Download Answer: C - Kansas State University

Test Bank
to accompany
Economic Development
E.Wayne Nafziger
Ramesh Mohan
© E. Wayne Nafziger Development Economics Cambridge University Press
Test Bank to accompany
Economic Development
E. Wayne Nafziger and Ramesh Mohan
Copyright © 2005 E.Wayne Nafziger Economic Development
The contents or parts thereof, may be reproduced in print form solely for classroom use with ECONOMIC
DEVELOPMENT provided such reproduction bears copyright notice, but may not be reproduced in any
other form without prior written consent of E.Wayne Nafziger or Cambridge University Press, in any
network or other electronic storage or transmission, or broadcast for distance learning.
Table of Contents
PART I
PRINCIPLES AND CONCEPTS OF DEVELOPMENT
1. Introduction
2. The Meaning and Measurement of Economic Development
3. Economic Development in Historical Perspective
4. Characteristics and Institutions of Developing Countries
5. Theories of Economic Development
PART II POVERTY ALLEVIATION AND INCOME DISTRIBUTION
6. Poverty, Malnutrition, and Income Inequality
7. Rural Poverty and Agricultural Transformation
PART III FACTORS OF GROWTH
8. Population and Development
9. Employment, Migration, and Urbanization
10. Education, Health, and Human Capital
11. Capital Formation, Investment Choice, Information Technology,
and Technical Progress
12. Entrepreneurship, Organization, and Innovation
13. Natural Resources and the Environment: Toward Sustainable Development
PART IV THE MACROECONOMICS AND INTERNATIONAL
ECONOMICS OF DEVELOPMENT
14. Monetary, Fiscal, and Incomes Policy, and Inflation
15. Balance of Payments, Aid, and Foreign Investment
16. The External Debt and Financial Crises
17. International Trade
PART VI DEVELOPMENT STRATEGIES
18. Development Planning and Policymaking: the State, and the Market
19. Stabilization, Adjustment, Reform, and Privatization
© E. Wayne Nafziger Development Economics Cambridge University Press
Preface
This test bank is for classroom use with E. Wayne Nafziger, Economic Development, 4th
edition, Cambridge University Press, 2006. These questions do not overlap with
questions from Ramesh Mohan, Study Guide for Economic Development, available
online at www.ksu.edu/economics/nafwayne/. Instructors who wish to reinforce student
exercises from the workbook have the option of also using or modifying questions from
the study guide.
The authors wish to thank Henry M. Hays, Jr. for permission to use questions from the
Instructor’s Manual, 3rd edition.
E.W.N. & R.M.
Introduction
________________________________________________________________________
1. Which of the following is not true about the impact of globalization on India?
a. India’s information technology workers compete with many U.S. information technology
workers.
b. India’s rate of economic growth in the 1980s and 1990s was faster than in the 1950s and
1960s.
c. India’s software and related services exports exceed the U.S.’s software and related services
exports.
d. India’s top software services magnate ranks in the world’s top 500 in net worth.
e. India’s top 10 percent of income earners increased their income relative to the U.S. average
earners from 1980 to 2000.
Answer: C
2. Which of the following have been effects of globalization in recent decades in the United
States?
a. U.S. corporations have increased their support for government health, education, and welfare
spending.
b. U.S. firms have hired Asians for services jobs previously done by Americans.
c. U.S. corporations have reduced their spending on inputs from affiliates overseas.
d. U.S. middle class income relative to Asian elites has increased.
e. All of the above are correct.
Answer: B
3. If you have an average income in the United States, you
a. are among the richest 90 percent but not the richest 60 percent of the world’s population.
b. are among the richest 50 percent but not the richest 25 percent of the world’s population.
c. are among the richest 10 percent of the world’s population.
d. have an income less than 40 percent of personal incomes in the world.
e. have an income less than 90 percent of personal incomes in the world.
Answer: C
4. What percentage of the world’s population lives in developing countries, that is, low-income
and middle-income countries?
a. about three-fourths.
b. about one-third.
c. about one-sixth.
d. less than one-sixth.
Answer: A
© E. Wayne Nafziger Development Economics Cambridge University Press
5. Which of the following indicates achievements that India’s information and communications
technology (ICT) industry has made since 2000?
a. an Indian software services magnate ranks in Forbes’ top 100 in net worth; ICT represents
more than 10 percent of India’s exports; India’s global ICT share is more than 10 percent; and
some Indian software firms have acquired US companies.
b. an Indian software services magnate ranks in Forbes’ top 100 in net worth; ICT represents
more than 2 percent of India’s GDP; ICT represents more than 10 percent of India’s exports;
and some Indian software firms have acquired US companies.
c. an Indian software services magnate ranks in Forbes’ top 100 in net worth; ICT represents
more than 2 percent of India’s GDP; India’s global ICT share is more than 10 percent; and
some Indian software firms have acquired US companies.
d. an Indian software services magnate ranks in Forbes’ top 100 in net worth; ICT represents
more than 10 percent of India’s exports; India’s global ICT share is more than 10 percent; and
some Indian software firms have acquired US companies.
e. ICT represents more than 2 percent of India’s GDP; ICT represents more than 10 percent of
India’s exports; India’s global ICT share is more than 10 percent; and some Indian software
firms have acquired US companies.
Answer: C [a, c, d and e are incorrect because India’s global ICT share in 2001 was just
over 1 percent, not more than 10 percent.]
6. How did the median (50th percentile) income of developing-country regions change relative to
the median income of the United States from 1960 to 2000?
a. The median of developing countries in general fell relative to the US, but with Asia’a median
increasing and sub-Saharan Africa’s median falling.
b. The median of developing countries in general fell relative to the US, but with sub-Saharan
Africa’s median increasing and Asia’s median falling.
c. The median of developing countries in general increased relative to the US, but with subSaharan Africa’s median increasing and Asia’s median falling.
d. The median of developing countries in general increased relative to the US, but with Asia’a
median increasing and sub-Saharan Africa’s median falling.
e. The median of developing countries in general stayed about the same relative to the US,
Answer: D
7. What has been the effect of globalization on the real incomes of the North American (US and
Canadian) middle classes and the real incomes of Asian elites since 1980?
a. Real incomes of both North American middle classes and Asian elites have increased, but Asia
elites’ incomes have increased at a faster rate.
b. Real incomes of both North American middle classes and Asian elites have fallen.
c. Real incomes of both North American middle classes and Asian elites have increased at about
the same rate.
d. Real incomes of both North American middle classes and Asian elites have increased, but
North American middle classes’ incomes have increased at a faster rate.
e. Real incomes of both North American middle classes and Asian elites have stayed the same.
Answer: A
8. Assume that the attitudes of university graduates toward globalization is more favorable the
faster the growth of their real incomes relative to those of their parents’ generation. Which
alternative best indicates the attitudes of different world regions’ university graduates toward
globalization in 2000?
a. East Asia’s university graduates would be more favorable and the United States’ university
graduates less favorable toward globalization.
b. Latin America’s university graduates would be more favorable and East Asia’s university
graduates less favorable toward globalization.
c. Sub-Saharan Africa’s university graduates would be more favorable and East Asia’s university
graduates less favorable toward globalization.
d. Sub-Saharan Africa’s university graduates would be more favorable and the United States’
university graduates less favorable toward globalization.
e. The United States’ university graduates would be more favorable and East Asia’s university
graduates less favorable toward globalization.
Answer: A
9. Former socialist countries that are currently undergoing economic transition include
I Russia.
II Ukraine.
III Poland.
IV Czech Republic.
a. I and II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.
Answer: D
10. Which of the following is the view of Dudley Seers?
a. It is necessary to unlearn some of standard economics to adapt to the developing world.
b. Principles of economics is accurately based on developing countries rather on the United
States.
c. The best preparation for analyzing developing countries is excellent grounding in economic
theory.
d. Both a and b.
e. None of the above is correct.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
The Meaning and Measurement
of Economic Development
________________________________________________________________________
1. Which of the following was not a Millennium Development Goal?
a. Achieving universal primary education
b. Halting spread of malaria.
c. Promoting gender equality
d. Protecting property rights.
e. Reducing child mortality.
Answer: D
2. Among those listed, which country had the fastest real (PPP$) growth of GDP per capita from
1870 to 1998?
a. Argentina.
b. Australia.
c. Russia.
d. Spain.
e. United Kingdom.
Answer: D
3. GNI per capita measured at PPP exceeds nominal GNP per capita in
a. Denmark.
b. India.
c. Japan.
d. Norway.
e. all of the above.
Answer: B
4. For Nobel laureate Amartya Sen, the ultimate goal of economic life is
a. accumulation.
b. development.
c. freedom.
d. wealth.
e. None of the above is correct.
Answer: C
5. Which of the following are Millennium Development Goals?
a. halting the spread of HIV/AIDS, protecting national production, reducing poverty rates, and
reducing the debt burden of developing countries.
b. halting the spread of HIV/AIDS, protecting national production, reducing poverty rates, and
reducing the proportion of people without access to safe drinking water.
c. halting the spread of HIV/AIDS, protecting national production, reducing the debt burden of
developing countries, and reducing the proportion of people without access to safe drinking
water.
d. halting the spread of HIV/AIDS, reducing poverty rates, reducing the debt burden of
developing countries, and reducing the proportion of people without access to safe drinking
water.
e. protecting national production, reducing poverty rates, reducing the debt burden of developing
countries, and reducing the proportion of people without access to safe drinking water.
Answer: D
6. The highest ratio of GNI per capita measured at PPP to nominal GNI per capita is in
a. India.
b. Israel.
c. Norway.
d. Singapore.
e. the United States.
Answer: A
7. The components of the human development index (HDI) include
a. child mortality.
b. economic growth.
c. education.
d. food security.
e. price stability.
Answer: C
8. Economic growth refers to
a. reduction in inequality.
b. increases in output per person.
c. the fulfillment of basic needs.
d. rapid technological change.
e. None of the above is correct.
Answer: B
9. GNP per capita measured at PPP exceeds nominal GNP per capita in
a. Denmark.
b. developing Asia.
c. Japan.
d. Sweden.
e. all of the above.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
10. The components of the human development index (HDI) include
a. economic growth.
b. food production per capita.
c. infant mortality.
d. literacy rate.
e. Paasche price index.
Answer: D
11. Which of the following is a major source of distortion in comparing nominal GNP figures for
developed and developing countries?
a. GNP is overstated for developing countries, since many of their cheap, labor-intensive goods
have no impact on the exchange rate.
b. GNP is overstated for developing countries, which spend a higher portion of income on
intermediate goods that are costs of guarding income.
c. GNP is understated for developing countries, since a greater proportion of their goods and
services are produced within the home or village.
d. GNP is understated for developing countries, where the price of foreign exchange is less than
a market-clearing price.
e. none of the above.
Answer: C
12. “Development as freedom,” in the view of Nobel-prize winner Amartya Sen, refers to
a. the capacity for choice among improved economic goods.
b. the freedom to use your resources in whatever way that you wish.
c. the maximization of economic growth.
d. Mao Zedong’s concept of the liberated communist man and woman.
e. None of the above is correct.
Answer: A
13.
Mahatma Gandhi was an early advocate of
a. assembly-line production.
b. centralized planning.
c. machines to build machines.
d. state-owned enterprises.
e. village handicraft production.
Answer: E
14. The Physical Quality of Life Index consists of the following variables:
a. infant mortality, life expectancy, and literacy.
b. infant mortality, life expectancy, and PPP GDP per capita.
c. infant mortality, literacy, and PPP GDP per capita.
d. life expectancy, literacy, and PPP GDP per capita.
e. None of the above is correct.
Answer: A
15. The sector that most resists comparisons between one country’s economy and another
country’s economy is
a. automobiles.
b. food processing.
c. health and education.
d. iron and steel.
e. textiles.
Answer: C
16. GDP at PPP is derived by
a. converting a country’s GDP by using a PPP exchange rate.
b. finding the price of several hundred goods and services in each benchmark country.
c. making quality adjustments to substitute for an item directly observable.
d. using a series of simultaneous equations to solve PPP for numerous countries.
e. All of the above are correct.
Answer: E
17. Which of the following is a major source of distortion in comparing nominal GNP figures for
developed and developing countries?
a. GNP is overstated for developing countries, since a greater proportion of their goods and
services are produced within the home or village.
b. GNP is overstated for developing countries, which spend a higher portion of income on
intermediate goods that are costs of guarding income.
c. GNP is understated for developing countries, since many of their cheap, labor- intensive
goods have no impact on the exchange rate.
d. GNP is understated for developing countries, where the price of foreign exchange is less than
a market-clearing price.
e. none of the above.
Answer: C
18. Gross domestic product is
a. income adjusted by HDI.
b. income earned by a country’s residents.
c. income earned within a country’s borders.
d. income sold to foreigners.
Answer: C
19. The Human Development Index (HDI) combines which of the following indicators:
a. calorie supply, income shares of the poorest 20%, and a measure of GDP per capita in PPP
dollars.
b. economic growth, inequality, and a measure of GDP per capita in PPP dollars.
c. infant mortality rate, inflation, and a measure of GDP per capita in PPP dollars.
d. life expectancy, educational attainment, and a measure of GDP per capita in PPP dollars.
e. none of the above.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
20. The Human Development Index (HDI) includes measures of which of the following
variables?
a. Daily calorie consumption, life expectancy, and literacy.
b. Daily calorie consumption, life expectancy, and real income per capita.
c. Daily calorie consumption, literacy, and real income per capita.
d. Life expectancy, literacy, and real income per capita.
e. None of the above is correct.
Answer: D
21. Economic development refers to
a. an increase in income per capita.
b. economic structural change.
c. both of the above.
d. none of the above.
Answer: C
22. PQLI combines the following indicators of welfare:
a. infant mortality, life expectancy, and calorie supply.
b. infant mortality, life expectancy, and literacy.
c. infant mortality, life expectancy, and sanitation.
d. infant mortality, sanitation, and nutrition.
Answer: B
23. The basic-needs approach advocates
a. bicycle for each household.
b. income for each household equal to the average of developing countries.
c. maximizing economic growth.
d. meeting the needs of the poorest 40-50 % of the population.
Answer: D
24. The per capita GNP of developing countries relative to the United States increases when
a. adjustments are made for purchasing power.
b. you adjust for foreign aid and foreign investment.
c. you multiply by the GNP price inflator in each country.
d. none of the above.
Answer: A
25.
