on Tariffs and Trade negotiations, started in Uruguay in 1986 and signed in 1994, designed to promote international free trade

Industrialization strategy approach

A school of thought in trade and development that emphasizes the importance of overcoming market failures through government policy to encourage technology transfer and exports of progressively more advanced products

Millennium Development Goals

A set of eight goals adopted by the United Nations in 2000

Multifiber Arrangement (MFA)

A set of non tariff quotas established by developed countries on imports of cotton, wool, synthetic textiles, and clothing from individual developing countries

Multifiber Arrangement (MFA)

A set of nontariff quotas established by developed countries on imports of cotton, wool, synthetic textiles, and clothing from individual developing countries

Pareto improvement

A situation in which one or more persons may be made better off without making anyone worse off.

Oligopolistic market control

A situation in which a small number of rival but not necessarily competing firms dominate an industry

Freedom

A situation in which a society has at its disposal a variety of alternatives from which to satisfy its wants and individuals enjoy real choices according to their preferences.

Government failure

A situation in which government intervention in an economy worsens outcomes

Uncertainty

A situation in which neither the actual outcome nor even the precise probabilities of the various possible outcomes are known

(Last Word) Early experience with conditional cash transfers has revealed that A. they encourage school enrollment, but poor-quality schools limit the ability to lift people out of poverty. B. the resulting improvements in education and health give the recipients a significant earnings advantage over nonrecipients. C. there is no significant improvement in nutrition and health compared to nonrecipients. D. most of these cash transfers available go unused because parents don't want to fulfill the requirements.

A. they encourage school enrollment, but poor-quality schools limit the ability to lift people out of poverty.

Monetary policy

Activities of a central bank designed to influence financial variables such as the money supply and interest rates

What are the implications for a successful agricultural development strategy of the finding that women perform 60 to 90% of all work in the traditional rural areas?

Agricultural extension programs and access to small scale credit must be focused on women

The Harris-Todaro Migration Model Scenario: Decision Modeling

Agricultural wage (WA) = (Labour pool manufacturing / Total urban Labour pool) * Manufacturing wage If the above is true there is no difference in migrating; aka the expected value is the exact same

Neoclassical Factor Endowment Theory (Partial specialization)

All countries have access to the same technology for the production of all commodities • Difference in Countries are their endowed with different factor supplies • Relative factor prices differ according to relative factor endowments (ex. labour, capital, etc.) • Countries will have a relative cost and price advantage in commodities that use the relatively greater endowed factor -Primary products are derived from extraction will require labour, ex. fishing, while manufacturing goods will require more capital and primary products • Countries should specialize in commodities that use the relatively abundant factor and export the surplus, in exchange for imports of the commodities that use the relatively scarce factors

Public consumption

All current expenditures for purchases of goods and services by all levels of government, including capital expenditures on national defense and security

Children Labour Equilibria

All families are better off when all refuse to send children to work, but there is a coordination problem • Good equilibrium in which no children work may be achievable through effective ban on all child labour • Good equilibrium is self-enforcing: wages are high enough such that no child works, but this means that there needs to be higher wages, and these firms would want to ban paying higher wages

Health system

All the activities whose primary purpose is to promote, restore, or maintain health

Value added

Amount of a product's final value that is added at each stage of production

Patterns-of-development analysis

An attempt to identify characteristic features of the internal process of structural transformation that a "typical" developing economy undergoes as it generates and sustains modern economic growth and development

Regional trading bloc

An economic coalition among countries within a geographic region, usually characterized by liberalized internal trade and uniform restrictions on external trade, designed to promote regional economic integration and growth

Comprehensive plan

An economic plan that sets targets to cover all the major sectors of the national economy

Underdevelopment

An economic situation characterized by persistent low levels of living in conjunction with absolute poverty, low income per capita, low rates of economic growth, low consumption levels, poor health services, high death rates, high birth rates, dependence on foreign economies, and limited freedom to choose among activities that satisfy human wants

Closed economy

An economy in which there are no foreign trade transactions or other economic contacts with the rest of the world

Open economy

An economy that practices foreign trade and has extensive financial and nonfinancial contacts with the rest of the world

Public Bads

An entity that imposes costs on groups of individuals simultaneously. Compare with public good. 1) non-excludable: negative effects impact everyone including those not directly contributing 2) non-rival: negative impacts hurt everyone, and hurting one person doesn't reduce the effect felt by others Ex. Pollution, environmental degradtion.

Public Good

An entity that provides benefits to all individuals simultaneously and whose enjoyment by one person in no way diminishes that of another. 1) Non rival: benefits everyone, and benefiting one does not reduce the benefit of the other 2) Non excludable: benefits can't be limited to those contributing to generating them

Trade Deficit

An excess of import expenditures over export receipts measured on the current account

Trade deficit

An excess of import expenditures over export receipts measured on the current account

Explain carefully the opportunity costs of a mother's time, what may lead these to change over time, and what effects these changes have on family decisions.

An increase in earning opportunities outside the home may lead the family to substitute child quality and consumption of other goods and services for quantity of children.

Human Development Index (HDI)

An index measuring national socioeconomic development, based on: combining measures of education, health, and adjusted real income per capita

General Agreement on Tariffs and Trade (GATT)

An international body set up in 1947 to explore ways and means of reducing tariffs on internationally traded goods and services; replaced in 1995 by the World Trade Organization

World Bank

An organization known as an "internal financial institution" that provides development funds to developing countries

What is the Alliance for a Green Revolution in Africa and who are its primary supporters?

An organization that deals with improving agricultural products and supporting local farm owners and labor in Africa. Funded by Bill and Melinda Gates Foundation

Externalities (Market Failure)

Any benefit or cost borne by an individual economic unit that is a direct consequence of another's behaviour -Positive: benefit to another without compensation Ex. education -Negative: cost on another without compensation ex. pollution

Discuss the relationship between poverty, growth and the environment.

As more people become poor, social instability, disease, and pollution will increase.

Static Efficiency (At a point of time)

Assumes the market doesn't fail and the market is efficient; pareto efficiency -MC=Marginal cost -MB=Marginal benefit

Critique of the assumptions of the traditional neoclassical model of trade 5

Assumes trade

Malthusian Population Trap Model Example Stable Equilibrium (T)

At T: per capita income grows forever

product differentiation

Attemots by producers to distinguish their product from similar ones through advertising or minor design changes

Product differentiation

Attempts by producers to distinguish their product from similar ones through advertising or minor design changes

In recent decades: A. all countries classified as DVCs have had little or no economic growth. B. some nations classified as DVCs have grown rapidly while others have grown very slowly or not at all. C. all countries classified as DVCs have experienced rapid economic growth and rising living standards. D. all countries classified as low-income DVCs have had declining per capita GDPs.

B - Some nations classified as DVCs have grown rapidly while others have grown very slowly or not at all.

The World Bank: A. provides military assistance to those nations interested in improving national defense. B. makes and guarantees loans for basic development projects such as the construction of dams, roads, and schools. C. provides gold for DVCs that want to go on the gold standard. D. provides short-term loans to DVCs that are incurring balance of payments deficits.

B- makes and guarantees loans for basic development projects such as the construction of dams, roads, and schools.

Why Policy Analysis

Because limited resources must be used to make the largest impact on development that is possible, we can have a better understanding as to why policies failed

Social benefits of education

Benefits of the schooling of individuals, including those that accrue to others or even to the entire society, such as the benefits of a more literate workforce and citizenry

Microeconomic Theory of Fertility: Budget Line

Budget line slope shows the cost of children relative to other goods

(Last Word) Loans offered through microcredit programs A. have lifted borrowers out of poverty at a faster pace than nonrecipients of loans. B. suffer from low repayment rates. C. are usually spent on food. D. have very high repayment rates.

