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Sample/practice exam 12 April 2017, questions and answers

Economic Development (Haigazian University)

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1. Countries tend to be classified as more or less developed based on

a. the literacy rate.

b. the poverty rate.
c. the level of income per capita.
d. the types of goods they produce.
Answer: C

2. Which of the following demonstrates international interdependence?

a. the oil shocks
b. the debt crisis
c. global warming
d. all of the above.
Answer: D

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

4. Development economics is the study of the

a. alleviation of absolute poverty.
b. transformation of institutions.
c. allocation of resources in developing countries.
d. all of the above.
Answer: D

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

6. A good definition of the meaning of development is the

a. elimination of absolute poverty.
b. improvement in the quality of life.
c. fulfillment of the potential of individuals.
d. all of the above.
Answer: D

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7. Which of the following is not an important objective of development?

a. increases in per capita income

b. the expansion of available choices
c. increases in individual and national self-esteem
d. all of the above are important objectives of development
Answer: D

8. The Millennium Development Goals include

a. eliminating the proportion of people living on less than $1 per day.
b. universal primary education.
c. increasing exports by one half.
d. all of the above.
Answer: B

9. The core values of development include

a. increasing income per person.
b. reducing the inequality of income.
c. the ability to meet basic needs.
d. all of the above.
Answer: C

1. An example of an upper-middle income country is

a. India.
b. Brazil.
c. Indonesia.
d. Nigeria.
Answer: B

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2. A newly industrialized country is

a. the same as a high-income country.

b. any country that has experienced sustained growth in industry.
c. a special classification given to some upper-middle income countries that have
achieved relatively advanced manufacturing sectors.
d. any country that has moved out of lower income status.
Answer: C

3. Which of the following is not an upper-middle income country?

a. Brazil
b. South Africa
c. Pakistan
d. Argentina
Answer: C

4. Which of the following is a low-income country?

a. Mexico
b. Thailand
c. Turkey
d. Bangladesh
Answer: D

5. One of the components of the human development index is

a. the percentage of the population who are high school graduates.
b. the average daily intake of protein.
c. life expectancy at birth.
d. the number of doctors per hundred people in the population.
Answer: C

6. What percent of the world’s nations have at least five significant ethnic populations?
a. 0–10
b. 10–20
c. 20–30
d. 30–40
e. over 40
Answer: E

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

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8. Which of the following African countries has experienced widespread death and destruction due
to ethnic or clan based conflict in the previous decade?
a. Rwanda
b. Sudan
c. Somalia
d. all of the above
Answer: D
9. Which measure uses a common set of international prices for all goods and services produced?

a. purchasing power parity income levels

b. GNI price deflators
c. foreign exchange rate conversions to U.S. dollars
d. the exchange rate
Answer: A
10. The number of units of developing country currency required to purchase a basket of goods and
services in a developing country that costs one dollar in the U.S. is given by

a. GNI price deflator.

b. Human Development Index ranking.
c. purchasing power parity.
d. the exchange rate.
Answer: C
11. About how many people lack access to basic sanitation?

a. 20 million
b. 200 million
c. 500 million
d. 1 billion
e. 2 billion
Answer: E
12. About how many people lack access to safe water?

a. 20 million
b. 200 million
c. 500 million
d. 1 billion
e. 2 billion
Answer: D
13. About how many malnourished children under age five are there in the developing world?

a. 20 million
b. 150 million
c. 500 million
d. 1 billion
e. 2 billion
Answer: B

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14. Neutral technological progress occurs when

a. higher output levels are achieved with the same quantity and combinations of factor inputs.
b. higher output levels are achieved by more capital intensive methods.
d. higher output levels are achieved by more labor intensive methods.
e. higher output levels are achieved.
Answer: A

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

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

17. Which of the following is not an indicator that is used by the World Bank in measuring the level
of economic development?
a. life expectancy at birth.
b. adult literacy rate.
c. infant mortality rate.
d. all of the above are not used by the World Bank.
Answer: D

18. The dependency burden is

a. a measure of the degree to which the less developed countries are dependent on the rich
industrial countries.
b. the average number of children that a woman gives birth to during her lifetime.
c. the number of babies born per 1000 persons.