When countries’ GDPs are adjusted for purchasing power parity (PPP)
a. PPP GDP/GDP at existing exchange rates is highest in the countries with the highest GDP per
capita.
b. PPP GDP/GDP at existing exchange rates is highest in the countries with the lowest GDP per
capita.
c. PPP GDP/GDP at existing exchange rates is highest in the countries with middle-level GDP
per capita, and lowest at both the highest and lowest GDPs per capita.
d. PPP GDP/GDP at existing exchange rates is lowest in the countries with middle-level GDP
per capita, and highest at both the highest and lowest GDPs per capita.
e. there is no relationship between PPP GDP/GDP at existing exchange rates and GDP per
capita.
Answer: B
26. Chiapas state, Mexico, has
a. a lower adult literacy rate than the rest of Mexico.
b. a lower real GDP per capita than the rest of Mexico.
c. substantial grievances over income and land disparities between landowners and peasants.
d. All of the above are true.
e. Only both a & b are correct.
Answer: D
27. GNI per capita measured at PPP exceeds nominal GNI per capita in
a. developing Asia and Africa.
b. high-income Europe.
c. Japan.
d. all of the above.
Answer: A
28. Which of the following are Millennium Development Goals?
a. Eliminating gender inequalities in education, ensuring that all boys and girls complete primary
school, protecting the property rights of small business owners, and reducing the proportion of
people without access to safe drinking water.
b. Eliminating gender inequalities in education, ensuring that all boys and girls complete primary
school, protecting the property rights of small business owners, and reversing the spread of
HIV/AIDS.
c. Eliminating gender inequalities in education, ensuring that all boys and girls complete primary
school, reducing the proportion of people without access to safe drinking water, and reversing
the spread of HIV/AIDS.
d. Eliminating gender inequalities in education, protecting the property rights of small business
owners, reducing the proportion of people without access to safe drinking water, and reversing
the spread of HIV/AIDS.
e. Ensuring that all boys and girls complete primary school, protecting the property rights of
small business owners, reducing the proportion of people without access to safe drinking
water, and reversing the spread of HIV/AIDS.
Answer: C
29. The components of the human development index (HDI) include
a. calorie supply per head.
b. infant mortality rate.
c. Laspeyres price index.
d. school enrollment ratio.
Answer: D
30. Economic growth refers to
a. increases in poverty and inequality.
b. increases in production per person.
c. the physical quality of life index.
d. rapid technological change.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
Economic Development in
Historical Perspective
________________________________________________________________________
1. Japan’s rapid growth from 1870 to 1998 was generally characterized by
a. high educational standards, infrastructure investment, laissez-faire capitalism, and liberal
trade.
b. high educational standards, infrastructure investment, laissez-faire capitalism, and
technological borrowing.
c. high educational standards, infrastructure investment, liberal trade, and technological
borrowing.
d. high educational standards, laissez-faire capitalism, liberal trade, and technological borrowing.
e. infrastructure investment, laissez-faire capitalism, liberal trade, and technological borrowing.
Answer: C
2. Average annual growth (1980-2000) on initial level of real GDP per capita, 1980, indicates
a. convergence for country averages and convergence between rich and poor individuals.
b. convergence for country averages but divergence between rich and poor individuals.
c. divergence for country averages and divergence between rich and poor individuals.
d. divergence for country averages but convergence between rich and poor individuals.
e. None of the statements above is correct.
Answer: D
3. In 1920, the world’s leader in GDP per capita was
a. China.
b. Italy.
c. Japan.
d. the Netherlands.
e. the United States.
Answer: E
4. The relative gap in GNP per capita between the United States and the world’s poorest country
was greatest in
a. 1870.
b. 1900.
c. 1917.
d. 1950.
e. 1990.
Answer: E
5. The fastest period of world growth was
a. 1770 to 1820.
b. 1820 to 1870.
c. 1870 to 1913.
d. 1913 to 1950.
e. 1950 to 1973.
Answer: E
6. Which of the following have converged from the mid-twentieth century to the late twentieth
century?
a. Life expectancy.
b. Per capita GNP of the richest and poorest countries.
c. Per capita GNP of the richest and poorest world regions.
d. All of the above.
e. None of the above.
Answer: A
7. Among those listed, which one of the following countries ranks highest in 1870 with the
highest GDP per capita (in 1990 international $)?
a. Australia.
b. Greece.
c. Italy.
d. Japan.
e. Russia.
Answer: A
8. The fastest period of world capitalist growth was
a. 1820 to 1870.
b. 1870 to 1913.
c. 1913 to 1950.
d.1950 to 1973.
e.1973 to 1998.
Answer: D
9. How has the relative gap between GNP per capita for Western Europe and GNP per capita for
Afro-Asian less-developed countries changed from the mid-nineteenth century to the present?
a. Declined.
b. Increased.
c. Remained the same.
d. Cannot be determined.
Answer: B
10. The world leaders in GDP per capita, 1500 to the present, in chronological (historical) order,
have been
a. Italy, Greece, the United Kingdom, and the United States.
b. Italy, Japan, the Netherlands, and the United States.
c. Italy, the Netherlands, Russia, and the United States.
d. Italy, the Netherlands, the United Kingdom, and the United States.
e. Italy, Switzerland, the Netherlands, and the United States.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
11. A good way of finding out whether convergence has occurred is by plotting
a. Average annual growth in income per capita, 1870-2000, on the Y-axis and average annual
growth in income per capita, 1970-2000, on the X-axis.
b. Average annual growth in income per capita, 1870-2000, on the Y-axis and income per capita
in 1870 on the X-axis.
c. Average annual growth in income per capita, 1870-2000, on the Y-axis and income per capita
in 2000 on the X-axis.
d. Income per capita in 1970 on the Y-axis and average annual growth in income per capita,
1870-2000, on the X-axis.
e. Income per capita in 2000 on the Y-axis and average annual growth in income per capita,
1870-2000, on the X-axis.
Answer: B
12. The fastest growing region in the developing world, 1950 to 1998, was
a. Africa.
b. East Asia.
c. Eastern and Central Asia.
d. the Middle East.
e. Latin America.
Answer: B
13. Japan’s rapid growth from 1870 to 1998 was generally characterized by
a. atomistic business competition, guided capitalism, infrastructure investment, liberal trade.
b. atomistic business competition, guided capitalism, infrastructure investment, technological
borrowing.
c. atomistic business competition, guided capitalism, liberal trade, and technological borrowing.
d. atomistic business competition, infrastructure investment, liberal trade, and technological
borrowing.
e. guided capitalism, infrastructure investment, liberal trade, and technological borrowing.
Answer: E
14. The Fel’dman-Stalin model seeks to maximize
a. agricultural output.
b. current consumption.
c. investment.
d. investment in the capital-goods industry.
e. investment in the consumer-goods industry.
Answer: D
15. Since 1980, the slowest growing region in the developing world has been
a. East Asia,
b. Latin America and the Caribbean.
c. Southeast Asia.
d. Sub-Saharan Africa.
Answer: D
16. Among Asian countries, the fastest rate of growth, 1870 to today, is in
a. China.
b. India.
c. Indonesia.
d. Japan.
e. Thailand.
Answer: D
17. The fastest-growing economy outside the West from the 1870s to 1990 was
a. China.
b. Japan.
c. Korea.
d. Malaysia.
e. Russia.
Answer: B
18. On what did the Soviet development model of growth not depend?
a. consumer preference.
b. diverting savings to industry.
c. an emphasis on education and literacy.
d. state monopoly trading.
Answer: A
19. Which of the following did Korea and Taiwan not stress in the last half of the 20th century?
a. agricultural collectivization.
b. contested markets.
c. investment in education.
d. land redistribution.
e. technology borrowing.
Answer: A
20. A region of the world that experienced stagnation or even negative growth in GNP per capita
in the last two decades of the 20th century is
a. China.
b. East Asia.
c. the European Union.
d. sub-Saharan Africa.
Answer: D
21. The bourgeoisie refers to
a. the aristocracy.
b. the capitalist class.
c. peasants.
d. royalty.
e. none of the above.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
22. Among those economies for which we have growth records, which of the following were
among the fastest growing economies, 1870-1998, and which were among the slowest growing
economies, 1870-1998?
a. Argentina, Japan, the United States, and Uruguay were among the fastest growers, and
Britain, Canada, Norway, and Russia-USSR among the slowest growers.
b. Argentina, Norway, the United States, and Uruguay were among the fastest growers, and
Canada, Britain, Japan, and Russia-USSR among the slowest growers.
c. Canada, Britain, Japan, and Russia-USSR were among the fastest growers, and Argentina,
Norway, the United States, and Uruguay among the slowest growers.
d. Canada, Japan, Norway, and Sweden were among the fastest growers, and Argentina, Britain,
Russia-USSR, and Uruguay among the slowest growers.
e. Canada, Norway, Russia-USSR and Uruguay were among the fastest growers, and Argentina,
Britain, Japan, and the United States among the slowest growers.
Answer: D
23. The rank order of countries in PPP gross national income in 2004 is
a. Japan, China, and the United States.
b. Japan, the United States, and the United Kingdom.
c. The United States, China, and Japan.
d. The United States, Japan, and the United Kingdom.
e. The United States, the United Kingdom, and Japan.
Answer: C
24. Which of the following countries ranks highest in the UN Development Program’s poverty
rates (HPI-2)?
a. Denmark.
b. Japan.
c. Germany.
d. Sweden.
e. The United States.
Answer: E
25. Which of the following contributed to the end of Japan’s fast economic growth during the
1990s?
a. diminishing returns to capital.
b. exhaustion of the advantages of technical backwardness.
c. high bad debts as banks interlocked with industries.
d. uncompetitive domestic industries.
e. All of the above are correct.
Answer: E
26. Compared to the economies of Western Europe and the United States, Russia-USSR had
a. fast growth in the four decades of so before World War I, fast growth from the 1930s through
the 1960s, and fast growth in the last quarter of the 20th century.
b. fast growth in the four decades of so before World War I, fast growth from the 1930s through
the 1960s, and slow growth in the last quarter of the 20th century.
c. fast growth in the four decades of so before World War I, fast growth from the 1930s through
the 1960s, and slow growth in the last quarter of the 20th century.
d. slow growth in the four decades of so before World War I, fast growth from the 1930s through
the 1960s, and slow growth in the last quarter of the 20th century.
e. slow growth in the four decades of so before World War I, fast growth from the 1930s through
the 1960s, and slow growth in the last quarter of the 20th century.
Answer: E
27. Soviet economic performance, 1917-1937, included
a. fast industrialization.
b. increased life expectancy.
c. increased literacy.
d. increased savings.
e. All of the statements above are correct.
Answer: E
28. During the late 1980s, Mikhail Gorbachev’s changes included
a. economic reform and tighter discipline.
b. faster growth in agricultural output
c. increasing alcohol consumption
d. openness to international trade.
e. None of the statements above is true.
Answer: A
29. Social capital refers to
a. features of social organization that facilitate cooperation for mutual benefit.
b. indivisibility in power, transport, and communications.
c. investment in the education and training of people that increase their income.
d. the maximization of net social income per dollar of investment.
e. society’s collective benefits.
Answer: A
30. Did world real GDP per capita converge or diverge from 1980 to 2000?
a. It converged if you focus on countries and it converged if you focus on individuals, that is,
using population weights for countries.
b. It converged if you focus on countries but it diverged if you focus on individuals, that is, using
population weights for countries.
c. It diverged if you focus on countries and it diverged if you focus on individuals, that is, using
population weights for countries.
d. It diverged if you focus on countries but it converged if you focus on individuals, that is, using
population weights for countries.
e. It neither converged or diverged for countries or individuals.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
Characteristics and Institutions of
Developing Countries
_______________________________________________________________________
1. Peru’s Hernando de Soto attributes the West’s economic success to
a. absence of a state bureaucracy.
b. entrepreneurship in the informal industrial sector.
c. informal credit markets
d. government that keeps its hands off the economy.
e. legally enforceable property rights.
Answer: E
2. Institutional development measures
a. agricultural tariffs, governance, anti-corruption, and political rights.
b. agricultural tariffs, governance, anti-corruption, and public sector efficiency.
c. agricultural tariffs, governance, political rights, and public sector efficiency.
d. agricultural tariffs, anti-corruption, political rights, and public sector efficiency.
e. governance, anti-corruption, political rights, and public sector efficiency.
Answer: E
3. Peasants run
a. a household whose main concern is survival.
b. a farm business enterprise that maximizes profits.
c. an urban agro-business that maximizes sales.
d. a plantation that maximizes profitability.
e. None of the above is correct.
Answer: A
4. Which of the following does Hernando de Soto advocate to help the poor gain access to
capital?
a. Banks should have large amounts of funds available for loan.
b. Government should subsidize the cost of capital.
c. People should be given legal title to the property they possess.
d. The poor need to attain savings rates higher than the rich.
e. Savings societies need to set up stock exchanges for the poor.
Answer: C
5. Institutions are the
a. macroeconomic policies used to attain optimal employment, output, and prices.
b. rules of the game including formal rules, informal limitations, and their enforcement.
c. social overhead investment used to increase the productivity of private investment.
d. All of the above are correct.
e. None of the above is correct.
Answer: B
6. What are the shares of the agricultural and services sector in the labor force in high-income
countries today?
a. Agriculture labor comprises less than 12 percent of the labor force and services labor
comprises 20 to 40 percent of the labor force.
b. Agriculture labor comprises less than 12 percent of the labor force and services labor
comprises 40 to 60 percent of the labor force.
c. Agriculture labor comprises less than 12 percent of the labor force and services labor
comprises more than 60 percent of the labor force.
d. Agriculture labor comprises more than 12 percent of the labor force and services labor
comprises 40 to 60 percent of the labor force.
e. Agriculture labor comprises more than 12 percent of the labor force and services labor
comprises more than 60 percent of the labor force.
Answer: C
7. As economic growth takes place, what happens to labor force shares and output shares in
agriculture?
a. agriculture labor force shares decline & agriculture output shares decline.
b. agriculture labor force shares decline & agriculture output shares increase.
c. agriculture labor force shares increase & agriculture output shares decline.
d. agriculture labor force shares increase & agriculture output shares increase.
Answer: A
8. In the United States, the largest percentage of the labor force today is in
a. agriculture.
b. industry.
c. mining.
d. services.
Answer: D
9. A dual economy refers to what two sectors?
a. capital-intensive and high technology.
b. manufacturing and mining.
c. traditional agriculture and modern industry.
d. none of the above.
Answer: C
10. Which of the following countries has the highest primary commodity export concentration
ratio?
a. Brazil.
b. China.
c. India.
d. Saudi Arabia.
e. South Korea.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
11. Rent seeking refers to
a. returns to the ownership of land.
b. payment to factor owners in excess of necessary production costs.
c. unproductive activity to benefit from public action.
d. None of the above is correct.