D. have very high repayment rates.

Which of the following describes the vicious circle of poverty? A. Government spending for public goods is inflationary and this undermines incentives to save and invest. B. Higher incomes increase consumption at the expense of capital accumulation, which causes income to fall. C. Low per capita incomes cause low levels of saving and investment, which mean low productivity and therefore low incomes. D. A growing national income increases the demand for money, which increases the interest rate and reduces investment.

C. Low per capita incomes cause low levels of saving and investment, which mean low productivity and therefore low incomes.

Coordination Failures and Complementarities

Can lead to multiple equilibrium

The Harrod-Domar Growth Model: Production Limiting factors

Capital is the limiting factor : AK < BL Capital is the limiting factor : (fixed technological coefficient* capital stock) < (fixed technological coefficient * labour stock) -Capital, technology, and technology coefficient are the limiting factor in production -The model assumes that labour is abundant and there is no shortage of labour

Microeconomic Theory of Fertility Variable:

Cd: the demand for surviving children Y: level of household income Pc : the "net" price of children, opportunity cost of mother time, benefits of having children ex. old age security Px : the price of all other goods tx: the tastes for all other goods relative to children Gd : the total quantity of other goods consumed by the parents

The Neocolonial Dependence Model: "center" and the "periphery"

Center: developed countries Periphery: developing countries Elites: ruling class in developing country, with high income, social status, and political power. They serve and are rewarded by international special interest groups (ex. MNC, world bank, IMF, etc.). They discourage reform efforts and push for underdevelopment for self serving reasons

Malthusian Population Trap Model: Social Progress

Change in institutions, our cultures, That reduces population growth, and shifts the population growth curve downwards

What are some of the differences between the population policies of China and India? What factors may have contributed to their success or failure?

China wanted to drastically reduce birth rate to 1% in the 80s after Mao's belief in maximum pop growth. Resulted in draconian measures and preferences for 1 child families. Estimates indicate 250M less ppl were born. India first to implement family planning in 1949. Indira Gandhi in mid 70s has massive failure with forced sterilization attempts. More state level policies. Banning 3+ family parents from running for office. Lower fertility has created boy preference. In Kerala, massive reductions w/o coercion.

Synthetic Substitutes

Commodities that are artificially produced but can be substituted for the natural commodities (e.g., manufactured rubber, cotton, wool, camphor, and pyrethrum)

Financial repression

Constraints on investment resulting from the rationing of credit, usually to a few large-scale borrowers, in financial markets where interest rates and hence the supply of savings are below market-determined levels

Factor Endowment Theory Conclusions

Consumption increased for everyone • Complete specialization does not occur: partial specialization in goods that use the abundant factor intensively • Export goods that use the abundant factor intensively • Import goods that use the scarce factor intensively • Factor prices equalize across trading countries ex. LDW production favours agiculture causing wages to rise, and the rest of the world wages fall, and the relative price of capital is going to fall and rise in the rest of the world. The result is that wages and costs equalize • Owners of abundant factors gain relative to owners of scarce factors • Trade promotes more equal income distribution within a country • Trade stimulates economic growth

Coordination Failures

Coordination failures occur when agentsʼ inability to coordinate their actions leads to an outcome that makes all agents worse off. • This can occur when actions are complementary, i.e., • Actions taken by one agent reinforces incentives for others to take similar actions Coordination problems can leave an economy stuck at a bad equilibrium. • With low average income, low growth, or extreme poverty • Ex. farmers can't coordinate with middle men, and as such they don't specialize in farming, and leading to an under development trap • Ex. commercial blockchain, firms had to make a huge investment, but the value is only created when multiple people are using it, so many people waited around for someone to take the first step There can be an important role for government policy interventions to push the toward a self-sustaining, better equilibrium

Rapid population growth can be an obstacle to economic development: A. because it can translate a relatively large increase in real output into a small increase in real output per capita. B. because more investment will be required to simply maintain the quantity of capital goods per person. C. because it may lead to the overutilization and therefore ecological degradation of farmland. D. for all of these reasons.

D. for all of these reasons.

Middle-income countries

Countries with a GNI per capita between $1,025 and $12,475 in 2011

Lorenz Curve for Education

Cumulative proportion of schooling vs cumulate proportion of population Education quality (if they have textbooks, good teachers, etc.) as the number of years of schooling

Foreign aid to the DVCs has been criticized: A. because it may generate economic dependence on the IACs. B. because it encourages the centralization of government power over the economy. C. because government corruption in the DVCs causes aid to be misused. D. for all of these reasons.

D. for all of these reasons.

Capital flight refers to:

DVC citizens accumulating or investing their savings in the IACs.

Explain what is meant by urban bias. What are the major effects of urban bias?

Developing country policies that favor the urban sector with a disproportionate share of investments in infrastructure, factories, buildings, and education. This creates a widening gap in incomes and amenities between urban and rural economies and induces rural-urban migration

Development Economics vs. Traditional Economics

Development economics is concerned with economic, cultural, and political requirements for effective and rapid transformation of structure and institutions of entire societies

Child Labour Model Demand Curve

Diagonal line for demand

Why does Health and Education vary in developing countries?

Different development challenges in different developing nations

Rent seeking

Efforts by individuals and businesses to capture the economic rent arising from price distortions and physical controls caused by excessive government intervention, such as licenses, quotas, interest rate ceilings, and exchange control

Financial liberalization

Eliminating various forms of government intervention in financial markets, thereby allowing supply and demand to determine the level of interest rates, for example

State three country characteristics that encourage and three that discourage economic integration among developing countries.

Encouraging: - Similar economic systems - Similar locations - Similar development levels - Similar goals Discouraging: - Nationalism - Desire for high tech prestige projects regardless of efficiency - Similar resources - Similar comparative advantage

3 Objective

Increase subsistence, Increase Self Esteem by raising levels of living, and Increase the ability to make choices

What Are The Three End Products that the NHDI Measure (KLL)

Focuses on three goals/end products of development: ○ Knowledge: combination of average school, and expected schooling for school age children ○ Long and healthy life: based of life expectancy at birth ○ Decent standard of living: based on real per capita gross domestic product adjusted for PPP (to account for cost of living, and the assumption of diminishing marginal utility of income)

Education Index (NHDI)

For education you need the geometric mean (two multiplied and square rooted) of the index using the average years of schooling for 25+ year olds, and the expected years of schooling for school age children ○ Education max val= actual observed maximum mean years of schooling for period, min val= 0, actual = there are two: 1) average years of schooling for adults age 25+ 2) expected years of schooling for school age child education

Dual exchange rate (parallel exchange rate)

Foreign-exchange-rate system with a highly overvalued and legally fixed rate applied to capital-and-intermediate-goods imports and a second, illegal (or freely floating) rate for imported consumption goods

3 Real Income Measure

GDP, GNI, and GNDI

Why is GNI per capita a poor comparison of development between two countries?