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d. the percent of the population that is below 15 and above 65 years of age.
Answer: D

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

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

21. The combined GDP of developing countries constitutes approximately

a. 5 percent of global GDP.
b. 20 percent of global GDP.
c. 30 percent of global GDP.
d. 40 percent of global GDP.
Answer: D

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

23. Which region in the world has the lowest GNI per capita based on the World Bank Atlas method?
a. Sub-Saharan Africa
b. East Asia/Pacific
c. South Asia
d. Latin America/The Caribbean
Answer: C
1. Which of the following is not a policy proposal of the neoclassical counter-revolution school?

(a) promoting free trade

(b) privatizing state-owned enterprises
(c) welcoming multinational corporations
(d) promoting trade unions
Answer: D

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2. Which of the following is an assumption of the Lewis two-sector model?

(a) surplus labor in the rural sector

(b) high unemployment in the urban modern sector
(c) rising real urban wages
(d) rising marginal product of labor in the rural sector
Answer: A

3. The false paradigm model attributes lack of development to

(a) inadequate attention to price incentives.
(b) inappropriate advice from rich country economists.
(c) low levels of savings and investment.
(d) a lack of government regulation.
Answer: B

4. Which of the following is a criticism of the neoclassical counter-revolution school’s approach?

(a) markets are not competitive in developing countries.
(b) externalities are common in developing countries.
(c) inequality may worsen when interventions are removed in developing countries.
(d) all of the above.
Answer: D

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

6. The neoclassical counter-revolution school supports

(a) trade restrictions.
(b) state-owned enterprises.
(c) eliminating government regulations.
(d) limitations on foreign investors.
Answer: C

7. Implicit assumptions from which theories evolve are known as

(a) a paradigm.
(b) biases.
(c) stylized facts.
(d) normative economics.
Answer: A

8. On which of the following does the neoclassical counter-revolution school most blame
underdevelopment?
(a) misguided government policies

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(b) relatively rigid cultural traditions

(c) the legacy of colonialism
(d) unfair trade practices on the part of developed countries
Answer: A

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

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

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

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

13. The underlying assumption of the Harrod-Domar growth model is that

(a) the incremental capital-output ratio is given by k  Y/K.
(b) growth is mainly determined by capital accumulation.
(c) growth can be sustained only if agricultural productivity rises.
(d) developing countries save too much and invest too little.
Answer: B

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

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(c) there are diminishing returns to labor in agriculture.

(d) the marginal product of labor in agriculture is zero.
Answer: D
15. International dependence theories distinguish between two groups of countries known as

(a) rich-poor.
(b) developed-developing.
(c) center-periphery.
(d) independent-dependent.
Answer: C

16. Which of the following is an assumption of the Lewis two-sector model?

(a) surplus labor in industry.
(b) positive marginal product of labor in agriculture.
(c) an upward sloping labor supply curve in industry.
(d) none of the above.
Answer: D

17. The market-friendly approach to development emphasizes

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

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

19. Which of the following are components of economic growth

(a) growth in labor force.
(b) technological progress.
(c) investment.
(d) all of the above.
Answer: D

1. The Solow residual helps explain growth that derives from

(a) increasing the size of the labor force.

(b) increasing the size of the capital stock.
(c) increasing the capital-labor ratio.
(d) anything except increases in the size of the labor force or the capital stock.

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Answer: D

2. In endogenous growth models, it is assumed that

(a) there are external economies from public or private investments.
(b) there are diminishing marginal returns to capital.
(c) growth is explained by forces outside the model.
(d) the capital-labor ratio is constant.
Answer: A

3. In contrast to the earlier neoclassical models of economic growth, in endogenous growth models,
there is more emphasis on
(a) human capital.
(b) externalities.
(c) increasing returns to scale.
(d) all of the above.
Answer: D
4. The new growth theory attempts to explain

(a) the rate of population growth within a country.

(b) the rate of capital accumulation within a country.
(c) the factors that determine the size of the Solow residual.
(d) why there are diminishing returns to capital.
Answer: C

5. The S-curve is used to illustrate

(a) the typical path taken by the current account over time.
(b) economic fluctuations in the economy.
(c) the typical growth path of a developing economy.
(d) the existence of multiple equilibria.
Answer: D

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

7. The O-ring theory places emphasis on

(a) education of the labor force.
(b) skill complementarities.
(c) purchases of machinery and equipment by firms.
(d) none of the above.
Answer: B
1. The absolute poverty line

(a) decreases as real income grows.