Answer: C
12. Social capital refers to
a. features of social organization that facilitate cooperation for mutual benefit.
b. government investment in infrastructure that increases returns to directly productive
investment.
c. maximizing the net social income associated with a dollar of investment.
d. None of the above is correct.
Answer: A
13. The goal of a peasant is to maximize
a. chances of household survival.
b. the growth of yields.
c. the level of output.
d. the rate of profit.
Answer: A
14. The best quantitative indicator of economic welfare is
a. real GNP per capita.
b. nominal NNP.
c. GNP (PPP$).
d. real GDP.
Answer: A
15. At the end of the twentieth century, ________ of science and engineering Ph.D.-holders in
the United States working in industry were born abroad.
a. 1/5.
b. 1/3.
c. 2/3.
d. 2/5.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
Theories of Economic Development
_______________________________________________________________________
1. The Lewis model
a. assumes most savings in agriculture.
b. assumes rapid technological change in agriculture.
c. consists of one sector
d. includes migration from the industrial to the agricultural sector
e. shows that growth is a result of structural change.
Answer: E
2. Which of the following are components of the Washington consensus?
a. competitive exchange rates, domestic savings, financial repression, and price decontrols.
b. competitive exchange rates, domestic savings, financial repression, and trade liberalization.
c. competitive exchange rates, domestic savings, price decontrols, and trade liberalization.
d. competitive exchange rates, financial repression, price decontrols, and trade liberalization.
e. domestic savings, financial repression, price decontrols, and trade liberalization.
Answer: C
3. Michael Kremer’s theory of economic development includes
a. a focus on preventing coordination failure.
b. complete substitution of labor.
c. pairing of unskilled labor with skilled labor.
d. poor countries specializing in complicated products.
e. None of the above is correct.
Answer: A
4. Marx’s dialectical theory indicates that history moves on the basis of changes in
a. a general equilibrium.
b. a leading manufacturing sector.
c. materialism and spiritualism.
d. ruling and oppressed classes.
e. none of the above.
Answer: D
5. Robert Solow’s neoclassical growth theory
a. assumes no substitution of labor and capital for each other.
b. emphasizes the role of international differences in human capital.
c. nullifies the law of diminishing returns.
d. predicts incomes per capita between DCs and LDCs will converge.
e. stresses the importance of technological change for economic development.
Answer: D
6. What is Baran’s explanation for underdevelopment in Asia, Africa, and Latin America?
a. a lack of financial liberalization.
b. a lack of individualism.
c. a lack of technological change.
d. capitalist and landed ruling coalitions.
e. overvalued exchange rates.
Answer: D
7. The steel industry has the following linkages:
a. backward linkages to coal and iron and forward linkages to construction and truck industries.
b. backward linkages to construction and truck industries and forward linkages to coal and iron .
c. backward linkages to jute and hemp and forward linkages to wheat and cocoa.
d. backward linkages to wheat and cocoa and forward linkages to jute and hemp.
e. None of the above is true.
Answer: A
8.. Which of the following is a contention of Andre Gunder Frank?
a. Economic development takes place through a migration from a traditional agricultural sector
to a modern industrial sector.
b. The central historical stage is the takeoff, a decisive expansion that transforms a country’s
economy and society.
c. The Cobb-Douglas production function, which attributes growth to labor quantity and quality,
capital, and technology, best explains growth.
d. The penetration of modern capitalism into archaic economic structures in Latin America
created underdevelopment.
e. The Washington consensus of financial, trade, and price liberalization will maximize
economic growth.
Answer: D
9. A part of Kremer’s O-ring theory of economic development includes
a. an assumption that a highly skilled worker can compensate for two workers of low skill.
b. a finding that workers of the same skill level will be matched together.
c. complete substitution between factors of production.
d. little difference between productivity in rich and poor countries.
e. None of the above is correct.
Answer: B
10. In the Lewis model, economic growth occurs because
a. capital from industrial profits is applied to an unlimited supply of labor
b. structural change takes place in the economy.
c. the industrial sector increases in size relative to the agricultural sector.
d. All of the above are correct.
e. None of the above is correct.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
11. Rostow’s takeoff is
a. a decisive economic expansion occurring over a short period of time.
b. an age of high mass consumption or alternatively a welfare state.
c. the period before Isaac Newton formulated the law of gravity and the elements of calculus.
d. the drive to maturity, a period that is volatile and uncertain.
e. None of the above is correct.
Answer: A
13. Which of the following did the classical model of development not take into account?
a. capital accumulation.
b. division of labor.
c. law of diminishing returns.
d. the role of technology.
Answer: D
14. Neoclassicism
a. emphasizes variable technology between countries.
b. is the view of many US economists.
c. stresses savings for growth.
d. all of the above.
e. both b and c.
Answer: E
15. Marx’s dialectical theory indicates that history moves on the basis of changes in
a. investment and a leading sector.
b. religion and morality.
c. ruling and oppressed classes.
d. all of the above.
e. none of the above.
Answer: C
16. Adam Smith’s “invisible hand” assumes
a. no population growth.
b. people act in their own self-interest.
c. people act to promote the public interest.
d. rapid technological progress.
e. the universe is subject to random events.
Answer: B
17. Rostow’s theory of growth emphasizes
a. a decisive expansion over a few decades.
b. dialectical material.
c. dualism during the traditional stage.
d. empirical testing of hypotheses.
e. the peasant as key to the movement of history.
Answer: A
18. What is Baran’s explanation for underdevelopment in Asia, Africa, and Latin America?
a. monopolistic business from abroad.
b. reactionary ruling coalitions.
c. weak domestic middle class.
d. all of the above.
e. none of the above
Answer: D
19. Baran’s theory of underdevelopment contends that
a. developing countries are characterized by a competitive economy.
b. foreign investment is the major instrument for introducing economic growth.
c. property owners are the major group responsible for economic growth.
d. revolution is the only way out of a conservative impasse.
e. the United States is the best example of progressive economic change.
Answer: D
20. For Mankiw, Romer, and Weil, who modify neoclassical growth theory, differences in output
depends on
a. human capital, physical capital, and entrepreneurship.
b. human capital, physical capital, and labor.
c. human capital, physical capital, and land.
d. human capital, physical capital, and technology.
Answer: B
21. Marx’s theory includes the following:
a. absence of class antagonisms.
b. alienation of the bourgeoisie from the product of their work.
c. communism as a centralized state.
d. materialist interpretation of history.
e. None of the above is correct.
Answer: D
22. The Marxian dialectic involves, in order, the following economic stages:
a. capitalism, feudalism, communism, and socialism.
b. capitalism, feudalism, socialism, and communism.
c. feudalism, capitalism, socialism, and communism.
d. feudalism, socialism, communism, and capitalism.
e. socialism, communism, capitalism, and high-consumption society.
Answer: C
23. According to contemporary Marxists, the sparcity of successful workers’ revolutions in the
West can be attributed to
a. capitalists’ divide and rule tactics.
b. exploitation of workers outside the West.
c. false consciousness supporting ruling-class ideologies.
d. the capitalist state’s powerful legal, police, and military machinery.
e. All of the above are correct.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
24. The dependency theory contends that Latin America, Africa, and South Asia have performed
poorly economically because
a. Developed countries are overly dependent on developing countries for minerals and raw
materials.
b. Developed countries form alliances with elites of developing countries to inhibit economic
development.
c. Developed countries form alliances with workers of developing countries to inhibit economic
development.
d. Developing countries form alliances among themselves to exploit developed countries.
e. Workers of developing countries control the means of production there.
Answer: B
25. Robert Solow’s neoclassical growth theory
a. assumes no substitution of labor and capital for each other.
b. emphasizes the role of international differences in technology.
c. nullifies the law of diminishing returns.
d. predicts incomes per capita between DCs and LDCs will diverge.
e. stresses the importance of savings for economic development.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
Poverty, Malnutrition, and
Income Inequality
_______________________________________________________________________
1. Which of the following is true in developing countries, regardless whether you use $1/day or
$2/day or whether you use Sala-i-Martin’s or Bhalla’s data?
a. Poverty rates are highest in Africa and lowest in Asia or Latin America.
b. Poverty rates are highest in Asia and lowest in Africa or Latin America.
c. Poverty rates are highest in Latin America and lowest in Africa or Asia.
d. Poverty rates are highest in Eastern Europe and lowest in Africa or Asia.
e. None of the above are correct.
Answer: A
2. How do poor people view poverty, according to Deepa Narayan and her co-authors’ study for
the World Bank?
I. Poverty involves hunger.
II. Poverty involves psychological dimensions.
III Poverty includes lack of access to basic infrastructure.
IV Poverty includes vulnerability to poor health.
a. I and II only.
b. I, III and IV only.
c. I, II and IV only.
d. I, II, III and IV.
Answer: D
3. Which of the following is true about the three major studies’ (Bhalla, Sala-i-Martin, and the
World Bank) findings concerning the recent trend in global income distribution?
a. Three of three agree that income inequality has fallen in the last 15 to 25 years.
b. Three of three agree that income inequality has risen in the last 15 to 25 years.
c. Three of three agree that income inequality has remained about the same in the last 15 to 25
years.
d. Two of three agree that income inequality has risen in the last 15 to 25 years, and one thinks
that income inequality has remained about the same in the last 15 to 25 years.
e. At least one of three contend that that income inequality has fallen in the last 15 to 25 years;
and at least one of three contend that income inequality has risen in the last 15 to 25 years.
Answer: E
4. Kuznets’s inverted “U” curve indicates that
a. inequality falls in the early stages of growth.
b. the poorest’s income falls in the early stages of growth.
c. the poorest’s income shares fall in the early stages of growth.
d. the top earners’ income shares fall in the early stages of growth.
e. None of the above is true.
Answer: C
5. According to Sala-i-Martin, a critic of the World Bank, global income inequality
a. fell from 1980 to 1998.
b. remained about the same from 1980 to 1998.
c. rose from 1980 to 1998 at a roughly constant rate.
d. rose from 1980 to 1998, but at a decelerating rate since 1990.
e. rose from 1980 to 1998, but at an accelerating rate since 1990.
Answer: A
6. In the 1980s, the $1/day poverty line was tied to the availability of
a. clothing.
b. education.
c. food.
d. housing.
e. plumbing.
Answer: C
7. The Lorenz curve
a. shows change in income inequality over time.
b. shows whether convergence or divergence in income per capita has occurred.
c. shows income concentration relative to a 45-degree line that shows absolute equality.
d. shows income inequality first increasing and then decreasing with growth.
e. shows patterns of specialization between developed and developing countries.
Answer: C
8. Judy Baker and Margaret Grosh found that
a. deliberately unbalancing the economy through a pre-designed strategy is the best path for
economic growth.
b. geographic targeting was effective in insuring that benefits go to the poorest 40 percent.
c. literacy rates in Africa were higher than those in Latin America and the Caribbean.
d. the explosion of the Challenger is a useful metaphor for the production of complicated
products in DCs.
e. the marginal productivity of labor in Japanese agriculture during the late nineteenth century
was always positive.
Answer: B
9. The percentage of the world’s population that is poor, according to 1985 PPP of $2 per
day or less in 1998, was about
a. less than 5 percent.
b. 5 to 10 percent.
c. 15 to 20 percent.
d. 25 to 30 percent
e. 35 to 40 percent
Answer: C
10. From 1970 to 1998, poverty rates
a. fell in the world as a whole and fell in Africa.
b. fell in the world as a whole, but increased in Africa.
c. increased in the world as a whole and increased in Africa.
d. increased in the world as a whole but fell in Africa.
e. remained the same in the world as a whole but fell in Africa.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
11.
Irma Adelman and Cynthia Taft Morris’s theory of industrialization in a dual economy
explains the Kuznets curve by showing
a. a straight-line relationship between income concentration and GDP per capita, in which
income inequality falls at a constant rate throughout the stages of industrialization.
b. a straight-line relationship between income concentration and GDP per capita, in which
income inequality rises at a constant rate throughout the stages of industrialization.
c. a straight-line relationship between income concentration and GDP per capita, in which
income inequality remains constant throughout the stages of industrialization.
d. an inverted-U relationship between income concentration and GDP per capita, in which
income inequality rises with early industrialization and falls with late industrialization.
e. a U-relationship between income concentration and GDP per capita, in which income
inequality falls with early industrialization and rises with late industrialization.
Answer: D
12. The percentage of people in Africa who are poor, according to 1985 PPP of $2 per capita or
less in 1998-2000, was about
a. less than 5 percent.
b. 5 to 15 percent.
c. 20 to 30 percent.
d. 40 to 50 percent.
e. 60 to 70 percent.
Answer: E
13. Global income inequality (measured by the Gini index of concentration)
a. is higher than for any single country.
b. is higher than for Bangladesh but lower than for Brazil.
c. is higher than for Brazil but lower than for Bangladesh.
d. is lower than for any single country.
e. is lower than for most but not all countries.
Answer: A
14. The Kuznets curve
a. is consistent with a dual economy.
b. is consistent with early increases in the income shares of the poor.
c. is not consistent with inter-sectoral migration.
d. is U-shaped, first decreasing and then increasing with growth.
e. presupposes the expansion of the traditional sector vis-à-vis the modern sector.
Answer: A
15. The success of Bangladesh’s Grameen Bank is based on
a. foreign portfolio investment.
b. peer borrowing.
c. substantial collateral.
d. All of the above.
e. None of the above.
Answer: B
16.
Kuznets’s view is that
a. inequality falls during early stages of development but inequality increases during late
industrialization.
b. inequality falls through all stages of economic development.
c. inequality increases during early stages of development but inequality falls during late
industrialization.
d. inequality increases through all stages of economic development.
e. inequality remains the same through all stages of economic development.
Answer: C
17. Which of the following statements is wrong? A disproportional share of the world’s poor are
a. children.
b. from South Asia and Africa.
c. from urban areas.
d. illiterate.
e. women.
Answer: C
18. The income-gap approach to measuring poverty
a. is the reciprocal of the capital output ratio.
b. measures additional income to bring the poor up to the poverty line.
c. relies on the dependency rate.
d. uses the Gini coefficient and Lorenz curve to show income inequality.
e. None of the above is true.
Answer: B
19. The largest group living in poverty in developing countries is
a. minimum-wage workers in urban areas.
b. rural.
c. unemployed secondary-school graduates.
d. urban owners of one-person enterprises.
e. working in the informal sector.
Answer: B
20. The head-count approach to poverty indicates the highest poverty rate in
a. East Asia.
b. Latin America.
c. the Middle East.
d. sub-Saharan Africa.