GNI doesn't take into account the differences in purchasing power, and only accounts for the currency conversion rate, and not the development factors of health and education

Investment in Education and Health Calculations

Gains: - E: Income with extra schooling - N: Income without extra schooling - I: Discount rate - T: the number of years The benefit formula= Sum of (ET-NC)/(1+i)^T We compare the net present value of going to additional schooling Costs: direct costs (tuition, etc.) and indirect costs (foregone earnings)

World Trade Organization (WTO)

Geneva-based watchdog and enforcer of international trade agreements since 1995; replaced the General Agreement on Tariffs and Trade

World Trade Organization (WTO)

Geneva-based watchdog and enforcer of international trade agreements since 1995; replaced the General Agreement on Tariffs and Trade (GATT)

Biodiversity

Gets destroyed by human activity and its kinda irreplaceable

Deep Intervention

Gov't Intervention - role of gov't is to move an economy to a preferred equilibrium that will be self sustaining

Why might government policy interventions correct a coordination failure?

Government policy can correct a coordination failure as they are not an economic agent, and as such aren't focusing on the self interest of a specific economic agent, but focusing on the entire economy or sector. Governments can correct a coordination problem by creating policy that provides economic incentives, such as grants, tax breaks, subsidies either directly to the industry or support an industry which has a forward or backward linkage to the targeted industry.

Export promotion

Governmental efforts to expand the volume of a country's exports through increasing export incentives, decreasing disincentives, and other means in order to generate more foreign exchange and improve the current account of its balance of payments or achieve other objectives

export promotion

Governmental efforts to expands the volume of a country's exports through increasing export incentives, decreasing disincentives and other means in order to generate more foreign exchange and improve the current account of its balance of payments or achieve other objectives

Size of Transfers dependent upon: Progresa

Grade level and Gender

Solow neoclassical growth model

Growth model in which there are diminishing returns to each factor of production but constant returns to scale. Exogenous technological change generates long-term economic growth

The Harrod-Domar Growth Model: Growth Rate of GDP Modifier

Growth rate of GDP*** = ΔY/Y = s/c (Net savings ratio) /Capital output ratio We can increase it in two ways: 1) Increase savings ratio 2) decrease capital output ratio by ex. technology innovation to reduce units required

Capabilities Approach (Amartya Sen): Functionings vs having goods

Having a good doesn't mean you have the functioning. Ex. having bread doesn't mean you're well nourished

Absolute Poverty

Headcount of people (H) are barely able to meet their basic needs/command sufficient resources to meet basic needs as incomes are below poverty line Yp -Total Poverty gap (TPG) measures the total income necessary to raise those below the poverty line, up to the poverty line

The Harrod-Domar Growth Model: Capital constraint

If a country had c=3 and an s of 3% so their current growth rate is 1% but they wanted to get growth rate of 3% they can fill the net savings rate difference of 8% from foreign aid or private investment Savings and investment is a necessary condition but not sufficient condition

Free-rider problem

If one country makes an effort to improve something, another can get the benefits without taking the action themselves

Why might improvements in children's public health care services lower fertility?

If parents have a target number of children, lowering the expected mortality rate would lower planned fertility.

How can an increase in human capital lead to an increase in GDP? Why might it not lead to an increase in GDP?

In general, an increase in human capital leads to increased productivity, which leads to increased income, which leads to increased GDP. An increase in human capital may not lead to an increase in GDP if institutions are poor, so the increase in human capital is only concentrated at the top earners of the economy. Increased human capital may not lead to increased GDP if the increase is concentrated in agriculture, so the growth will be very small.

Dominance

In international affairs, a situation in which the developed countries have much greater power than the less developed countries in decisions affecting important international economic issues, such as the prices of agricultural commodities and raw materials in world markets

Quota

In international trade, a physical limitation on the quantity of any item that an be imported into a country

Quota

In international trade, a physical limitation on the quantity of any item that can be imported into a country

Product cycle

In international trade, the progressive replacement of more developed countries by less developed countries in the production of manufactures of increasing complexity

Rent

In macroeconomics, the share of national income going to the owners of the productive resource, land (i.e. landlords). In everyday usage, the price paid for the use of property (e.g., buildings, housing). In microeconomics, is the payment of a factor of production over and above its highest opportunity cost. In public choice theory, refers to those excess payments that are gained as a result of government laws, policies, or regulations.

Rent

In macroeconomics, the share of national income going to the owners of the productive resource, land (i.e., landlords). In everyday usage, the price paid for the use of property (e.g., buildings, housing). In microeconomics, economic rent is the payment to a factor of production over and above its highest opportunity cost. In public choice theory, rent refers to those excess payments that are gained as a result of government laws, policies, or regulations

Discount rate

In present-value calculations, the annual rate at which future values are decreased to make them comparable to values in the present

Low-income countries (LICs)

In the World Bank classification, countries with a GNI per capita of less than $1,025 in 2011

Suppose the rural wage is $1 per day. Urban modern sector employment can be obtained with 5 probability and pays $2 per day. Will there be any rural-urban migration? Explain your reasoning, stating explicitly any simplifying assumptions, and show all work.

In this case the expected urban wage is $0.50 more than the rural wage. Yes. Wa= (Lm/Lus)Wm Rural to urban migration will take place if Wa < (Lm/Lus)Wm Conversely, urban to rural migration will occur if Wa > (Lm/Lus)Wm Wa- wage rate in the agricultural sector Lm- Total # of jobs in manufacturing Lus- Total # of jobs in the population Wm- Urban minimum wage

Standard of Living Index (NHDI)

LN(actual PPP per capita) − LN (observed minimum))/(LN (maximum value)−LN (minimum)

What is the only factor of production in the Big Push

Labor

Explain some of the reasons why developing countries have not realized a greater positive development impact from their higher education programs.

Lack of program focus on the needs of the country and lack of mechanisms to ensure college graduates have the incentives to apply their abilities to pressing development needs.

Value-added tax (VAT)

Levy on value added at each stage of the production process

Human Development Index Based on

Life Expectancy, Expected Years of Education, Years of Schooling, and Income

Convergence of living standards around the world?

Little to no evidence, even with tech transfer, divergence in China, sectoral convergence in manufacturing

Informal finance

Loans and other financial services not passed through the formal banking system—for example, loans between family members

2) The Harris-Todaro Migration Model

Looks at unemployment equilibrium • An equilibrium version of the Todaro model • The model assumes 2 sectors: agriculture (rural) and manufacturing (urban) • A worker can only work in one sector at a time • Workers in the agricultural sector earn agriculture (rural) wages • Workers in the manufacturing sector earn manufacturing (urban) wages

NHDI Ranking

Low human development (0.0 to 0.535) Medium human development (0.536 to 0.711) High human development (0.712 to 0.799) Very high human development (0.80 to 1.0)

Developing Countries/Less Developed Countries

Low levels of living, and other development deficits. Countries in Asia, Africa, Middle East, Latin America, Eastern Europe, and former Soviet Union

World Bank Scheme Ranking System

Lower income, lower middle income, upper middle income, and high income societies

Deforestation

Negative effect of development, leads to massive losses for biodiversity and absorptive capacity

Role of Women

Make a large impact of development

Educational gender gap

Male-female differences in school access and completion

Social Indicators : Brazil

Malnutrition and Child Labor

Lorenz Criterion

Method to compare the equality of various countries - if a country's curve is above another one then it is more equal, unless if it crosses another line then it requires more info

Small loans to entrepreneurs and small business owners in DVCs are referred to as:

Microcredit

MDG

Millennial Development goals (8) to eliminate world poverty

Microeconomic Theory of Fertility: Increase in net price of children

Moves household to lower indifference curve, and the number of children will decrease

Sustainable net national income (NNI*)

NNI** = GNI - Dm - Dn - R - A => Dm = depreciation of manufactured capital, Dn = environmental capital depreciation, R = expenditure to restore environment, A = expenditure required to avert destruction of environmental capital

Self Discovery

Nation must discover what the most advantageous thing to specialize is

The Harrod-Domar Growth Model: Necessary vs Sufficient conditions

Necessary condition: condition that must be present, although it need not be in itself sufficient, for an event to occur. Sufficient condition: condition that when present is sufficient for an event to occur.