(b) shows the average income of the lowest income group.
(c) can be measured with the Lorenz curve.
(d) none of the above.
Answer: D
2. The Gini coefficient provides a measure of

(a) the level of poverty.

(b) the level of relative inequality.
(c) disguised unemployment.
(d) the rate of growth.
Answer: B

3. Kuznets’ inverted-U hypothesis

(a) implies that things must get worse before they get better.
(b) suggests that inequality will worsen and then improve as a country grows.
(c) suggests that inequality will improve and then worsen as a country grows.
(d) points out six characteristics of modern economic growth.
Answer: B
4. According to Kuznets, in the process of development inequality in an economy will normally

(a) first rise and then fall.

(b) first fall and then rise.
(c) remain about the same.
(d) show no definite pattern.
Answer: A
5. Poverty is better studied with size distribution measures than those based on factor distribution because

(a) labor income may be highly concentrated in well-paid modern sector workers.

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(b) some poor farmers may receive a sizable share of income in rent.
(c) income from nonmarket activities such as foraging may be important.
(d) all of the above.
Answer: D
6. The number of people in the world who are absolutely poor is closest to

(a) a quarter-billion.
(b) a half-billion.
(c) one and a half billion.
(d) two billion.
(e) four billion.
Answer: C

7. With modern sector enrichment growth, inequality will

(a) first rise and then fall.
(b) first fall and then rise.
(c) remain about the same.
(d) none of the above.
Answer: D

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8. With modern sector enlargement growth, inequality will

(a) first rise and then fall.

(b) first fall and then rise.
(c) remain about the same.
(d) all of the above.
Answer: A

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

10. One of the characteristics of the poor is that they are

(a) more likely to be employed in the modern industrial sector.
(b) more likely to come from small families.
(c) more likely to be well educated.
(d) more likely to live in a rural area.
Answer: D

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

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

13. The Ahluwalia-Chenery welfare index

(a) is a method used to measure changes in absolute poverty.
(b) shows the value judgment implications of using the change in income per capita as a measure of
the change in development.
(c) is a method used to measure changes in inequality.
(d) is a method used to measure the growth rate of GDP.
Answer: B

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14. About what percent of the world’s poorest people are female?

(a) 30
(b) 50
(c) 70
(d) 90
Answer: C

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

16. Which of the following groups is(are) more likely to be poor?

(a) minorities
(b) indigenous people
(c) women
(d) all of the above.
Answer: D

17. Distribution of income according to percentiles, such as the highest 40% or lowest 20% is known as
the _______________ distribution of income.
(a) size
(b) functional
(c) GNP-weighted
(d) equal-weighted
Answer: A
18. What conclusion can be reached from the following data on income shares?

Percentage of Income Received by

Lowest 40% Highest 20%
Bangladesh 17.3 45.3
Indonesia 14.4 49.4

(a) absolute poverty is more widespread in Bangladesh

(b) the size distribution of income is more unequal in Indonesia

(c) Bangladesh had adopted a strategy of redistribution with growth
(d) growth in Bangladesh is calculated using poverty weights rather than income weights
Answer: B

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19. Developing countries who have adopted capital-intensive technologies tend to have

(a) relatively higher Gini coefficients.

(b) relatively lower Gini coefficients.
(c) Gini coefficients equal to one.
(d) Gini coefficients equal to zero.
Answer: A

20. Assuming that the Gini coefficient for Egypt is 0.403 and the Gini coefficient for Australia is 0.404,
it is possible to conclude that both Egypt and Australia have
(a) virtually the same number of households in absolute poverty.
(b) virtually the same percentage of households in absolute poverty.
(c) virtually the same level of the Human Development Index.
(d) none of the above.
Answer: D

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

22. The poverty gap is the

(a) absolute number of people below the international poverty line.
(b) percentage of the population below the international poverty line.
(c) consumption (measured in dollars) necessary to bring everyone below the poverty line up
to the line.
(d) percentage of a country’s total consumption necessary to bring everyone in the country below
the poverty line up to the line.
Answer: D

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

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