Answer: D
21.Which of the following is not a component of Amartya Sen’s theory of poverty?
a. capabilities.
b. entitlement.
c. asymmetry.
d. functionings.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
22.
What has happened to world regions’ share of the world’s middle class from 1960 to
2000, according to the graph by Bhalla?
a. Asia and the Middle East’s share has decreased and the industrialized world’s share has
decreased.
b. Asia and the Middle East’s share has decreased and the industrialized world’s share has
increased.
c. Asia and the Middle East’s share has decreased and the industrialized world’s share has stayed
the same.
d. Asia and the Middle East’s share has increased and the industrialized world’s share has
decreased.
e. Asia and the Middle East’s share has increased and the industrialized world’s share has
increased.
Answer: D
23.
Which of the following countries has the highest income inequality?
a. Bangladesh.
b. China.
c. India.
d. Pakistan.
e. South Africa.
Answer: E
24.
Which of the following two countries have the world’s highest poverty rates?
a. Argentina and Brazil.
b. China and Malaysia.
c. Ethiopia and Nigeria.
d. Mexico and Panama.
e. South Africa and Botswana.
Answer: C
25. The overwhelming majority of the world’s poor live in
a. Eastern and Central Europe and Latin America.
b. Eastern and Central Europe and the Middle East.
c. Latin America, the Middle East, and East Asia.
d. sub-Saharan Africa, South Asia, and East Asia.
e. None of the above is correct.
Answer: D
Rural Poverty and
Agricultural Transformation
_______________________________________________________________________
1. When Amartya K. Sen indicates that preventing hunger depends on the entitlement system, by
entitlement he means
a. high food output.
b. income.
c. low gini.
d. totality of rights.
e. None of the above is true.
Answer: D
2. When demand for wheat is inelastic and supply increases, the total income or revenue for
wheat
a. will fall.
b. will increase.
c. remains the same.
d. cannot be determined.
Answer: A
3. A manifestation of urban bias in countries that specialize in primary products is
a. a below-market price for foreign currency.
b. a lower life expectancy in Mexico City than in the rest of Mexico.
c. concentration of investment in farming.
d. price ceilings on industrial goods.
e. tax incentives in agriculture.
Answer: A
4. Which sentence about the income elasticities of demand for selected commodities in
developing countries is correct (where income refers to income per capita)?
a. The income elasticities of demand for rice and shrimp are less than one and the income
elasticities of demand for sugar and vegetables are more than one.
b. The income elasticities of demand for rice and sugar are less than one and the income
elasticities of demand for shrimp and vegetables are more than one.
c. The income elasticities of demand for rice and vegetables are less than one and the income
elasticities of demand for shrimp and sugar are more than one.
d. The income elasticities of demand for shrimp and vegetables are less than one and the income
elasticities of demand for rice and sugar are more than one.
e. The income elasticities of demand for sugar and vegetables are less than one and the income
elasticities of demand for rice and shrimp are more than one.
Answer: c
© E. Wayne Nafziger Development Economics Cambridge University Press
5. When demand for wheat is inelastic and supply increases, the total income or revenue for
wheat
a. will fall.
b. will increase.
c. remains the same.
d. cannot be determined
Answer: A
6. A manifestation of urban bias in countries that specialize in primary products is
a. an above-market price for foreign currency.
b. a higher life expectancy in Buenos Aires than in the rest of Argentina.
c. concentration of investment in farming.
d. price ceilings on industrial goods.
e. tax incentives in agriculture.
Answer: B
7. Which of the following commodities has the lowest income elasticity of demand?
a. beef.
b. beverages.
c. fruit.
d. manufactures.
e. rice.
Answer: E
8. The highest concentration of landholdings is in
a. Brazil and Colombia.
b. Cameroon and Ivory Coast.
c. Egypt and Ethiopia.
d. Ghana and Nigeria.
e. South Korea and Taiwan.
Answer: A
9. The gross incomes of farmers producing one commodity will fall when
a. supply of the farmers’ commodity decreases and demand elasticity is zero.
b. supply of the farmers’ commodity decreases and demand is inelastic.
c. supply of the farmers’ commodity increases and demand is inelastic.
d. supply of the farmers’ commodity increases and demand is infinitely elastic.
Answer: C
10. Which of the following is the view of Neo-Malthusians such as Lester Brown?
a. Foodgrain production per head did not grow in the West over the last two centuries.
b. Foodgrain production per head in the poorest countries is not likely to continue to grow.
c. The substitution of meat and more expensive foods for foodgrains means reduced production
per head is not worrisome.
d. The world can expect unlimited technological change in agriculture in the future.
e. None of the above is the view of the neo-Malthusians.
Answer: B
11. Since the early 1960s, food production per capita
a. has fallen in Asia and fallen in sub-Saharan Africa.
b. has fallen in Asia and increased in sub-Saharan Africa.
c. has increased in Asia and fallen in sub-Saharan Africa.
d. has increased in Asia and increased in sub-Saharan Africa.
e. has remained about the same in Asia and increased in sub-Saharan Africa.
Answer: C
12. Which statement about the income elasticities of demand (where income refers to income per
capita) for selected commodities in developing countries is correct?
a. The income elasticities of demand for rice and fruit are less than one and for sugar and wheat
are more than one.
b. The income elasticities of demand for rice and sugar are less than one and for fruit and wheat
are more than one.
c. The income elasticities of demand for fruit and wheat are less than one and for rice and sugar
are more than one.
e. The income elasticities of demand for sugar and wheat are less than one and for rice and fruit
are more than one.
e. The income elasticities of demand for rice and wheat are less than one and for fruit and sugar
are more than one.
Answer: E
13. The income elasticity of demand for rice
a. exceeds that for beef.
b. is less than that for beef.
c. is negative.
d. is the same as that of beef.
Answer: B
14. The highest concentration of landholdings is in
a. Cameroon and Ivory Coast.
b. Dominican Republic and Guatemala.
c. Egypt and Ethiopia.
d. Ghana and Nigeria.
e. South Korea and Taiwan.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
Population and Development
_______________________________________________________________________
1. Population growth in the last half of the twentieth century
a. was about average for 50-year periods since 1800, and population growth remained nearly
constant during the last half of the twentieth century.
b. was faster than any other 50 years in history, but population growth decelerated since the
1970s.
c. was faster than any other 50 years in history, and population growth accelerated since the
1970s.
d. was slower than any other 50 years since 1800, and population growth accelerated since the
1970s.
e. was slower than any other 50 years since 1800, but population growth decelerated since the
1970s.
Answer: B
2. The reasons for the change in developing-country population growth from the first half of the
twentieth century to the last half of the twentieth century are
a. a birth rate falling faster than the death rate.
b. a death rate falling faster than the birth rate.
c. a death rate rising while the birth rate falls.
d. a death rate rising while the birth rate remains constant.
e. a death rate rising while the birth rate rises.
Answer: B
3. The late Julian Simon believed that
a. government has a major role in population policy.
b. inventions fall as population grows.
c. population growth will outstrip the growth in the food supply.
d. population growth will stimulate per capita output growth.
e. None of the above is correct.
Answer: D
4. Which of the following is true of population growth in the last half of the twentieth century?
a. Population growth accelerated since 1970.
b. Population growth decelerated since 1970.
c. Population growth, 1950-2000, was faster than for any other 50-year period.
d. Both a and c are correct.
e. Both b and c are correct.
Answer: E
5. In India, the most children born per couple has been among
a. affluent, primary-educated rural dwellers.
b. affluent, secondary-educated urban dwellers.
c. affluent, college-educated urban dwellers.
d. poor, illiterate rural dwellers.
e. poor, primary-educated urban dwellers.
Answer: D
6. Malthus’s predictions on food and population were wrong in the West because Malthus
underestimated
a. capital accumulation.
b. technical progress.
c. voluntary restraints on fertility.
d. all of the above.
e. None of the above.
Answer: D
7. Simon’s view is that population growth
a. creates negative externalities.
b. increases at a geometric rate.
c. keeps income at subsistence.
d. outstrips food growth.
e. stimulates per capita growth.
Answer: E
8. Which of the following is the view of Julian Simon?
a. An increased population increases technology and economic growth.
b. An increased population reduces economics of scale.
c. As natural resources diminish, growth is limited.
d. Humans use or destroy 25 percent of the earth’s net primary productivity.
e. None of the above is true.
Answer: A
9. The demographic transition is the period of development
a. between a preindustrial, rising population and a later falling population.
b. between a preindustrial, stable population and a later, modern stable population.
c. when a rapid fall in fertility is followed by a rapid fall in mortality.
d. when a rapid fall in mortality if followed by a rapid rise in mortality.
e. None of the above is true.
Answer: B
10. China’s population is expected to
a. fall throughout most of the 21st century due to a high mortality rate.
b. fall throughout most of the 21st century due to a stationary population.
c. increase throughout most of the 21st century due to a young age structure.
d. increase throughout most of the 21st century due to a high total fertility rate.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
11. The world’s total fertility rate, the number of children born to the average woman during her
reproductive years,
a. fell from 4.6 in 1968 to 4.1 in 1975 to 3.6 in 1987 before increasing to 3.8 in 1995 and 4.0 in
2003.
b. fell from 4.6 in 1968 to 4.1 in 1975 to 3.6 in 1987 to 3.1 in 1995 to 2.8 in 2003.
c. increased from 2.8 in 1968 to 3.1 in 1975 to 3.6 in 1987 before falling to 3.2 in 1995 and 3.1 in
2003.
d. increased from 2.8 in 1968 to 3.1 in 1975 to 3.6 in 1987 to 4.1 in 1995 to 4.6 in 2003.
Answer: B
12. Why would population continue to grow for several decades after a population reaches a
replacement-level fertility?
a. because of the high level of fertility.
b. because of the high level of mortality.
c. because of the old population.
d. because of the young population.
Answer: D
13. What are some of the costs of a high fertility rate and rapid population growth?
a. diminishing returns to natural resources.
b. increase in the ratio of dependent to working age population.
c. rapid labor force growth.
d. All of the above are true.
e. None of the above is true.
Answer: D
14. Which of the following nations have low dependency ratios (that is, low ratios of nonworking to working age populations) and high dependency ratios (that is high ratios of nonworking to working age populations)?
a. Austria and Ethiopia have low dependency ratios and Bolivia and Sweden have high
dependency ratios.
b. Austria and the United States have low dependency ratios and Bolivia and Nigeria have high
dependency ratios.
c. Sweden and Bolivia have low dependency ratios and France and Nigeria have high
dependency ratios.
d. Sweden and Nigeria have low dependency ratios and Bolivia and the United States have high
dependency ratios.
e. The United States and Nigeria have low dependency ratios and Bolivia and France have high
dependency ratios.
Answer: B
15. Population growth in the last half of the twentieth century
a. was about average for 50-year periods since 1800, and population growth remained nearly
constant during the last half of the twentieth century.
b. was faster than any other 50 years in history, but population growth decelerated since the
1970s.
c. was faster than any other 50 years in history, and population growth accelerated since the
1970s.
d. was slower than any other 50 years since 1800, and population growth accelerated since the
1970s.
e. was slower than any other 50 years since 1800, but population growth decelerated since the
1970s.
Answer: B
16. Since 1968, the world’s total fertility rate has
a. fallen by less than 5%.
b. fallen by more than 5%.
c. risen by less than 5%.
d. risen by more than 5%.
e. stayed the same.
Answer: B
17. The costs of rapid population growth include
a. an increased dependency burden.
b. diminishing returns to land.
c. rapid labor force growth
d. All of the above are correct.
e. None of the above is correct.
Answer: D
18. In which way was Malthus’s population theory wrong in explaining Western population
growth?
I He underestimated capital accumulation.
II He underestimated increases in cultivated land.
III He underestimated people reducing family size.
IV He underestimated technical progress.
a. I and II only.
b. III and IV only.
c. I, II and IV only.
d. I, II, III and IV.
Answer: D
19. The population views of Malthus were wrong in the West because
a. he failed to envision the capital accumulation that would overcome diminishing returns.
b. he failed to envision technical progress that would overcome diminishing returns.
c. he failed to anticipate the effect of improved contraception on fertility rates.
d. he failed to anticipate the effect of modernization on fertility rates.
e. All of the above are correct.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
20. In which of the following ways was Malthus’s population theory wrong in explaining
Western population growth? Malthus underestimated all four of the following items:
a. capital accumulation, technical progress, the potential for famine, and increases in cultivated
land.
b. capital accumulation, technical progress, the potential for famine, and people using
contraceptives.
c. capital accumulation, technical progress, increases in cultivated land, and people using
contraceptives.
d. capital accumulation, the potential for famine, increases in cultivated land, and people using
contraceptives.
e. technical progress, the potential for famine, increases in cultivated land, and people using
contraceptives.
Answer: C
Employment, Migration,
and Urbanization
_______________________________________________________________________
1. What factors do workers consider in deciding whether to migrate from rural to urban areas,
according to the Harris-Todaro model?
a. The urban wage and probability of employment.
b. Whether the informal-sector wage exceeds the formal-sector wage.
c. Whether the unemployment rate is less than 10 percent.
d. Whether the urban wage exceeds the rural wage.
e. All of the above are correct.
Answer: A
2. A problem with the validity of the Harris-Todaro model includes
a. educated labor concentrating in rural areas.
b. highly capital-intensive production in agriculture.
c. the presence of the informal sector.
d. rural to urban income ratios of 3 to 1.
e. None of the above is correct.
Answer: C
3. Compared to the unemployed in a developed country, the unemployed in developing countries
are more likely to be
a. among the better educated in their country
b. first-time entrants to the labor force
c. urban residents.
d. All of the above are true.
e. None of the above is true.
Answer: D
4. The major factor contributing to urban labor force growth
a. is rural-urban migration in Africa and urban population growth in Latin America.
b. is rural-urban migration in Latin America and urban population growth in Africa.
c. is rural-urban migration in both Africa and Latin America.
d. urban population growth in both Africa and Latin America.
e. None of the above is correct.
Answer: A
5. Arthur Lewis explains rural-urban migration from
a. greater social amenities in the rural areas.
b. higher literacy rates in rural areas.
c. high open unemployment in the rural sector.
d. rural expected income exceeding urban expected income.
e. urban wages exceeding rural wages.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
6. Manufacturing employment growth in developing countries is likely to be slower than
manufacturing output growth because of
a. flexible factor requirements of production processes in industry.
b. interest rates higher than the cost of capital.
c. a price of foreign exchange that is higher than the equilibrium.
d. wages that are higher than market wages.
e. None of the above is correct.