The Harrod-Domar Growth Model: Other formulas

Net saving 𝑆 = 𝑠𝑌 (AKA net savings is a percent of GDP/income ) Net investment 𝐼 = Δ𝐾 (Investment is the net change in depreciation, and new capital) Capital output ratio: ΔK/ΔY = C (The ratio between the net change capital stock divided by the net change in GPD) Savings=investment S=I (all savings is invested) ΔK=C*ΔY= As k is our limiting factor CΔY=ΔK=I=S=sY: The capital output ratio * net change in GDP = net change in capital stock = Investments = Net Savings = Savings Ratio * GDP Output Growth rate of GDP*** = ΔY/Y = s/c (Net savings ratio) /Capital output ratio Ex. s=6% Y=3B c=3 =6%/3=GPD growth rate of 2%

Inequality and Growth

No access to credit, makes it difficult to grow

Is the gap between developing and developing countries standards of living converging?

No, it seems that convergence, is not occuring. But technology, factor accumulation, and relative convergence are converging. Ex. Average real per capita growth % vs real income per capita in 1950 has shown a negative correlation between high growth rate and real income

Nongovernmental organizations (NGOs)

Nonprofit organizations often involved in providing financial and technical assistance in developing countries

Institutions

Norms, rules of conduct, and generally accepted ways of doing things.

Microeconomic Theory of Fertility: Increase in the price of other goods

Number of children will increase and goods consumed by parents will decrease

Measuring absolute poverty

Number of people whose income falls below the figure

Why should the development of a solid elementary education system take precedence over an expansion of the university system in developing countries?

One reasonable answer would apply the law of diminishing returns. Another would stress that university trained graduates have limited benefit without complementary inputs of moderately trained personnel. Also the higher rate of return (both private and social) from investing in primary education.

Behavioral Norms

Only when it is a norm to be honest will it be easy to maintain honesty, its easier for people to trust family

Biomass fuels

Organic matter used as fuel, including wood and animal dung. Produces more CO2 emissions than coal and can have very negative health impacts. Used a lot by poorer people in development countries. Classified as a renewable resource by the UN

Social System

Organizational and institutional structure of society, including values, attitudes, power structure, and traditions

Developing Countries' Diversity in problems (11): Social divisions (fractionalization)

Over half of the developing countries have faced some religious or ethnic conflict

Factor Endowment theory and trade 3

PA/PM is the relative price ratio less developed world's relative price and cost advantage in agricultural goods here. rest of the world's relative price and cost advantage in manufactured goods.

Lorenz Curve Distributions Scenarios

Perfect Equality: Line has a slope of one and goes from bottom left to top left Ex. 80% of population is receiving 80% of income Perfect Inequality: line has a shape of mirrored L shape (Shape of | )

Doubling time

Period that a given population or other quantity takes to increase by its present size

Pollution Externalities: Private optimal

Pm and Qm are the free market equilibrium

Redistribution policies

Policies geared to reducing income inequality and expanding economic opportunities in order to promote development

Outward-looking development policies

Policies that encourage exports, often through the free movement of capital, workers, enterprises, and students; a welcome to multinational corporations; and open communications

Inward-looking development policies

Policies that stress economic self-reliance on the part of developing countries including domestic development of technology, the imposition of barriers to imports, and the discouragement of private foreign investment

Inward-looking development policies

Policies that stress economic self-reliance on the part of developing countries, including domestic development of technology, the imposition of barriers to imports, and the discouragement of private foreign investment

Land Reform: Brazil

Political Difficulty, farmers settle in the fragile rainforrest

Malthusian Population Trap Model Examples: Positive growth in population and improved per capita income

Population growth rate is is increasing as per capita income levels increase as well. That being said so for some higher income per capital level as a maximum population growth would be reached, the population growth rate would be reduced

Linkages

Positive Linkage - Lowers the cost of an industry output Negative Linkage - raise the demand for an activity

Market prices

Prices established by demand and supply in markets

Shadow prices (or accounting prices)

Prices that reflect the true opportunity costs of resources

Official exchange rate

Rate at which the central bank will buy and sell the domestic currency in terms of a foreign currency such as the U.S. dollar

official exchange rate

Rate at which the central bank will buy and sell the domestic currency in terms of a foreign currency such as the U.S. dollar

Exchange rate

Rate at which the domestic currency may be converted into (sold for) a foreign currency such as the U.S. dollar

Free-market exchange rate

Rate determined solely by international supply and demand for domestic currency expressed in terms of, say, U.S. dollars

What are accounting, or "shadow" prices for project appraisal? In what way do they differ from market prices, and why do we need them? Additional question or part of question: How can reference to world prices help countries gauge the real opportunity costs of development projects? (The additional question would depend on supplemental coverage of the ideas of the Little-Mirrlees method project evaluation method.)

Prices that reflect the true opportunity costs of resources. (market prices don't truly reflect them) The greater divergence between market and shadow prices, the greater the need for social cost-benefit analysis for public investment decisions. - World prices as a reference show that the social cost of using a resource in developing countries differs widely from the price paid for it, according to LM. " a conversion factor based on the ratio of domestic costs of representative items to world prices of these items could be used for approximation of shadow prices of non-traded resources." *LM Assumes that a country can buy and sell any quantity of a particular good at a given world price. Hence, all traded outputs and inputs are valued at their international prices, which is the opportunity cost/value of the particular good to the country.*

Values

Principles, stands, or qualities that a society or groups within it consider worthwhile.

In what ways may social evaluations of costs and benefits differ from those implied by market prices? Explain carefully.

Private investors are interested in maximizing private profits and therefore normally *take into account only the variables that affect net profit: receipts and expenditures.*

Comparative advantage

Production of a commodity at a lower opportunity cost than any of the alternative commodities that could be produced

Absolute advantage

Production of a commodity with the same amount of real resources as another producer but at a lower absolute unit cost

Factor Endowment theory and trade 2

Productions possibilities frontier

Human capital

Productive investments in people, such as skills, values, and health resulting from expenditures on education, OJT training programs, and medical care

Primary products

Products derived from all extractive occupations farming, lumbering, fishing, mining, and quarrying, foodstuffs, and raw materials

Primary products

Products derived from all extractive occupations--farming, lumbering, fishing, mining, and quarrying, foodstuffs, and raw materials.

State-owned enterprises (SOEs)

Public corporations and parastatal agencies (e.g., agricultural marketing boards) owned and operated by the government

Family-planning programs

Public programs designed to help parents plan and regulate their family size

Market Friendly Approach

Recognizes developing countries' market are imperfects and role of government intervention is important in say healthcare, physical infrastructure,

Explain why policies designed to reduce urban unemployment may not greatly reduce poverty in developing countries.

Reducing urban unemployment creates and urban bias, which leads to excess urban population and overcrowding. Poverty tends to be its worst in rural areas of developing countries, so reducing unemployment in urban areas will only intensify this.

Growth poles

Regions that are more economically and socially advanced than others around them, such as urban centers versus rural areas or highway corridors in developing countries

Relative vs Absolute Convergence

Relative is percent, and Absolute is about actual figures

Trade liberalization

Removal of obstacles to free trade, such as quotas, nominal and effective rates of protection, and exchange controls

Factors of production

Resources or inputs required to produce a good or a service, such as land, labor, and capital.

Factors of production

Resources or inputs required to produce a good or a service, such as land, labor, and capital

Malthusian Population Trap Model Example Stable Equilibrium (S)

Right side of S: income per capita goes down Left side of S: income per capita goes up At S: there is a low income per capita and low population growth The population trap, everything falls towards S

Development banks

Specialized public and private financial intermediaries that provide medium- and long-term credit for development projects

Multiple Equilibrium Diagram -

Stable when curve is above line but unstable when curve is below the line

Sustainability and Development : Brazil

State intervention, eco-tourism, deforestation of the Amazon, outside countries must be willing to help

Net savings ratio

Savings expressed as a proportion of disposable income over some period of time

Research and development (R&D)

Scientific investigation with a view toward improving existing quality of human life

Complementaries

Several things must work well enough and at the same time, to get sustainable development under way. • When complementarities are present, one firm's action increases the incentives for other agents to take similar actions. Ex. when one firms invest, its more likely to have success and more firms invest • We will look at two models: Big Push model and O-ring model

Trade creation

Shift, upon formation of a customs union, in the location of production from higher-cost to lower cost member states

Trade diversion

Shift, upon formation of a customs union, of the location of production of formerly imported goods from a lower-cost nonmember state to a higher-cost member nation

Short term and long term goals : Progresa

Short term - reduce poverty by increasing social spending Long Term - investment in human capital (children's education)

Fractionalization

Significant ethnic, linguistic and other social divisions within a country

The Harris-Todaro Migration Model Scenario: fixed wages of manufacturing and Wm > Wa

Since wages of manufacturing has a fixed wage the equilibrium changes now, and the wage is now higher in manufacturing, but there are less jobs. Lm= number of jobs in manufacturing In agriculture there are more jobs but less pay

Factor price distortions

Situations in which factors of production are paid prices that do not reflect their true scarcity values because of institutional arrangements that tamper with the free working of market forces of supply and demand

Enclave Economies

Small economically developed regions in developing countries in which the remaining areas have experienced much less progress

Enclave economies

Small, economically developed regions in developing countries in which the remaining areas have experienced much less progress

The Demographic transition

So the demographic transition refers to the process by which a population growth passes from: Stage 1) a stagnant population growth stage with high birthrates and high death rates - before economic modernization Stage 2) Rapid growth population stage: high birthrates and low death rates - economic modernization Stage 3) Stabilization population stage: low birth rates and low death rates

Social benefits and costs of education

Social benefits of education: benefits of individual's education to the entire society, including benefits to the individual and to others Social costs of education: costs of individual's education to the entire society , including costs to the individual, and to others The optimal social strategy is to hit B years of schooling

Pollution Externalities: Social Optimal

Social optimal is at Q* but what we actually get due to private costs, is a different Qm which is a surplus and doesn't account for the social cost of an item

What factors cause private and social rates of return for primary and secondary education to diverge in developing countries?

Subsidies. Credential inflation as a way to select from among qualified applicants in the high wage modern sector.

Core Values of Development Economics

Subsistence, Self Esteem, Freedom from Servitude

In developing countries higher educational facilities have tended to expand to the point where social benefits exceed private benefits. What is the economic explanation for this?

Supply and demand are not equated by a price adjusting market mechanism, but rather institutionally, through the state. Those with political influence seek to create subsidized education for their children.

Provide a short definition of sustainable development.

Sustainable development is defined as development that does not affect future consumption. Also (from class MC answers): meeting the present generation's needs without compromising the needs of future generations.

Pollution tax

Tax designed to help limit emissions, can be part of a cap-and-trade program

Direct taxes

Taxes levied directly on individuals or businesses for example, income taxes

Absolute Advantage

The ability to produce more of a good or service than others, with a given amount of resources

Literacy

The ability to read and write

Incomplete information

The absence of information that producers and consumers need to make efficient decisions resulting in under-performing markets

Property rights

The acknowledged right to use and benefit from a tangible or intangible entity that may include owning, using, selling, and disposing

Coordination Failure

The agents inability to coordinate actions - leads to an action that makes all agents worse off

Economic infrastructure

The amount of physical and financial capital in transportation, communications, facilities and public services such as health and education.

Corruption

The appropriation of public resources for private profit and other private purposes through the use and abuse of official power or influence

Consumer surplus

The area below supply but above the price, representing the gains consumers get for paying a lower price than their willingness-to-pay

Gini Coefficients

The area between the diagonal/perfect equality and the Lorenz curve divided by the total area of triangle in which the curve lies. Measures the inequality among values of a frequency distribution -Space between lorenz curve and equality line/total area below equality line -An aggregate measure of inequality between 0 (perfect equality) and 1 (perfect inequality). -Basically measures the percent that the inequality area is taking up relative to the entire area under the line of perfect equality

Prebisch-Singer hypothesis

The argument that the commodity terms of trade for primary-product exports of developing countries tends to decline over time

Basic education

The attainment of literacy, arithmetic competence, and elementary vocational skills

Political Economy

The attempt to merge economic analysis with practical politics---to view economic activity in its political context.

Absorptive capacity

The environments ability to absorb emissions, pollutants, and just general human-caused destruction

Economic infrastructure

The capital embodied in roads, railways, waterways, airways, and other forms of transportation and communication plus public services

Dualism

The coexistence of two situations or phenomena (one desirable and the other not) that are mutually exclusive to different groups of society—for example, extreme poverty and affluence, modern and traditional economic sectors, growth and stagnation, and higher education among a few amid large-scale illiteracy

Reproductive choice

The concept that women should be able to determine on an equal status with their husbands and for themselves how many children they want and what methods to use to achieve their desired family size

Vent-for-surplus theory of international trade

The contention that opening world markets to developing countries through international trade allows those countries to make better use of formerly underutilized land and labor resources so as to produce larger primary-product outputs, the surpluses of which can be exported

Private costs

The costs that accrue to an individual economic unit

Depreciation (of currency)

The decline over time in the value or price of one currency in terms of another as a result of market forces of supply and demand

Effective rate of protection

The degree of protection on value added as opposed to the final price of an imported product—usually higher than the nominal rate of protection

Microeconomic theory of Fertility Implications on family size

The demand for children in developing countries: 1) Choice of 2-3 children not very responsive to relative price changes 2) The theory applies to additional (marginal) children above the first 2-3 children Implications of model (to reduce family size): - Increase education (role, status) of women: increases net price of children, less kids - Increase women's non-agricultural wage employment opportunities: increases net price of children, less kids - Increase family income levels (employment and/or redistribution of income): less kids - Reduce infant mortality rates: less need to have extra children - Develop outside-of-the-family old age security systems for parents: reduces value of kids, less kids desired - Expand schooling opportunities: parents focus on less kids, but higher value children

Internal rate of return

The discount rate that causes a project to have a net present value of zero, used to rank projects in comparison with market rates of interest

Personal distribution of income (size distribution of income)

The distribution of income according to size class of persons—for example, the share of total income accruing to the poorest specific percentage or the richest specific percentage of a population— without regard to the sources of that income

Functional distribution of income (factor share distribution of income)

The distribution of income to factors of production without regard to the ownership of the factors

Character of economic growth

The distributive implications of economic growth as reflected in such factors as participation in the growth process and asset ownership

Brain Drain

The emigration of highly educated and skilled professionals and technicians from developing countries to the developed world

Attitudes

The states of mind or feelings of an individual, group, or society regarding issues such as material gain, hard work, saving for the future, and sharing wealth.