Answer: D
7. The Harris-Todaro model
a. assumes a total fertility rate of more than 5.
b. assumes that the warranted growth rate keeps planned savings equal to planned investment.
c. assumes that workers migrate in response to increased expected income.
d. assumes the validity of Coase’s theorem.
e. implies the use of a value-added tax.
Answer: C
8. The Harris-Todaro model views a rural worker’s decision to migrate to urban areas as
dependent on
a. informal sector wages.
b. rural income.
c. urban expected income.
d. Both a & b.
e. Both b & c.
Answer: E
9. Urban unemployment in developing countries can be caused by
a. factor price distortions.
b. low prices of foreign exchange.
c. subsidized interest rates.
d. unsuitable technology.
e. All of the above.
Answer: E
10. Disguised unemployment refers to
a. low expected income.
b. marginal productivity of labor in excess of the wage.
c. unemployment in manufacturing.
d. unemployment in the urban informal sector.
e. zero marginal productivity of labor.
Answer: E
11. The increase in emigration from rural areas to some major LDC cities is a result of
a. high employment rates in the cities.
b. high unemployment in the rural areas.
c. higher lifetime expected earnings in the city relative to the country.
d. higher wage rates for urban agricultural workers.
Answer: C
12. Which of the following is reason why John Keynes' theory of income and employment is not
applicable for LDCs?
a. Business in LDCs cannot respond quickly to increased demand for output.
b. Unemployment may not be reduced even if spending reduces labor demand.
c. LDCs can rely on changes in fiscal policy adjustments to affect aggregate demand.
d. Employment growth is likely to be rapid compared to output growth.
e. None of the above is correct.
Answer: A
13. What does Arthur Lewis assume in his rural-urban migration model?
a. The worker saves a fourth of his/her income.
b. The worker is unskilled and not employable.
c. The capitalist saves all the surplus (profits, interest, and rents), and the worker saves nothing.
d. None of the above is correct.
Answer: C
14.Which model views a worker's decision to migrate to be based on wages and the
probability of unemployment?
a. the Harris-Todaro model.
b. the Lewis model.
c. the Fei-Ranis model.
d. Keynes’ model.
e. None of the above is correct.
Answer: A
15. What factors do workers consider in deciding whether to migrate from rural to urban areas,
according to the Harris-Todaro model?
a. the probability of employment
b. the wage in the formal sector
c. the wage in the informal sector
d. both a & b.
e. both a & c.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
16. What factors do workers consider in deciding whether to migrate from rural to urban areas,
according to the Harris-Todaro model?
I income in the rural sector.
II. the probability of employment.
III sectoral differences in expected earnings.
IV the wage in the formal sector.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.
Answer: D
Education, Health,
and Human Capital
_______________________________________________________________________
1. The incidence of HIV infection
a. is highest as a percentage of the population in Botswana, Swaziland, and Zimbabwe today and
is projected to be highest in absolute numbers in China, India, and Russia by 2010.
b. is highest as a percentage of the population in China, India, and Russia today and is projected
to be highest in absolute numbers in Botswana, Swaziland, and Zimbabwe by 2010.
c. is both highest as a percentage of the population today and is projected to be highest in
absolute numbers by 2010 in Botswana, Swaziland, and Zimbabwe.
d. is both highest as a percentage of the population today and is projected to be highest in
absolute numbers by 2010 in China, India, and Russia.
e. is both low as a percentage of the population and is projected to be low in absolute numbers
by 2010 in Zimbabwe, China, and India.
Answer: A
2. In developing countries, the poorest 20 percent of the population generally receive the
relatively largest share of benefits from public spending on
a. primary education.
b. middle-school education.
c. secondary education.
d. university.
e. graduate education.
Answer: A
3. The World Bank found that primary education
a. has no effect on productivity in small-scale agriculture.
b. increases productivity in small-scale agriculture.
c. reduces productivity in small-scale agriculture.
d. serves as a screen for those employed in small-scale agriculture.
Answer: B
4. Scholars studying the HIV/AIDS pandemic project that in Botswana in 2010
a. life expectancy without AIDS would be about 40-50 years, while life expectancy with AIDS
will be 30-40 years.
b. life expectancy without AIDS would be about 50-60 years, while life expectancy with AIDS
will be 35-50 years.
c. life expectancy without AIDS would be about 60-75 years, while life expectancy with AIDS
will be 25-30 years.
d. life expectancy without AIDS would be about 60-75 years, while life expectancy with AIDS
will be 55-65 years.
e. life expectancy without AIDS would be 75-85 years, while life expectancy with AIDS will be
60-70 years.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
5. In 2000, more than half of the world’s deaths from HIV/AIDS were in
a. Asia.
b. Europe.
c. Latin America.
d. sub-Saharan Africa.
e. the United States.
Answer: D
6. The expansion of free, public primary education in developing countries
a. improves equality of opportunity.
b. increases income.
c. reduces income inequality.
d. All of the above.
Answer: D
7. Which of the following expenditure represents investment in human capital?
a. formal education.
b. literacy training.
c. on-the-job training.
d. improved health.
e. All of the above are correct.
Answer: E
8. Which human capital investment is the most effective for LDCs to reduce poverty and income
inequality?
a. primary education
b. secondary education
c. specialized tertiary education
d. vocational training
Answer: A
9. The aggregate supply curve of labor is
a. unrelated to health.
b. inverted.
c. backward bending.
d. upward sloping.
Answer: D
10. The economic returns to primary education in LDCs
a. decrease as literacy increases.
b. are stable as population grows.
c. are less than the returns from higher education.
d. None of the above is correct.
Answer: A
11. Psacharopoulos and Woodhall indicate that the average return to education (and human
capital) is
a. lower than physical capital in LDCs but higher in DCs.
b. lower than technological change in LDCs but higher in DCs.
c. higher than physical capital in both LDCs and DCs.
d. higher than physical capital in LDCs but lower than physical capital in DCs.
Answer: D
12. The incidence of HIV infection is highest as a percentage of the population in
a. Algeria, Egypt, and Morocco.
b. Argentina, Chile, and Mexico.
c. Botswana, Zambia, and Zimbabwe.
d. China, Taiwan, and Japan.
e. Malaysia, Indonesia, and Singapore.
Answer: C
13. In developing countries, public education spending per household for the poorest segment of
the population relative to the richest segment of the population is highest for
a. primary education.
b. junior high education.
c. secondary education.
d. university education.
e. graduate education.
Answer: A
14. The largest number of AIDS-related deaths are in
a. Africa.
b. Asia.
c. Latin America.
d. the Middle East.
Answer: A
15. George J. Borjas indicates that United States’ immigrants, who have usually been educated
abroad
a. have an adverse impact on U.S. growth.
b. do not receive their marginal products as wages.
c. contribute to costly human capital in the U.S.
d. have contributed to the welfare of future generations of their home country.
Answer: B
16. At the end of the twentieth century, ________ of science and engineering Ph.D.-holders in
the United States working in industry were born abroad.
a. 1/5.
b. 1/3.
c. 2/3.
d. 2/5.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
Capital Formation, Investment Choice,
Information Technology, and
Technical Progress
______________________________________________________________________
1. How can a governmental unit choose among investment alternatives in an economically
rational way?
a. maximize physical output per physical input per unit of time.
b. maximize the present value of net social benefits per dollar.
c. minimize the cost of the labor input per dollar per unit of time.
d. minimize the risk of social benefits minus social costs per dollar.
e. All of the above are correct.
Answer: B
2. The productivity paradox observed by economists in the 1980s refers to
a. the lack of a positive relationship between information and communications technology
investments and productivity at the macro level.
b. the lack of a positive relationship between information and communications technology
investments and productivity at the micro level.
c. a negative relationship between information and communications technology investments and
productivity.
d. a positive relationship between information and communications technology investments and
productivity in excess of the relationship for investments in the total economy.
e. None of the above is correct.
Answer: A
3. Which of the following economies did Dale Jorgenson find enjoying information technology
investment that boosted growth in the late 1990s?
a. Canada, France, Germany, Japan, the United Kingdom, and the United States.
b. The United States only.
c. The United States and Canada only.
d. The United States and Japan only.
e. Virtually all the countries in the world.
Answer: A
4. Cellular phone technology has increased the productivity of individuals and firms in
a. numerous developed and developing countries.
b. the United States only.
c. the United States and Canada only.
d. the United States and Japan only.
e. the United States, Canada, Western Europe, and Japan only.
Answer: A
© E. Wayne Nafziger Development Economics Cambridge University Press
5. With a discount rate of 15 percent, the net present value of $1000 net income 20 years in the
future is
a. more than $1000.
b. $1000.
c. $500.
d. a fraction of $1000.
e. zero
Answer: D
6. Moore’s law refers to
a. the doubling of computer capacity every two years.
b. the increased price of gasoline over time.
c. the law of diminishing returns.
d. the need for entrepreneurial vigor.
e. None of the above is true.
Answer: A
7. Which of the following accounts for the major difference between social and private benefitcost calculations?
a. contingent valuation.
b. external economies.
c. stagflation.
d. sustainable development.
e. transactions costs.
Answer: B
8. Shadow prices are used by
a. business people to increase commercial profitability.
b. consumers to calculate marginal utility.
c. planners to calculate social net benefit.
d. resource buyers to determine whether to buy.
e. None of the above is correct.
Answer: C
9. A learning curve means
a. that laborers are unskilled.
b. that rural labor is preferred because of its hard work.
c. increased output per input from cumulative experience.
d. None of the above is correct.
Answer: C
10. Total factor productivity (TFP) is
a. input per output.
b. output per combined factor input.
c. growth of inputs.
d. miracle growth.
Answer: B
11. __________ is the residual factor in growth, the increased worker productivity arising from
factors other than increases in capital per worker-hour.
a. Human capital.
b. Shadow prices.
c. Technical progress.
d. Information and communications technology.
Answer: C
12. The objective of social benefit-cost analysis is to
a. maximize net social income per investment.
b. maximize labor absorption per unit of capital.
c. minimize the real discount rate.
d. minimize external economies.
Answer: A
13. In the following equation on investment criteria for projects where the environment is an
important issue, identify the meaning of V, B, C, r, and T:
T
B1  C1
B2  C2
BT  CT
Bt  Ct
V  B0  C0 





(1 r )
(1 r ) 2
(1 r ) T t 0 (1 r ) t
a. V is net present value, B is social benefits, C is social costs, and r is the rate of natural
resource depletion.
b. V is net present value, B is social benefits, C is social costs, and t is the life of the investment
project.
c. V is net present value, B is social benefits, r is the rate of natural resource depletion, and t is
the life of the investment project.
d. V is net present value, B is social benefits, C is social costs, r is the rate of natural resource
depletion, and t is the life of the investment project.
e. None of the above is correct.
Answer: E
None of the above is correct, since r is the rate of interest NOT natural resource depletion, and t
is time, NOT the life of the investment project.
© E. Wayne Nafziger Development Economics Cambridge University Press
Entrepreneurship, Organization,
and Innovation
______________________________________________________________________
1. Which of the following is not an innovation, according to Joseph Schumpeter?
a. Henry Ford’s assembly-line production of automobiles.
b. The development of coltan in Congo for cellular phones.
c. The establishment of the modern corporation.
d. The invention of the Stanley steamer.
e. The miniaturization of the radio.
Answer: D
2. Which of the following was a part of Max Weber’s view about capitalist entrepreneurship?
a. Hinduism and Confucianism promoted adherents’ capitalist activity.
b. The preaching of Martin Luther and John Calvin encouraged business activity.
c. Protestantism promoted the capitalist spirit through the late twentieth century.
d. Puritans promoted the systematic regulation of Christians in secular activity.
e. Roman Catholicism was the major force promoting European capitalism.
Answer: D
[Note: the fact that c is not correct is not only implied in “Religious and Ethnic Origin,”
Chapter 12, but is explicit in “Capitalism and Modern Western Economic Development,”
Chapter 3.]
3. Which of the following is an example of a Schumpeterian innovation?
a. accumulating wealth from the stock market.
b. hiring an energetic manager.
c. Edison’s invention of the cement piano.
d. opening a new market for autos.
e. risking funds to buy a restaurant.
Answer: D
5. For Joseph Schumpeter, the entrepreneur is the
a. capitalist.
b. gap filler.
c. innovator.
d. resource coordinator.
e. risk taker.
Answer: C
6. A stationary state involves
a. an increase in inputs without technological progress.
b. growth resulting from population growth.
c. high rates of profit.
d. net new investment and technological progress.
e. no net new investment and no increase in output.
© E. Wayne Nafziger Development Economics Cambridge University Press
Answer: E
7. The entrepreneur as gap-filler is especially important in LDCs because of
a. higher marginal returns on labor in LDCs.
b. a lack of skilled managerial talent available for hire.
c. a lack of alternative employment for the entrepreneur.
d. the abundance of marketable inputs available.
Answer: B
8. What are the coordinating instruments within the economy, according to Ronald Coase?
a. The entrepreneur, who organizes decisions within the firm.
b. The price mechanism, which coordinates decisions between firms.
c. Both a and b.
d. None of the above is correct.
Answer: C
9. Which of the following is a component of David McClelland’s theory of social change?
a. Societies with a high need for achievement produce more energetic entreprenuers.
b. Energetic entrepreneurs contribute to faster economic development.
c. Entrepreneurs can be trained to increase their motivation for achievement.
d. All of the above are true.
e. None of the above is true.
Answer: D
10. According to Peter Kilby, the functions of the entrepreneur in LDCs include
a. seeing market opportunities.
b. gaining command over resources.
c. managing finances and production.
d. All of the above are correct.
e. None of the above is correct.
Answer: D
11. What are the most frequent occupational backgrounds of LDC industrial entrepreneurs?
a. Blue-collar work.
b. Farming.
c. Government bureaucracy.
d. Landownership.
e. Trade.
Answer: E
12. An unchanging economic process that merely reproduces itself at constant rates without
innovators or entrepreneurs is
a. internal combustion.
b. a stationary state.
c. innovation.
d. efficiency.
Answer: B
13. Robert Barro and Rachel McCleary’s analysis (2003) of 59 countries examining the role of
religion in economic growth found that
a. growth responds positively to religious beliefs in hell and heaven.
b. growth in real per capita GDP reacts positively to church attendance.
c. growth depends on belonging rather than on believing.
d. religious belief and commitment were unrelated to growth.
Answer: A
© E. Wayne Nafziger Development Economics Cambridge University Press
Natural Resources and the
Environment: Toward
Sustainable Development
______________________________________________________________________
1. From the mid-1970s to the early 1990s, the Genuine Progress Indicator shows that economic
welfare per capita in the United States has
a. fallen.
b. remained about the same.
c. risen at a constant rate.
d. risen but at an accelerating rate.
e. risen but at a decelerating rate.