Development Economics

The study of how economies are transformed from stagnation to growth and from low-income to high-income status, and overcome problems of absolute poverty.

Total poverty gap (TPG)

The sum of the difference between the poverty line and actual income levels of all people living below that line

Foreign-exchange earnings

The sum total of all foreign currency receipts less expenditures during a given fiscal year

Money supply

The sum total of currency in circulation plus commercial bank demand deposits and sometimes savings bank time deposits

Free markets

The system whereby prices of commodities or services freely rise or fall when the buyer's demand for them rises or falls or the seller's supply of them decreases or increases

Convergence

The tendency for per capita income to grow faster in lower-income countries than in higher-income countries so that the lower-income countries are "catching up" over time

Microeconomic theory of fertility

The theory that family formation has costs and benefits that determine the size of families formed

Public-choice theory (new political economy approach)

The theory that self-interest guides all individual behavior and that governments are inefficient and corrupt because people use government to pursue their own agendas

Malthusian population trap

The threshold population level anticipated by Thomas Malthus (1766-1834) at which population increase was bound to stop because life-sustaining resources, which increase at an arithmetic rate, would be insufficient to support human population, which would increase at a geometric rate

Capital Stock

The total amount of physical goods existing at a particular time that have been produced for use in the production of other goods and services

Gross National Income (GNI)

The total domestic and foreign output claimed by residents of a country consisting of: (GDP + incomes earned by foreign residents) - Income earned in the domestic economy by non-residents

Gross Domestic Product (GDP)

The total final output of goods and services produced by the country's economy, within the country's territory, by residents and nonresidents.

The Todaro Migration Model: With numbers

Urban sector pay is $100, probability of finding job is 20%= the expected outcome is $20 In rural sector the pay is $50 but the probability of finding a job is 100%, expected outcome is $50 In this case people don't migrate

Acquired immunodeficiency syndrome (AIDS)

Viral disease transmitted predominantly through sexual contact

Graph Big Push W1 W2 W3

W1: low modern wage, 1 will enter W2: would not enter the economy, only profitable if everyone enters W3: Nobody enters

Assumptions of the Big Push(Traditional versus Modern) 1)wage... 2)technology ___ returns to scale 3)market structure _____ competition versus ________

W=1 in traditional and W>1 in modern Technology constant returns to scale in traditional, and increasing returns to scale in modern perfect competition in tranditional versus monopolist for each product in modern

Harris Todaro Model: Numerical figure

Wage =1.5, probability is 100% expected outcome =1.5 Wage m=3, probability is 2/3 expected outcome= 2

Social Inclusion (Different Races): Brazil

Wage inequality, mistreatment of the indigenous

Capabilities Approach (Amartya Sen)

Well being is more than just the income or commodity. We need to measure the advantages of the income and commodities not just the income and commodities Amartya mentions the concepts of functionings and capabilities Ex. If we have tons of oil, but we can't extract it, nor have anyone else extract it, et. And can't do anything with it, the commodity's advantages is limited

Capabilities Approach (Amartya Sen): Functionings

What a person does or can do with the commodities that they possess or control. Functionings are anything that is a being or doing Ex. being health, being well nourished, having self esteem, traveling, voting

Functionings

What people do or can do with the commodities of given characteristics they come to possess or control.

Conditional Convergence

When countries are hypothesized to converge in some areas (particularly savings rates, labor force growth, and production technologies),

Soil erosion

When you degrade the soil

Export earnings instability

Wide fluctuations in developing-country earnings on commodity exports resulting from low price and income elasticities of demand leading to erratic movements in export prices

Variations in HDI between regions and countries?

Yes

Nontariff trade barrier

a barrier to free trade that takes a form other than a tariff, such as quota or (possibly arbitrary) sanitary requirements.

Climate change

a change in global or regional climate patterns, in particular a change apparent from the mid to late 20th century onwards and attributed largely to the increased levels of atmospheric carbon dioxide produced by the use of fossil fuels Impacts: prolonged droughts, expanded desertification increased severity of storms with heavy flooding and erosion longer and more severe heat waves reduced summer river flow and water shortages decreased grain yields climate-induced spreading ranges of pests and disease lost and contaminated groundwater deteriorated freshwater lakes, coastal fisheries, mangroves, coral reefs coastal flooding loss of essential species such as pollinators and soil organisms, forest and crop fires

Syria's diplomatic approach in ending the war in order to focus on restructuring its domestic policy/economy depends on: a) negotiating a middle ground solution with key economic allies such as Russia, Iran, and China in order to reach a compromise that is also acceptable to Western nations b.) significantly increasing military spending, and acquire more assets and territory in order to help Syria's economic prospects c.) Isolating itself from the global economy, including from its allies, in order to let its economy grow/develop within in a vacuum d.) Embargo any potential ally

a) negotiating a middle ground solution with key economic allies such as Russia, Iran, and China in order to reach a compromise that is also acceptable to Western nations

Which of the following would most likely reduce the birthrate? a) public health improvements b) an increase in child mortality c) a decline in the availability of secondary education d) a reduction in the opportunity cost of a woman's time e) all of the above

a) public health improvements

21. The combined GDP of developing countries constitutes approximately a. 5 percent of global GDP. b. 20 percent of global GDP. c. 30 percent of global GDP. d. 40 percent of global GDP.

a. 5 percent of global GDP.

Why do mothers in Nigeria have more children (5 children on average), compared to mothers in the United States (2 children on average)? a. In Nigeria, the marginal benefit of having a child exceeds the marginal cost. b. In Nigeria, the marginal cost of having a child, exceeds the marginal benefit. c. In Nigeria, having more than two children is considered part of the culture. d. In Nigeria, there are many employment opportunities, and not enough people in the labor force. As a result, Nigeria needs more babies to enter the workforce, as they become adults.

a. In Nigeria, the marginal benefit of having a child exceeds the marginal cost.

Why is Nigeria's oil industry problematic? a. Only the top 1% benefit from Nigeria's oil and gas industry. b. Nigeria's oil and gas reserves are barren. c. The Boko Haram controls Nigeria's oil and gas industry. d. The oil and gas industry suffers from little foreign direct investment.

a. Only the top 1% benefit from Nigeria's oil and gas industry.

Externality

an unintended effect of something

Which of the following is most in need of enhancement for Honduras to thrive in the next decade? a) Industrial policy b) Human capital c) Wealth creation d) Infrastructure

b) Human capital

what are the foreign aid ties?

by source - loans or grants have to be sent on the purchase of donor-country goods and services by project - loans or grants have to be spent on specific projects

In 2016, _______ of Hondurans lived in poverty. a) 20% b) 40% c) 60% d) 80%

c) 60%

Syria's significantly young population means the government a) must invest in social welfare for the elderly b) has significantly high economic dependency within its constituency c) must implement policies that encourage the young to work and contribute to the economy in a meaningful way, such as publicized education and healthcare benefits. d) pursue a high interest-rate monetary policy

c) must implement policies that encourage the young to work and contribute to the economy in a meaningful way, such as publicized education and healthcare benefits.

19. 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.

c. 1.4 billion.

2. A newly industrialized country is a. the same as a high income country. b. any country that has experienced sustained growth in industry. c. a special classification given to some upper-middle income countries that have achieved relatively advanced manufacturing sectors. d. any country that has moved out of lower income status.

c. a special classification given to some upper-middle income countries that have achieved relatively advanced manufacturing sectors.

20. 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. infant mortality rate.

11. About how many people lack access to basic sanitation? a. 20 million b. 200 million c. 500 million d. 1 billion e. 2 billion

e. 2 billion

Lewis Two Sector: all the extra output accrues to the ______ in the form of _______

capitalist, profits

Large agricultural subsidies for food and fiber in IACs hurt the economies of the DVCs by:

causing higher prices for imported food products.

Specialization

concentration of resources in the production of relatively few commodities

PPP method takes into account the difference in the ____ _____ ____ in different countries

cost of living

Honduras gets about ____% of its imports from the U.S. a) 25% b) 30% c) 35% d) 40%

d) 40%

The development plan presented for Honduras described 3 goals, which are: a) Basic needs, Human capital, wealth creation b) Infrastructure, Human capital, self-actualization c) Basic needs, empower women, self-actualization d) Infrastructure, Human capital, wealth creation

d) Infrastructure, Human capital, wealth creation

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- all of the above.

12. About how many people lack access to safe water? a. 20 million b. 200 million c. 500 million d. 1 billion e. 2 billion

d. 1 billion

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

d. Bangladesh

8. Which of the following African countries has experienced widespread death and destruction due to ethnic or clan based conflict in the previous decade? a. Rwanda b. Sudan c. Somalia d. all of the above

d. all of the above

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. all of the above are important objectives of development

17. 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. all of the above are not used by the World Bank.

d. all of the above are not used by the World Bank.

16. 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. all of the above.

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. all of the above.

Which of the following demonstrates international interdependence? a. the oil shocks b. the debt crisis c. global warming d. all of the above.

d. all of the above.

18. The dependency burden is a. a measure of the degree to which the less developed countries are dependent on the rich industrial countries. b. the average number of children that a woman gives birth to during her lifetime. c. the number of babies born per 1000 persons. d. the percent of the population that is below 15 and above 65 years of age.

d. the percent of the population that is below 15 and above 65 years of age.

If the real GDP of a DVC increases from $600 billion to $630 billion and its population increases from 200 million to 216 million, its real per capita GDP will have_____ by $___:

decreased by about $83.

fiscal gap

deficiencies of government investments including infrastructure and human capital that are complementary to-raise the rate of return from-private investment

Per capita incomes must first grow for birth rates to decline. This statement describes the:

demographic transition view of population growth.

Inequality

disproportionate distribution of total national income among households.

Pareto efficiency

economy has its resources and goods allocated to the maximum level of efficiency, and no change can be made without making someone worse off

2. Growth in population and hence eventual growth in the labor force

economy's ability to absorb and efficiently employ new workers.

The government of a DVC may force the economy to save by deliberately causing inflation. This policy is undesirable because inflation may:

entail all of these problems.

In the DVCs, underemployment frequently takes the form of:

farmers whose productivity is very low.

Debt-for-nature swap

financial transactions in which a portion of a developing nation's foreign debt is forgiven in exchange for local investments in environmental conservation measures.

At the present time, the largest percentage of the national incomes of the low-income DVCs is used for:

food.

tied aid

foreign aid in the form of bilateral laons or grants that require the recipient country to use the funds to purchase goods or services from the donor country

technical assistance

foreign aid that takes the form of the transfer of expert personnel, technicians, scientists, educators, and economic advisers, and particularly their use in training local personnel, rather than a simple transfer of funds

The "brain drain" problem in the DVCs refers to the fact that the best-educated workers:

have emigrated from the DVCs to the IACs.

Suppose that surplus labor in a Pakistani village is used to build a medical clinic and dig several wells. This is an illustration of:

in-kind investment.

Environmental accounting

incorporation of environmental benefits/costs into the quantitative analysis of economic activities

Assume a DVC has a real per capita output of $1,000 as compared to $20,000 for an IAC. If both nations realize a 4 percent growth of their real per capita outputs, after one year the absolute real per capita output gap will:

increase by $760.

If the real output of a DVC increases from $200 billion to $260 billion and its population increases from 100 to 120 million, its real per capita output will have ____ by $____.

increased by about $167.

Capital Accumulation

increasing a country's stock of real capital (net investments in fixed assets (long term assets including intangibles)). To increase the production of capital good necessitates a reduction in the production of consumer goods

Neoclassical - on localism

local solutions are necessary in developing countries

Poverty trap

low income, leads to low investment in education, health, plants/equipment, and infrastructure which leads to low productivity and economic stagnation

The very poorest low-income DVCs typically have relatively:

low rates of economic growth and relatively high rates of population growth.

What do locals need to do?

make own adaptations and use technology

official development assistance

net disbursements of loans or grants made on concessional terms by offical agencies, historically by high-income member countries of the OECD

corporate social responsibility

nongovernment self-regulation by corporations to attempt to esnure compliance with acceptable international norms of ethical practice like avoidance of cruel, coercive or deceptive labor practices

nongovernmental organizations

nonprofit groups that are often involved in providing financial and technical assistance to developing countries

Foreign Direct Investment

overseas equity investments by private multinational cooperations

Outward-looking development policies

policies that encourage exports, often through the free movement of capital, workers, enterprises, and students; a welcome to multinational corporations; and open communications

Why donors give

political and economic motiviation, growth and savings, technical assistance, absorptive capacity, tied aid

Environmental Kuznets curve

pollution and environmental degradation first increases then falls with higher income There is also an inequality one of these, but this one here has a bit more empirical evidence behind it

Scarcity rent

premium or additional rent charged for the use of a resource or good that is in fixed or limited supply Private markets will allocate resources most efficiently - but need perfect property rights 1) universality 2) exclusivity 3) transferability 4) enforceability

Which attitude or custom is the most conducive to long-term economic growth?

the belief that there is a direct connections between individual efforts (including educational efforts) and economic rewards.

Development (LEF)

process of improving quality of all human lives and capabilities by raising the levels of living, self esteem, and freedom.

Internalization

process whereby external environmental or other costs are borne by the producers or consumers who generate them, usually through pollution/consumption taxes Hard to know which prices to change, also very hard to charge fees

global factories

production facilities whose various operations are distributed across a number of countries to take advantage of existing price differentials

Subsistence economy

production is mainly for personal consumption and the standard of living yields little more than basic necessities of life

Comparative advantage

production of a commodity at a lower opportunity cost than any of the alternative commodities that could be produced

Absolute advantage

production of a commodity with the same amount of real resources as another producer but at a lower absolute unit cost

free-market exchange rate

rate determined solely by international supply and demand for domestic currency expressed in terms of, say, U.S., dollars

Capital flight is a problem to DVCs because it:

reduces the volume of DVC investment.

growth poles

regions that are more economically and socially advanced than others around them, such as urban centers versus rural areas in developing countries

Newly Industrialized countries (NICS)

relatively advanced level of economic development with a substantial and dynamic industrial sector and with close links to the international trade, finance, and investment system

trade liberalization

removal of obstacles to free trade, such as quota, nominal and effective rates of protection, and exchange controls

Sustainable development

requires that overall capital assets (physical, human, environmental) not be decreasing

Property rights

right to use and benefit from a tangible (e.g., land) or intangible (e.g., intellectual) entity that may include owning, using, deriving income from, selling, and disposing.