Answer: A
2. The leading total emitter of industrial emissions of carbon dioxide is
a. China.
b. India.
c. Germany.
d. Russia.
e. the United States.
Answer: E
3. Theodore Panayotou argues that excessive environmental damage results from
a. inadequate property rights definitions, market imperfections, and moral inadequacies.
b. inadequate property rights definitions, market imperfections, and policy failures.
c. inadequate property rights definitions, moral inadequacies, and policy failures.
d. market imperfections, moral inadequacies, and policy failures.
e. None of the above is correct.
Answer: B
4. Tropical deforestation
a. increases genetic and specie diversity and increases carbon absorption.
b. increases genetic and specie diversity and reduces carbon absorption.
c. reduces genetic and specie diversity and increases carbon absorption.
d. reduces genetic and specie diversity and reduces carbon absorption.
Answer: D
5. The reason(s) why many economists disagree with the Club of Rome study’s pessimism on
long-term growth is(are) that the Club of Rome
a. erroneously uses proven reserves for making long-term projections
b. underestimates the effect of technological change.
c. understates human use of the earth’s net primary productivity.
d. Both a and b are correct.
e. Both a and c are correct.
Answer: D
6. Critics criticize the study, The Limits to Growth, by scholars at MIT, for
a. assuming agricultural needs grow slower than technical progress.
b. assuming population growth is zero.
c. discussing population and resources by region.
d. putting no limits on technical progress.
e. using proven reserves for long-term projections.
Answer: E
7. Which alternative to GDP subtracts resource depletion and environmental cost?
a. ICCC.
b. GPI.
c. MAC.
d. PQLI.
Answer: B
8. Which if the following is not a market imperfection that contributes to environmental
degradation?
a. contingent valuation.
b. negative externalities.
c. the “tragedy of the commons.”
d. undefined property rights.
e. None of the above.
Answer: A
9. Besides maintenance of the channels used for water, a major way to reduce the overuse and
waste of Pakistan’s irrigation water is to define use rights and
a. encourage water use by large farmers.
b. increase user prices.
c. reduce user prices.
d. stop charging user fees.
e. None of the above is correct.
Answer: B
10. According to the graph in our textbook, since 1990 world grain production per person has
a. decreased.
b. increased.
c. stayed the same.
d. cannot be determined.
Answer: A
11. What are some of the principal forms of environmental degradation that adversely affect
health and productivity in developing countries?
a. hazardous wastes, reduced biodiversity, reduced carbon emissions, and soil degradation.
b. hazardous wastes, reduced biodiversity, reduced carbon emissions, and water pollution.
c. hazardous wastes, reduced biodiversity, soil degradation, and water pollution.
d. hazardous wastes, reduced carbon emissions, soil degradation, and water pollution.
e. reduced biodiversity, reduced carbon emissions, soil degradation, and water pollution.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
12. Which of the following is not an example of Garrett Hardin’s “tragedy of the commons”?
a. Businesses and individuals overpollute the atmosphere.
b. Farmers drain the Ogallala Aquifer underground reservoir.
c. Herders’ cattle overgraze a pasture open to villagers’ cattle.
d. Sears invests too little in improving marketing.
e. Shoppers find no parking where merchants provide free parking.
Answer: D
13. According to economist Theodore Panayotou, pollution is excessive when
a. air and water are dirty.
b. firms are not forced to internalize social costs.
c. government interferes in the firms’ market.
d. pollution reduces the quality of air, fresh water, or ground water.
e. both a and d are true.
Answer: B
14. The principle which contributes to problems a city faces when it abolishes parking meters
during the Christmas shopping rush is
a. internalizing externalities.
b. irreversible consumption of goods.
c. reducing congestable goods.
d. reducing transactions costs.
e. the tragedy of the commons.
Answer: E
15. A water shortage results from a price
a. corresponding to an excess demand for water.
b. corresponding to an excess supply of water.
c. equal to the equilibrium price.
d. in excess of the equilibrium price.
e. none of the above is correct.
Answer: A
16. Which of the following scholars stated that ultimately environmental damage can be traced to
distorted markets and policy failures.
a. Ronald Coase.
b. Herman Daly.
c. Donella Meadows.
d. Theodore Panayotou.
e. Edward Wilson.
Answer: D
17. In Thailand and Indonesia, some farmers use scarce irrigation water wastefully while other
farmers in the same irrigation system suffer from water shortages and unreliable supplies. What
type of approach does Theodore Panayotou suggest to solve this environmental problem?
a. Eliminate market distortions that spur overuse of water.
b. Increase the number of water monitors on the wasteful farms.
c. State should assume ownership and management of the irrigation system.
d. Reduce the prices that farmers pay for using irrigation water.
e. None of the above is correct.
Answer: A
18. Villagers in Nepal denuded the forest on the mountain slopes because of
a. excessively individualized property rights.
b. insecure use rights.
c. overpricing of user rights.
d. positive cost advantages or spillovers.
e. under use of free goods.
Answer: B
19. Panayotou has the following view concerning economic growth and the environment:
a. People should be charged for their negative spillovers.
b. Society should maximize gross national product.
c. Society should minimize environmental degradation and resource depletion.
d. The state should use subsidies to reduce environmental degradation.
e. None of the above is correct.
Answer: A
20. One way of using market forces to make the social costs of using an automobile equal to
social benefits in highly-congested cities such as Singapore is
a. making gasoline expensive by raising the tax.
b. making public transportation free.
c. requiring an expensive license to use an automobile.
d. all of the above are correct.
e. none of the above are correct.
Answer: D
21. Which of the following discount (interest) rate is more likely to result in specie extinction?
a. a high discount rate.
b. a low discount rate.
c. a negative discount rate.
d. a zero discount rate.
Answer: A
22. The case for a zero discount rate is strongest when considering
a. an iron foundary.
b. automobile production.
c. education.
d. endangered species.
e. textile production.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
23.
What is the relationship between suspended particulate matter (SPM) and national GDP
per capita?
a. SPM increases with increased GDP per capita from low-income to middle-income levels and
increases with looser government restrictions from increased GDP per capita from middleincome levels to high income levels.
b. SPM increases with increased GDP per capita from low-income to middle-income levels and
falls with tighter government restrictions from increased GDP per capita from middle-income
levels to high income levels.
c. SPM falls with increased GDP per capita from low-income to middle-income levels and
increases with looser government restrictions from increased GDP per capita from middleincome levels to high income levels.
d. SPM falls with increased GDP per capita from low-income to middle-income levels and falls
with looser government restrictions from increased GDP per capita from middle-income levels
to high income levels.
Answer: B
24. The least-cost method of abating greenhouse gases internationally is through
a. limiting emissions to 1990 levels.
b. stabilizing average temperatures at 1990 levels.
c. tradable emission permits.
d. data are lacking to choose between these three alternatives.
Answer: C
25. Which of the following indicates the proportion of annual emissions of carbon dioxide?
a. High income countries emit about 10 percent of the total and developing (middle and low
income) countries about 90 percent of the total.
b. High income countries emit about 90 percent of the total and developing (middle and low
income) countries about 10 percent of the total.
c. High income countries emit about half of the total and developing (middle and low income)
countries about half of the total.
d. None of the above is correct.
Answer: C
26. The increase in CO2 concentration in the last 50 years or so is a result of
a. burning of fossil fuels.
b. groundwater depletion.
c. planting of new forests.
d. Both a and b are correct.
e. Both a and c are correct.
Answer: A
27. Which of the following will increase the US’s GNP?
a. Cleaning up an oil spill.
b. Cutting trees and selling timber.
c. Medical costs resulting from air pollution.
d. Shifting from bicycles to autos.
e. All of the above are correct.
Answer: E
28. The World Bank subtracts all of the following except one from gross domestic savings to get
adjusted net savings. Which of the following is not subtracted to get adjusted net savings?
a. Carbon dioxide damage.
b. Consumption of fixed capital.
c. Education expenditure.
d. Energy depletion.
e. Mineral depletion.
Answer: C
29. Which of the following argument is that of Herman Daly?
a. Division of labor and economies of large-scale production increase as markets expand. As
population size rises, the supply of and demand for inventions increase.
b. Humans directly use or destroy about 25 percent of the earth’s net primary productivity.
Doubling humans’ share twice is unsustainable.
c. If society defines property rights clearly, then markets will produce efficient outcomes.
d. Sustainability doesn't require that any particular species be preserved. We know that one kind
of input can be substituted for another in production.
e. Ultimately, excessive environmental damage can be traced to “bad” economics stemming
from misguided government policies and distorted markets.
Answer: B
30.
The city government of Delhi wishes to minimize the social cost associated with
factories’ emission of suspended particulate matter. What decision making rule should the city
government of Delhi use?
a. Put into place polices to continue to reduce pollution emissions by one ton per year until the
average reduction in the dollar cost of these emissions to humans, materials, buildings,
animals, and ecosystems equals the average increase in abatement cost.
b. Put into place polices to continue to reduce pollution emissions by one ton per year until the
marginal reduction in the dollar cost of these emissions to humans, materials, buildings,
animals, and ecosystems equals the marginal increase in abatement cost.
c. Put into place polices to continue to reduce pollution emissions by one ton per year until the
marginal reduction in the dollar cost of these emissions to humans, materials, buildings,
animals, and ecosystems exceeds the marginal increase in abatement cost.
d. Put into place polices to continue to reduce pollution emissions by one ton per year until the
marginal reduction in the dollar cost of these emissions to humans, materials, buildings,
animals, and ecosystems is less than the marginal increase in abatement cost.
e. Put into place polices to continue to reduce pollution emissions by one ton per year until the
total dollar cost of these emissions to humans, materials, buildings, animals, and ecosystems
equals the total abatement cost.
Answer: B
31. Which of the following are not social costs to be added to the private cost of a gasolinepowered vehicles?
a. carbon emissions.
b. ozone pollution.
c. resource depletion.
d. traffic jams.
e. none of the above.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
32. For Herman Daly, the limiting factor in economic development is
a. entrepreneurship
b. human skills
c. natural capital
d. physical capital
Answer: C
33. Most scientists think that the major contributors to the increase in global atmospheric
temperature in the last seventy years have been
a. factories and forests.
b. factories and pets.
c. factories and vehicles.
d. forests and pets.
e. forests and vehicles.
Answer: C
34. Georgesco-Roegen thinks that human species will have a short life because of
a. a lack of labor inputs into the production process.
b. low entropy of the economic process.
c. our increased depletion of mineral deposits to produce luxuries.
d. None of the above is correct.
Answer: C
35. Dutch disease refers to revenues from booming primary products that
a. appreciate the home currency.
b. increase incentives to export other goods.
c. increase import substitution.
d. lower factor prices for other home goods.
e. None of the above is correct.
Answer: A
36. What would happen to the market for petroleum, with the passage of a tax proportional to
carbon emissions?
a. price would decrease and quantity demanded would fall.
b. price would decrease and quantity demanded would rise.
c. price would increase and quantity demanded would fall.
d. price would increase and quantity demanded would rise.
e. price would not be affected.
Answer: C
37. What is Ronald Coase’s view on the role of the market in environmental decisions?
a. Establishing markets for land, air, and water is wrong.
b. Markets produce efficient outcomes if property rights are defined clearly.
c. Markets produce efficient outcomes with government taxes and subsidies.
d. Transactions costs approach zero in environmental decisions.
e. None of the above is correct.
Answer: B
38. An example of an environmental public good, which is characterized by non-rivalry in
consumption, is
a. biodiversity.
b. lighthouses.
c. oceans.
d. All of the above are correct.
e. None of the above is correct.
Answer: D
39. The purpose of the Montreal Protocol, signed in 1987, was to reduce
a. greenhouse gases through cutting CFC production.
b. greenhouse gases through cutting CO2 production.
c. ozone depletion through cutting CFC production.
d. ozone depletion through cutting CO2 production.
e. None of the above is true.
Answer: C
40. The purpose of the Kyoto Protocol, signed in 1997, is to reduce
a. greenhouse gases through cutting CFC production.
b. greenhouse gases through cutting CO2 production.
c. ozone depletion through cutting CFC production.
d. ozone depletion through cutting CO2 production.
e. None of the above is true.
Answer: B
41. Which of the following are weaknesses of the contingent valuation method?
a. belief that answers are hypothetical.
b. lack of respondent information.
c. non-response bias.
d. strategic bias.
e. All of the above are correct.
Answer: E
42. Sustainable development refers to
a. maintaining the productivity of natural, produced, and human assets to the next generation.
b. maximizing the rate of growth of real gross domestic product per capita over the long run.
c. minimizing the inequality of income distribution over the long run.
d. minimizing the price of natural resources over the long run.
e. producing to the point where a firm’s marginal cost equals a firm’s marginal revenue.
Answer: A
43. Developing countries are more likely to face a “tragedy of the commons” when
a. institutions are highly developed.
b. land tenure is individualized.
c. property rights are poorly defined.
d. the population growth rate is zero.
e. None of the above is correct.
Answer: C
26. The Genuine Progress Indicator (GPI) per capita for the United States
© E. Wayne Nafziger Development Economics Cambridge University Press
a. fell for about two centuries, then rose from 1976 to 2002.
b. fell for the two centuries through 2002.
c. rose for about two centuries, then declined from 1976 to 2002.
d. rose for the two centuries through 2002.
Answer: C
Monetary, Fiscal, and
Incomes Policy, and Inflation
_____________________________________________________________________________
1. From 1992 to 2003, inflation rates were
a. highest in Africa and lowest in the developed countries.
b. highest in Africa and lowest in Latin America.
c. highest in Asia and lowest in Africa.
d. highest in developed countries and lowest in Latin America.
e. highest in Latin America and lowest in the developed countries.
Answer: E
2. Tax revenue as a percentage of GDP is
a. highest in Africa and lowest in Asia.
b. highest in Africa and lowest in Europe.
c. highest in Asia and lowest in Latin America.
d. highest in Europe and lowest in Asia.
e. highest in Latin America and lowest in Asia.
Answer: D
3. Economists who believe in structural inflation attribute structural inflation to which of the
following factors:
a. cost of import substitution, devaluation, deterioration in terms of trade, and elastic primary
product imports.
b. cost of import substitution, devaluation, deterioration in terms of trade, and rise in agricultural
prices.
c. cost of import substitution, devaluation, elastic primary product imports, and rise in
agricultural prices.
d. cost of import substitution, deterioration in terms of trade, elastic primary product imports, and
rise in agricultural prices.
e. devaluation, deterioration in terms of trade, elastic primary product imports, and rise in
agricultural prices.