Poverty trap

self-reinforcing mechanisms that cause the poor to stay poor. Ex. if I have no access to credit, I can't take a loan out to send my kid to post secondary

Malthusian Population Trap If No Control measures

starvation, war, illness would limit population

Diminishing marginal utility

subjective value of additional consumption lessens as total consumption becomes higher

As capital output ratio goes down in Harrod Domar Model...

technology is increasing

Concessional Terms

terms for the extension of credit that are more favorable to the borrower than those available through standard financial markets

absorptive capacity

the ability of a country to absorb foreign private or public financial assistance

Prebisch-Singer Hypothesis

the argument that the commodity terms of trade for primary-product exports of developing countries tends to decline over time

Effective rate of protection

the degree of protection on value added as opposed to the final price of an imported product--usually higher than the nominal rate of protection

savings gap

the excess of domestic investment opportunities over domestic savings causing investments to be limited by the available foreign exchange

Foreign Aid

the international transfer of public funds in the form of loans or grants either directly from one govt to antoher or indirectly through the vehicle of a multilateral assistance agency such as the World Bank

Countries tend to be classified as more or less developed based on

the level of income per capita.

Implication of the Harrod Domar Model

the more that you save and invest, the faster that you grow

factor endowment trade theory

the neoclassical model of trade, which postulates that countries will tend, to specialize in the production of the commodities that make use of their abundant factors of productions (land, labor, capital, etc.,)

Explain what developed countries can do to respond constructively to the environmental damage being done in developing countries.

three areas: (1) trade liberalization, (2) debt relief, and (3) financial and technological assistance. - Wider access to international markets would not only raise incomes but also improve the ability of heavily indebted countries to service their debt. They would thereby reduce their dependence on the unsustainable exploitation of rain forests and other resources to raise foreign exchange. - Debt-for-nature swaps offer an attractive and mutually beneficial way for the developing world to retire its foreign-denominated debt while guaranteeing the protection of tropical rain forests. - Substantial new development assistance is necessary. These investments would be used for a variety of programs to alleviate poverty, provide services, and promote sustainable patterns of production.

Gross National Income (GNI)

total domestic and foreign output claimed by residents of a country GNI= GDP + incomes earned by residents outside of the country - domestic economy by non-residents

Gross Domestic Product (GDP)

total final output of goods and services produced by the countries economy within the country's boarders by residents and non residents

Desertification

transformation of a region into dry, barren land w/ little or no capacity to sustain life without an artificial sources of water In a lot of rural places, poorer people have to use resources in a way to survive but with a negative long-term impact - soil erosion and deforestation

Development economics must have a scope wider than traditional economics because

transformation of social institutions is necessary for development.

Lewis Two Sector : even though total output grows substantially, ______ and ______ remain constant

wages, employment

When is the Big Push Necessary? Wages Manufactured goods Demand in _____ periods Lowering _____ _____ costs

when wages are higher in the modern sector Shifting demand toward manufactured goods Demand in later periods Lowering initial fixed costs

Traditional Neoclassical Growth theory

with diminishing returns, cannot sustain growth by capital accumulation alone

positive assortative matching

workers with high skills will work together and workers with low skills will work together.

As Technology increases in the Harrod Domar Model......

you need less capital to achieve the same amount of output

Lorenz Curve

• Horizontal axis: cumulative percent/share of people from lowest to highest income • Vertical axis: share of total income received - Line of Equality is where perfect equality exists - Gini Coefficients, and Lorenz Criterion

Investment in Education and Health

• Human capital refers to human capacities that can raise productivity ex. health, education, etc • Health and education enhance well-being • Health and education are complementary • Human capital investment can lead to higher future incomes • Human capital investment: future income gains are compared to the cost of investment • Gains: higher income from education , Costs: direct costs (tuition, etc.) and indirect costs (foregone earnings)

1) Todaro Model:

• Migration is an economic phenomenon • Migration is a rational individual decision despite urban unemployment • Migration depends on expected, rather than actual differences in urban and rural incomes • Migrants consider the labour market opportunities available (rural, urban) and choose the option that maximizes expected gains • A potential migrant migrates if the expected income in the urban sector (for a given time horizon) exceeds the rural income

Policy Options to prevent pollution (Developing Countries)

• Proper resource pricing: removing environmentally damaging subsidies • Community involvement: • Property rights and resource ownership: land reform and legalisation of land tenure can encourage investments in environmental upgrading. • Improve economic alternatives of the poor: opportunity for rural pop. and less environmentally damaging investment in rural areas • Raising economic status of women: opportunity cost increase to have kids will reduce family size • Industrial emissions abatement policies: ex. taxes on co emissions • Proactive policies: climate change and environmental degradation: promoting rainforests, etc.

Comparative Advantage

• The ability to produce a good or service at a lower opportunity cost than others

Urbanization

• The more developed, the more urbanized • Some argue, developing countries are excessively urbanized or urbanizing too rapidly • Rapid urbanization has seen growth of massive urban slums and shantytowns • Accelerated migration of rural migrants to urban areas • Growth in the informal urban sector • Development policies must focus on the character of urban growth as it has benefits but also it has difficulties

Measuring Inequality Methods (2): Size Distributions (4) KR LC GC FD

• Total incomes received by individual or households • Source, location and occupational source of income is ignored. • Total population is divided into groups/sizes • Determine the proportion of income received by each group • Ex. Kuznets ratio or Lorenz Curve, GINI Coefficient, Functional Distribution

Policy Options to prevent pollution (Developed Countries)

• Trade policies: removing agriculture subsidies in their own countries and encouraging developing country exports • Debt relief • Development assistance: support projects to preserve rain forests etc. • Emissions controls • Research and Development: clean tech, etc. • Import restrictions

Implications of neoclassical trade theory for development

• Trade promotes economic growth • Trade promotes international and domestic income equality • Trade helps to enable development • Government policies should not interfere with the principle of comparative advantage • Outward-looking international policy promotes growth and development

Evidence for Environmental Kuznet Curve

• True for: sulfur dioxide, nitrogen oxides • Does not hold: unsafe water, sanitation increase with income at low income levels, some forms of environmental damage increases at high incomes levels, some environmental damage, such as loss of biodiversity, may be irreversible

The Child Labour Model

• Widespread problem, results to poor health of child workers, work instead of attending school, and hazardous work • Child labour model -Coordination failure - 2 possible equilibria: E1) good (no child labour) E2) bad (child labour), -All families are better off when all refuse to send children to work, but there is a coordination problem - Good equilibrium in which no children work may be achievable through effective ban on all child labour -Good equilibrium is self-enforcing: wages are high enough such that no child works

Environmental Kuznets Curve (EKC)

• pollution and other forms of environmental degradation increase and then decrease as per capita incomes increases • inverted-U pattern: environmental protection is desired and affordable when incomes are high

Life Expectancy Index (NHDI)

○ Life expectancy max val=the observed maximum value years, min val = 20 years, actual=life expectancy at birth

The Harrod-Domar Growth Model

𝑌 = 𝐹(𝐾; 𝐿) = min{𝐴𝐾; 𝐵𝐿} Y=Production function(capital and labour stock) - Y: output (GDP) • K: capital stock (net increases in K increase output) • L: labour stock • A: fixed technological coefficient • B: fixed technological coefficient • c: capital-output ratio (the capital needed to make one unit of output in a period of time) • s: saving ratio (the portion of income saved in a period of time) - Explains how investments lead to growth - Domestic and foreign savings are required to generate investment. The investments are needed to replace depreciated capital stock, and increase the stock of capital. Not enough savings result in slower growth. - No substitute for the factors of production; we can't compensate for the lack of capital ex. by hiring more labour. - Two key components of economic growth: labour (the model assumes that labour is abdundent, but may not hold true) and technology progress (reduce capital output ratio) -The theory is a little flawed as savings and investments are important to growth, those two alone aren't enough.

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