Answer: B
4. Financial repression refers to
a. bad debt ratios.
b. central banks in the United States.
c. distortions of interest rates and foreign exchange rates.
d. quelling of basic rights and liberties.
e. setting interest rates and foreign exchange rates at market rates.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
5. Wagner’s law states that as GNP per capita rises
a. people demand relatively more private goods and relatively fewer social goods.
b. people demand relatively more social goods and relatively fewer private goods.
c. the demand for music symphonies falls.
d. the relative supply and demand for private goods increases.
e. the relative supply and demand for social goods falls.
Answer: B
6. Which of the following is an example of moral hazard?
a. A bank expects the state to protect it from losses in loaning to questionable borrowers.
b. A developing country increases its borrowing with the expectation that the IMF and the
West will bail it out.
c. A home owner with fire insurance is more careless with combustible material.
d. All of the above are correct.
e. a and c are correct.
Answer: D
7. If a country relies more heavily on taxes with a greater elasticity, this means
a. that tax revenues rise faster than GNP.
b. the percentage change in taxes divided by the percentage change in GNP is less than one.
c. the elasticity coefficient is less than one.
d. the elasticity coefficient is zero.
Answer: A
8. Cost-push inflation means that
a. the Central Bank has not been doing its job.
b.. the government has overused its powers to tax.
c. prices increase with no increased demand because of higher costs in imperfectly competitive
markets.
d. there is excess demand in the economy.
Answer: C
9. Why are direct taxes as a percentage of GNP generally lower, and indirect taxes as a
percentage of GNP generally higher for LDCs than DCs?
a. indirect taxes are easier to administer.
b. indirect taxes are usually more politically feasible.
c. indirect taxes provide more potential for increases with economic growth.
d. Both a and b are correct.
e. Both b and c are correct.
Answer: D
10.
According to figures from the textbook, the average annual rate of inflation for
developing countries in the 1990s was
a. higher in Africa than in Latin America.
b. higher than during the 1980s.
c. higher than in the developed countries in the 1990s.
d. less than 10 percent annually.
e. All of the above are correct.
Answer: C
11. An example of financial repression is
I interest rate ceilings.
II non-price rationing of loans.
III restrictions on acquiring foreign exchange.
IV transactions taxes on private bonds.
a. I and II only.
b. III and IV only.
c. I, II and III only.
d. I, II, III and IV.
Answer: D
12. In the 1990s, hyperinflation occurred for at least a year in
a. India.
b. Japan.
c. Russia.
d. South Korea.
e. United States.
Answer: C
13. What explains the extent of reliance on personal income taxation in the low-income
countries of Africa?
a. Large revenue generation because of administrative simplicity.
b. Large revenue generation relative to indirect taxes.
c. Large revenue generation relative to Western countries.
d. Little revenue generation because of administrative limitations.
e. Little revenue generation because of no personal income.
Answer: D
14. How does Nobel prize winner Joseph Stiglitz think the International Monetary Fund (IMF)
should view inflation in developing countries?
a. The IMF should be more severe in requiring developing countries to reduce inflation rates.
b. The IMF should encourage inflation rates in developing countries at more that 90% yearly.
c. The IMF should keep its hands off inflation policies in developing countries.
d. The IMF should not require that developing countries attain inflation rates below 15% yearly.
Answer: D
15. The trend for inflation in developing countries since the 1960s has been
a. constant over time.
b. continuously downward.
c. continuously upward.
d. downward through the 1980s, but upward since.
e. upward through the 1980s, but downward since.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
16. The developing region with the highest rate of inflation since the 1960s has been
a. Africa.
b. Asia.
c. Latin America.
d. the Middle East.
Answer: C
18. Annual inflation rates in Latin America during both decades of the 1980s and 1990s were
a. 0-5%.
b. 5-10%.
c. 10-15%.
d. 15-20%.
e. more than 20%.
Answer: E
Balance of Payments, Aid,
and Foreign Investment
_____________________________________________________________________________
1. An inflow of capital from abroad means that
a. imports exceed exports.
b. savings exceed investment.
c. expenditures exceed income.
d. All of the above are correct.
e. a and c are correct.
Answer: E
2. An inflow of capital from abroad means that
a. exports exceed imports.
b. savings exceeds investment.
c. income exceeds expenditures.
d. All of the above are correct.
e. None of the above is correct.
Answer: E
3. An inflow of capital from abroad means that
I. imports exceed exports.
II investment exceeds savings.
III expenditures exceeds income.
a. I only.
b. II only.
c. I and II only.
d. I, II and III.
Answer: D
4. Capital inflows from abroad equals
a. expenditures minus income.
b. imports minus exports.
c. investment minus savings.
d. All of the above are true.
e. None of the above are true.
Answer: D
5. The top ten recipients of U.S. aid in 2000 include:
a. Colombia, China, Egypt, Indonesia, and Israel.
b. Colombia, China, Egypt, Indonesia, and Jordan.
c. Colombia, China, Egypt, Israel, and Jordan.
d. Colombia, China, Indonesia, Israel, and Jordan.
e. Colombia, Egypt, Indonesia, Israel, and Jordan.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
6. The top ten recipients of U.S. aid in 2000 include
I Colombia
II Egypt
III Indonesia
IV Russia
a. II only.
b. II and III only.
c. I, II and III only.
d. I, II, III and IV.
Answer: D
7. The leading recipients of US aid include
a. Israel and Egypt.
b. Kenya and Uganda.
c. Malaysia and Thailand.
d. Mexico and Brazil.
e. Nigeria and Ghana.
Answer: A
8. In 2000, how did the United States rank as an aid giver among OECD (Organization for
Economic Cooperation and Development) members?
a. First in total aid given and near the top in aid as a percentage of GNI.
b. First in total aid given but near the bottom in aid as a percentage of GNI.
c. Near the bottom in total aid given and near the bottom in aid as a percentage of GNI.
d. Near the middle in total aid given and near the bottom in aid as a percentage of GNI.
e. Near the middle in total aid given and near the middle in aid as a percentage of GNI.
Answer: B
9. US official development assistance (ODA) to developing countries as a percentage of GNP
a. is among the highest of Western countries.
b. is higher than in the 1960s and 1970s.
c. is among the lowest of Western countries.
d. a and b are both correct.
Answer: C
10. Aid includes
a. grants.
b. loans at bankers’ standards.
c. loans with at least a 25% concessional component.
d. both a and c.
e. both b and c.
Answer: D
11. The stages approach to the balance of payments indicates that a
a. newly industrializing country can expect a growing debt, and with growth a deficit.
b. newly industrializing country can expect a growing debt, but with growth a surplus.
c. newly industrializing country can expect a growing surplus, but with growth a deficit.
d. newly industrializing country can expect a growing surplus, but with growth a surplus.
Answer: B
12. The leading aid donor in 2001 was
a. Norway in dollar amount and Denmark in aid as a percentage of gross national income. Ireland
is about at the bottom among OECD in aid as a percentage of gross national income.
b. Norway in dollar amount and Denmark in aid as a percentage of gross national income. The
United States is about at the bottom among OECD countries in aid as a percentage of gross
national income.
c. the United States in dollar amount and Denmark in aid as a percentage of gross national
income. The United States is about at the bottom among OECD in aid as a percentage of gross
national income.
d. the United States in dollar amount and Denmark in aid as a percentage of gross national
income. Ireland is close to the bottom among OECD in aid as a percentage of gross national
income.
e. the United States in dollar amount and the United States in aid as a percentage of gross
national income. Ireland is about at the bottom among OECD in aid as a percentage of gross
national income.
Answer: C
13. U.S. real aid has
a. decreased from 1960 to 2000.
b. increased from 1960 to 2000.
c. stayed about the same between 1960 and 2000.
d. increased exponentially.
Answer: A
14. Which of the following two gaps do foreign aid and capital reduce?
a. consumption and export gaps.
b. consumption and investment gaps.
c. savings and export gaps.
d. savings and foreign exchange gaps.
Answer: D
15. What is the major source of financing the external deficit of developing countries?
a. aid.
b. loans and investment.
c. workers’ remittances.
d. none of the above.
Answer: B
© E. Wayne Nafziger Development Economics Cambridge University Press
16. Which of the following type of food aid has the largest positive effect on developing
countries’ balance of payments?
a. cash assistance for commercial food imports.
b. direct transfer of grains from the United States and other DCs.
c. loans at bankers’ standards.
d. None of the above is correct.
Answer: A
17. The balance on current account
a. equals the absolute value of the balance on capital account.
b. includes goods, services, and unilateral transfers.
c. is from current income.
d. All of the above are correct.
Answer: D
18. When developing countries have a chronic balance on goods and services deficit,
a. the International Monetary Fund loans to these countries on condition that they adopt
approved macroeconomic stabilization.
b. the International Monetary Fund loans to these countries on condition that they fix prices for
food.
c. the World Bank loans to these countries on condition that they appreciate the domestic price of
foreign exchange.
d. the World Bank loans to these countries on condition that they stop financial liberalization.
e. None of the above are true.
Answer: A
19. Which of the following is not a policy supported by the World Bank or International
Monetary Fund to adjust away from a balance of payments disequilibrium?
a. economic reform.
b. macroeconomic stabilization.
c. sectoral adjustment policies
d. structural adjustment policies.
e. None of the above is the answer.
Answer: E
The External Debt and
Financial Crises
_____________________________________________________________________________
1. How might prosperous temperate countries benefit from debt-for-nature swaps with tropical
countries?
a. Increased biodiversity and increased carbon emissions.
b. Increased biodiversity and increased carbon sequestration.
c. Increased biodiversity and increased hardwood timber harvest.
d. Increased carbon emissions and increased hardwood timber harvest.
e. Increased carbon sequestration and increased hardwood timber harvest.
Answer: B
2. The views on how to resolve crises similar to those in East and Southeast Asia, 1997-99, are
divided between two following opposing camps:
a. economists who believe that fundamental weaknesses in Asian economies require long-term
structural reforms and economists who believe in immediate financial sector reform to reduce
high bad debt ratios.
b. economists who believe that fundamental weaknesses in Asian economies require long-term
structural reforms and economists who believe that modest short-term measures could have
avoided the crisis.
c. economists who object to the IMF compelling contractionary monetary and fiscal policies and
economists who believe that modest short-term measures could have avoided the crisis.
d. economists who object to the IMF forcing Asian economies to take bitter economic medicine
and economists who oppose Asian economies undertaking contractionary monetary and fiscal
policies.
e. economists who worry about too frequent IMF “bail outs” of failed projects and economists
who believe in immediate financial sector reform to reduce high bad debt ratios.
Answer: B
3. The debt service ratio is
a. debt divided by exports.
b. debt divided by gross national product.
c. debt divided by service.
d. interest and principal payments divided by exports.
e. None of the above are correct.
Answer: D
4. Jubilee 2000 refers to efforts to
a. increase consumption of automobiles in LDCs.
b. establish a Middle Eastern festival.
c. provide debt relief for the poorest LDCs.
d. transfer technology to Asian countries.
e. none of the above is correct.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
5. Capital flight results from
a. Higher risks in the source country than in the haven country.
b. Higher capital per worker in the source country than in the haven country.
c. Lower rates of return in source country than in the haven country.
d. Both a & b are correct
e. Both a & c are correct
Answer: E
6. Some of the reasons for debt crises in developing countries include
I. high international balance on goods and services deficits.
II inefficient management.
III misdirection by political elites.
IV overvalued domestic currencies.
a. I, II and IV only.
b. I, II and III only.
c. II, III and Iv only.
d. I, II, III and IV.
Answer: D
7. Nobel prize economist Joe Stiglitz thinks that the international agencies and the DCs
a. need to provide less resources for LDCs & set no conditions at all for LDCs.
b. need to provide less resources for LDCs & set conditions that are more lax for LDCs.
c. need to provide less resources for LDCs & set conditions that are stricter for LDCs.
d. need to provide more resources for LDCs & set conditions that are more lax for LDCs.
e. need to provide more resources for LDCs & set conditions that are stricter for LDCs.
Answer: D
8. Just before 1997, the four Asian countries (Thailand, Malaysia, South Korea, and Indonesia)
experienced
a. capital inflows which reversed in late 1997.
b. current account surpluses.
c. few bank nonperforming loans.
d. strong bank regulation.
e. None of the above is true.
Answer: A
9. Joseph Stiglitz, a critic of International Monetary Fund (IMF) policy toward the four Asian
countries (Thailand, Malaysia, South Korea, and Indonesia) in 1997, blamed the IMF for
a. instituting capital controls on Asian economies.
b. lacking high loan standards for Asia.
c. opposing structural reforms in Asian banking and finance.
d. requiring contractionary financial policies for Asia.
e. All of the above are correct.
Answer: D
10. The policy cartel on debt reduction refers to the
a. collusion by debtors to improve the terms of debt.
b. creditors requiring IMF-approved programs.
c. debt-equity swaps by debtors.
d. formation of a debt consortium by the International Bank of Settlements.
e. None of the above are correct.
Answer: B
11. Argentina’s 2001-2003 crisis consisted of
a. a balance of payments deficit.
b. high unemployment.
c. peso devaluation.
d. real income reductions.
e.All of the above are true.
Answer: E
12. Which of the following has had a major financial crisis between 2001 and 2003?
a. Argentina.
b. India.
c. Mexico.
d. South Africa.
e. All of the above are correct.
Answer: A
© E. Wayne Nafziger Development Economics Cambridge University Press
International Trade
_____________________________________________________________________________
1. What, if any, is the major causal relationship between trade and income per capita, according
to Frankel and Romer’s study.
a. An increase in income per capita increases trade.
b. An increase in trade increases income per capita.
c. Income per capita and trade are correlated but causation is uncertain.
d. There is no relationship between income per capita and trade.
Answer: B
2. In which of the following instances will countries benefit from more liberal trade in services?
a. Joint ventures and contracts with foreign consultants can improve the efficiency of services in
developing countries.
b. Liberalization of services is expected to improve the United States’s balance on current
account.
c. Many Asian developing countries have a comparative advantage in inexpensive skilled labor
services.
d. The United States has a comparative advantage in business, financial, and professional
services.
e. All of the above are correct.
Answer: E
3. Exchange controls
a. are codes of conduct for savings banks.
b. determine a country’s terms of trade.
c. limit a citizen’s foreign currency.
d. regulate the stock market.
Answer: C
4. The commodity terms of trade equals the
a. price index of exports divided by the price index of imports.
b. quantity index of exports divided by the quantity index of imports.
c. value index of exports divided by the value index of imports.
d. None of the above is true.
Answer: A
5. An overvalued domestic currency is
a. biased against exports.
b. biased against imports,
c. biased against import substitutes.
d. both a and b are correct.
e. both a and c are correct.
Answer: E
6. The real exchange rate is equal to the foreign currency price of the domestic currency times
the percentage change in foreign currency price of the domestic currency from base year to
terminal year times
a. the domestic inflation rate/the inflation rate in the rest of the world.
b. the domestic inflation rate in the early period/the domestic inflation rate in the late period.
c. the inflation rate in the rest of the world.
d. the inflation rate in the rest of the world/the inflation rate in the US.
e. None of the above are correct.
Answer: A
7. The theory of comparative advantage
a. argues against importing goods made by cheap labor.
b. assures a favorable balance of trade.
c. is a strong argument for free trade.
d. supports the infant industry argument.
Answer: C
8. Devaluation
a. encourages imports and discourages exports.
b. encourages exports and discourages imports.
c. encourages both exports and imports.
d. discourages both exports and imports.
Answer: B
9. Import substitution refers to policies of
a. developing domestic sources for goods previously imported.
b. substituting imports for higher-cost domestic production.
c. increasing export earnings in order to purchase more imports.
d. developing agriculture rather than industry.
Answer: A
10. Under the present exchange rate system, the value of world currencies
a. are fixed relative to the U.S. dollar.
b. float relative to the U.S. dollar.
c. are adjusted daily relative to the U.S. dollar.
d. are set by a hybrid of fixed and floating systems.
Answer: D
11. The effective rate of protection is
a. a major source of revenue in developing countries.
b. the generalized system of tariff preferences.
c. the nominal exchange rate adjusted for inflation at home and abroad.
d. protection as a proportion of value-added.
e. All of the above are correct.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
12. According to the major argument for free trade, if the ratio of the price of steel to that of
textiles in Kenya is 5:3 and in Uganda is 5:1 than
a. Kenya has a comparative advantage in both steel and textiles.
b. Kenya has a comparative advantage in steel and Uganda a comparative advantage in textiles.
c. Uganda has a comparative advantage in both steel and textiles.
d. Uganda has a comparative advantage in steel and Kenya a comparative advantage in textiles.
e. neither has a comparative advantage in either good.
Answer: B
13. The Indian rupee is overvalued
a. when Rupees 50=$1 is the actual price and Rupees 25=$1 is the market price.
b. when Rupees 100=$1 is the actual price and Rupees 25=$1 is the market price.
c. when Rupees 50=$1 is the market price and Rupees 25=$1 is the actual price.
d. All of the above are correct.
e. None of the above is correct.
Answer: C
14. The real exchange rate is equal to the foreign currency price of the domestic currency times
the percentage change in foreign currency price of the domestic currency from base year to
terminal year times
a. the domestic inflation rate/the inflation rate in the rest of the world.
b. the domestic inflation rate in the early period/the domestic inflation rate in the late period.
c. the inflation rate in the rest of the world.
d. the inflation rate in the rest of the world/the inflation rate in the US.
e. None of the above are correct.
Answer: A
15. According to the product cycle model,
a. advanced economies have a comparative advantage in labor-intensive goods while lessdeveloped economies have a comparative advantage in capital-intensive goods.
b. advanced economies have a comparative advantage in non-standardized goods while lessdeveloped economies have a comparative advantage in standardized goods.
c. advanced economies have a comparative advantage in standardized goods while lessdeveloped economies have a comparative advantage in non-standardized goods.
d. comparative advantage shifts from an economy with unskilled labor in the beginning to an
economy with highly skilled labor subsequently.
e. None of the above is correct.
Answer: B
16. Which one of the following ranks correctly the four levels of regional economic integration
from lowest level to the highest level, where the highest level is that in which there is the greatest
economic integration?
a. Customs union, economic union, free trade area, and common market.
b. Customs union, free trade area, common market, and economic union.
c. Common market, free trade area, customs union, and economic union.
d. Common market, customs union, free trade area, and economic union.
e. Free trade area, customs union, common market, and economic union.
Answer: E
17. The Heckscher-Ohlin theorem shows that a nation gains from trade by
a. specialization in the high technology capital intensive production technique.
b. determining terms of trade under pure competition according to absolute advantage.
c. exporting the commodity whose production requires the intensive use of the
country's relatively abundant factor.
d. importing the good whose production requires the intensive use of the relatively
abundant factor.
Answer: C
18. Germany exports Mercedes-Benz to the United States, and United States exports Cadillacs
to Germany. This is an example of
a. monopolistical trade.
b. protective trade.
c. intraindustry trade.
d. trade spillovers.
Answer: C
© E. Wayne Nafziger Development Economics Cambridge University Press
Development Planning and
Policymaking: the State, and
the Market
_____________________________________________________________________________
1. Use of macroeconomic planning models in LDCs is limited by
a. LDCs’ lack of technicians and accurate data.
b. lack of funding to construct complex, multi-equation models.
c. inability to predict the actions of the private sector.
d. all of the above.
Answer: A
2. The development plan and the market are two different ways of
a. coordinating transactions.
b. allocating resources.
c. equating marginal benefits and marginal costs.
d. doing all of the above.
Answer: D
3. In planning, target variables are the
a. structural changes necessary to maximize production.
b. economic goals to be achieved through planning.
c. elements of the economy selected for study.
d. the variable elements of the economy (versus the fixed elements).
Answer: B
4. A country that implemented worker-managed socialism in the 1960s and 1970s was
a. the former Yugoslavia.
b. Nigeria.
c. India
d. the Soviet Union.
e. China.
Answer: A
5. Target variables are
a. goals expressed in measurable terms.
b. another name for instrument variables.
c. not a part of an indicative plan.
d. none of the above.
Answer: A
6. A rolling plan usually
a. is prepared for a 30 year period.
b. does not include budget figures.
c. is generally considered to be fixed for 5-year periods.
d. is revised and renewed at the end of each year.
Answer: D
7. An input-output table when divided horizontally
a. shows how the output of each industry is distributed among other industries and sectors of the
economy.
b. shows the inputs to each industry from other industries and sectors.
c. shows only the inputs.
d. shows only the outputs.
Answer: A
8. An input-output table when divided vertically
a. shows how the output of each industry is distributed among other industries and sectors of the
economy.
b. shows the inputs to each industry from other industries and sectors.
c. shows only the inputs.
d. shows only the outputs.
Answer: B
9. Public policies towards the private sector might involve
I providing adequate infrastructure.
II providing the necessary skills through general education.
III improving the legal framework.
IV reducing monopolies and oligopolies.
a. I and II only.
b. III and IV only.
c. I, II, and III only.
d. I, II, III and IV.
Answer: D
10. India’s system in 1970 of using quotas to award materials and inputs to firms at less than
market prices resulted in
a. a black market for materials and inputs.
b. charges of arbitrary selection of firms receiving quotas
c. discouraging the entry of new firms.
d. subsidizing firms awarded the materials or inputs.
e. All of the above are true.
Answer: E
© E. Wayne Nafziger Development Economics Cambridge University Press
Stabilization, Adjustment,
Reform, and Privatization
_____________________________________________________________________________
1. From 1990 to 2004, consumer prices in Russia
a. fell by less than 5%.
b. fell by more than 10%.
c. increased less than 50%.
d. increased more than 15-fold.
e. stayed about the same.
Answer: D
2. Which of the following is not a policy supported by the World Bank or International
Monetary Fund to adjust away from a balance of payments disequilibrium?
a. economic reform.
b. macroeconomic stabilization.
c. sectoral adjustment policies
d. structural adjustment policies.
e. None of the above is the answer.
Answer: E
3. According to International Monetary Fund statistics, real GDP in Russia
a. doubled between 1990 and 2004.
b. fell about 3% from 1990 to 2004.
c. fell about 20% from 1990 to 2004
d. increased about 5% from 1990 to 2004.
e. remained the same from 1990 to 2004.
Answer: C
4. China’s transition to the market economy has been
a. about the same in abruptness as Russia’s transition to the market.
b. more abrupt than Russia’s transition to the market.
c. more gradual than Russia’s transition to the market.
d. slowest since 1980.
Answer: C
5. Since 1989, among the transitional countries of Eastern and Central Europe and the former
Soviet Union,
a. less than half reached 1989’s real GDP in 2001. Poland’s real growth, 1989-2001, was the
fastest and Russia’s real growth was among the five slowest.
b. less than half reached 1989’s real GDP in 2001. Russia’s real growth, 1989-2001, was the
fastest and Poland’s real growth was among the five slowest.
c. more than half reached 1989’s real GDP in 2001. Poland’s real growth, 1989-2001, was the
fastest and Russia’s real growth was among the five slowest.
d. more than half reached 1989’s real GDP in 2001. Russia’s real growth, 1989-2001, was the
fastest and Poland’s real growth was among the five slowest.
Answer: A
6. The transitional economies with the fastest economic growth between 1989 and 2001 include
a. Czech Republic, Hungary, Poland, Russia, and Slovakia.
b. Czech Republic, Hungary, Poland, Slovakia, and Slovenia
c. Hungary, Poland, Russia, Slovenia, and Ukraine.
d. Hungary, Poland, Russia, Slovakia, and Slovenia
e. Hungary, Poland, Slovakia, Slovenia, and Ukraine
Answer: B
7. “Shock therapy” refers to
a. an abrupt transition from planning to the market.
b. a gradual approach to creating new market institutions
c. a return to authoritarian rule.
d. instituting widespread price controls.
e. nationalization of industrial enterprises.
Answer: A
8. A balance of payments disequilibrium includes
a. a payments balance achieved by exchange controls.
b. a payments balance achieved by high unemployment.
c. a payments balance achieved by raising tariffs.
d. a persistent international payments imbalance.
e. All of the above are correct.
Answer: E
9. China’s transition to the market economy has been
a. about the same in abruptness as Russia’s transition to the market.
b. fastest under Mao Zedong.
c. more abrupt than Russia’s transition to the market.
d. more gradual than Russia’s transition to the market.
Answer: D
10. The reason for the collapse of the Soviet economy included
a. the low literacy rate.
b. the low percentage of defense expenditures to GNP.
c. the low rate of technological progress.
d. the low savings rate.
e. None of the above is correct.
Answer: C
11. After 1991, the Russian nomenklatura, those having access to government positions during
the Soviet period,
a. comprised most of the poor under capitalism.
b. concentrated on national economic performance rather than control.
c. lost position to those further down the political hierarchy.
d. positioned themselves to control the new economy.
e. restored detailed state planning.
Answer: D
© E. Wayne Nafziger Development Economics Cambridge University Press
12. A soft budget constraint refers to
a. banks continuing to lend to losing enterprises.
b. rigid tax rates with no flexibility.
c. serious consequences from an enterprise deficit.
d. stingy lending policies by banks.
e. uniform tax rates for enterprises.
Answer: A
13. Trade virtually collapsed among communist countries from 1989 to 1992 because of
a. the disruption of trade within COMECON, the communist trading bloc.
b. the reduction of trade within the former Soviet Union.
c. None of the above is true.
d. Both a and b are true.
Answer: D
14. Which of the following option indicates the East and Central European countries with the
fastest and slowest economic growth between 1989 and 2001?
a. Bulgaria, Czech Republic, Estonia, Poland, and Slovenia are the fastest and Hungary, Latvia,
Lithuania, Romania, and Slovakia are the slowest.
b. Bulgaria, Estonia, Hungary, Slovakia, and Slovenia are the fastest and Czech Republic, Latvia,
Lithuania, Poland, and Romania are the slowest.
c. Czech Republic, Hungary, Poland, Slovakia, and Slovenia are the fastest and Bulgaria,
Estonia, Latvia, Lithuania, and Romania are the slowest.
d. Estonia, Hungary, Latvia, Poland, and Romania are the fastest and Bulgaria, Czech Republic,
Lithuania, Romania, Slovakia, and Slovenia are the slowest.
e. Hungary, Latvia, Lithuania, Poland, and Romania are the fastest and Bulgaria, Czech
Republic, Estonia, Slovakia, and Slovenia are the slowest.
Answer: C
15. Compare Poland to Russia just after the fall of communism. Which of the following choices
is correct?
a. Poland converted its currency later, attracted net capital inflows sooner, and successfully
levied income taxes sooner.
b. Poland converted its currency sooner, attracted net capital inflows sooner, and successfully
levied income taxes sooner.
c. Poland converted its currency sooner, attracted net capital inflows later, and successfully
levied income taxes sooner.
d. Poland converted its currency sooner, attracted net capital inflows sooner, and successfully
levied income taxes later.
Answer: B
16. As of 2001, which one of the following describes the GDP per person at PPP of the three
European Union accession states-- Czech Republic, Hungary, and Poland—compared to the
GDP per person at PPP of the European Union (EU) 15?
a. All three of the accession states’ GDP per person at PPP are above the average EU-15 state.
b. None of the three accession states has a GDP per person at PPP more than 80 percent of that
of the average EU-15 state.
c. The Czech Republic has a GDP per person at PPP more than that of the average EU-15 state,
while Poland and Hungary have a GDP per person at PPP less than that of the average EU-15
state.
d. None of the above statements is correct.
Answer: B
17. China decided to reform its economy in 1977-80 for every reason except the following:
a. China’s consumption levels were falling further behind its Asian neighbors.
b. Mao Zedong, a founder of China’s communism, had died.
c. The collapse of communism in the Soviet Union.
d. The great waste and inefficiency during the Cultural Revolution.
e. The incentives of wage differentials had been removed.
Answer: C
18. What happened to direct foreign investment (DFI) in China at the turn of the twenty-first
century?
a. DFI by Italy was greater than any other foreign country.
b. DFI by Taiwan was prevented.
c. DFI by the West fell substantially.
d. DFI in China was behind India, South Africa, and Brazil.
e. DFI in China was higher than any other developing economy.
Answer: E
19. The fastest growth in manufacturing industry in China after 1979 occurred in
a. the bank-owned sector.
b. the peoples’ communes.
c. the private, town, and village enterprise sector.
d. the state-owned enterprise sector.
e. None of the above is correct.
Answer: C
20. The majority of China’s state-owned enterprises
a. lose money but usually have access to bank credit.
b. lose money but do not have access to bank credit.
c. make money and usually have access to bank credit.
d. make money but do not have access to bank credit.
Answer: A
21. A good that cannot be withheld from individuals who do not pay for it is called a
a. free good.
b. merit good.
c. public good.
© E. Wayne Nafziger Development Economics Cambridge University Press
d. quasi-public good.
Answer: C