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Economic Development Final Exam (Study Guide)

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Absolute Poverty
A situation of being unable to meet the minimum levels of income,
food, clothing, healthcare, shelter, and other essentials. One
condition of this is a person living off of less than $2 per day.

Subsistence Economy
An economy in which production is mainly for personal consumption
and the standard of living yields little more than basic necessities of
life—food, shelter, and clothing. (pre-industrial, Little/no government
intervention)
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Created by
Kenard_Dansbury
Terms in this set (72)
OriginalAlphabetical
Absolute Poverty
A situation of being unable to meet the minimum levels of income, food, clothing, healthcare,
shelter, and other essentials. One condition of this is a person living off of less than $2 per day.
Subsistence Economy
An economy in which production is mainly for personal consumption and the standard of living
yields little more than basic necessities of life—food, shelter, and clothing. (pre-industrial,
Little/no government intervention)
Gross National Income
What is the tool used to calculate the sum of total value of all final goods and services in
addition to income earned abroad minus the foreign income earned in the US
Gross Domestic Product
What is the tool used to calculate the total value of all final goods and services produced within
a country's borders in a given time period
Income Per Capita
GNI divided by total population
Amartya Sen's Capability Approach
This way of thinking states that development should be seen as a process during which
individuals' "capabilities to function" are enhanced. It stresses the importance of what individuals
are capable of, given the resources to meet their basic needs.
True
True or False: According to Amartya Sen, Utility in the sense of happiness may well be included
in the list of some important
functionings relevant to a person's well-being.
Substenance, Self Esteem, and Freedom from servitude
List the three Core Values of Development.
True
True or False: To make the biggest impact on development, societies must empower and invest
in women.
World Bank
An organization known as an "international financial institution" that provides development funds
to developing countries in the form of interest-bearing loans, grants, and technical assistance.
1. Lower
2. Lower
3. Higher
4. Higher
5. No, Greater social fractionalization
6. rural, rural-to-urban
7. Higher
8. Yes
9. Under
10. Yes
Select the appropriate option for the 10 common areas of development, if no is answer write the
appropriate answer:
1. Lower/Higher levels of living and productivity
2. Lower/Higher levels of human capital
3. Lower/Higher levels of inequality and absolute poverty
4. Lower/Higher population growth rates
5. Yes or No: Lesser social fractionalization
6. (Two answers) Larger rural/urban populations but rapid urban-to-rural/rural-to-urban
migration
7. Lower/Higher levels of industrialization
8. Yes or No: Adverse geography
9. Under/Over developed financial and other markets
10. Yes or No: Lingering colonial impacts such as poor institutions and often external
dependence.
Purchasing Power Parity
An effective exchange rate conversion tool used to calculate the buying power of 1 USD in
comparison to other countries currency.
The function of this tool is to use the number of units of a foreign country's currency required to
purchase the identical quantity of goods and services in the local developing country market as
$1 would buy in the United States.
A, B, D, and E
Which of the following are functions of the World Bank?
a) Granting conditional loans to underdeveloped countries.
b) Providing loans to governments for agriculture, irrigation, power, transport, water supply,
educations, health, etc.
c) Oversees the international monetary system
d) Promoting foreign investment by guaranteeing loans provided by other organisations.
e) Acquires most of its financial resources by borrowing on the international bond market
f) Assists all members--both industrial and developing countries--that find themselves in
temporary balance of payments difficulties by providing short- to medium-term credits
g) All of the Above
h) None of the Above
Human Development Index
An index measuring national socioeconomic development, based on combining measures of
education, health, and adjusted real income per capita
Income, Health, and Education
List the basic indicator(s) of development
A, C, E, and F
Which of the following are characteristics of NHDI (New Human Development Index)?
a) The index is now computed with a geometric mean, instead of an arithmetic mean
b) Three new components have been added to compute the education index
c) NHDI takes the cube root of the product of the three component indexes opposed to
previously adding the three component indexes and dividing by three.
d) Assumes that one component index trades off against another as perfect substitutes.
e) Assumes that each component is seperate and leaves room for imperfect substitutability.
f) Gross national income per capita replaces gross domestic product per capita
f) All of the Above
g) None of the Above
False
True or False: A developing country experiences low levels of productivity and living, high levels
of poverty and inequality, and lower population rates
Under 15 and over 65, dependency burden
What are the two age groups/classification of individuals who need to be financially supported
and do not contribute to the labor force? What is the economic term used to refer to the age
groups who are not accounted for within the labor force?
True
High inequality sometimes emerged as a result of slavery in regions where comparative
advantage in crops such as sugarcane could be profitably produced on slave plantations.
Brain Drain
The term used to describe the condition that occurs with the relocation of highly skilled laborers
from developing countries over to developed countries. These conditions include; the expertise
is lost with each emigrant, diminishing the supply of that profession and the country's economy
is harmed as each professional represents surplus spending units.
The ratio of a country's average export price to its average import price
What is terms of trade?
Divergence
A tendency for per capita income (or output) to grow faster in higher income countries than in
lower-income countries so that the income gap widens across countries over time (as was seen
in the two centuries after industrialization began).
a) Convergence
b) Divergence
c) Homogenous
Convergence
The tendency for per capita income (or output) to grow faster in lower income countries than in
higher-income countries so that lower-income countries are "catching up" over time. When
countries are hypothesized to move toward uniformity.
a) Convergence
b) Divergence
c)Heterogenous
c) Experience relative political instability, inflexible social institutions with limited access to
socio-economic mobility
An important reason for economic underdevelopment is that many LDCs ______________.
a) Enjoy relative political stability, flexible social institutions with broad-based access to socio-
economic mobility
b) Enjoy strong and efficient political, social and economic institutions and organizations
c) Experience relative political instability, inflexible social institutions with limited access to
socio-economic mobility
d) Experience slow population growth, but rapid economic growth
True
True or False: Infant mortality rates (the number of children who die before their first birthday
out of every 1,000 live births) are typically under 10 in developed nations, but nearly 100 in the
least-developed countries.
b) High rates of growth of per capita output and population
Which of the following is not one of Kuznet's six characteristics of modern economic growth?
a) High rates of structural transformation of the economy
b) High rates of growth of per capita output and population
c) High rates of increase in total factor productivity
d) High rates of social and ideological transformation
e) High rates of infrastructure amelioration
Rostov's Model
According to the _______________, each stage is a function of productivity, economic
exchange, technological improvements, and income. Economic growth occurs when advancing
from one stage to another.

1. Traditional Society
2. Transitional Society
3. Take-off
4. The Drive to maturity
5. High Mass Consumption
Traditional Society
Which of the 5 stages of Rostov's model is this describing?

characterized by economic structure dominated by agriculture.

-minimal productivity
-few exchange transaction
-economic change/technological improvements are not sufficient to sustain any growth in per
capita output, which is low
High Mass Consumption
Which of the 5 stages of Rostov's model is this describing?

leading sectors shift toward durable goods

-surge occurs in per capita income and increased allocation to social welfare programs.
-the masses can afford goods beyond food, clothing, and shelter.
Transitional Take-off
characterized by increased productivity in agriculture, and modern manufacturing begins to
emerge. modern manufacturing remains low as it it the norm.

Preconditions:
-Society engages in secular education
-establishes banks and currency
-emerging entrepreneurial class
-concept of manufacturing emerges, with only a few factories developing at first.
Harrod-Domar Model
___________ is a growth model which states the rate of economic growth in an economy is
dependent on the level of saving and the capital output ratio.
2%; 3%
In the Harrod-Domar model, suppose that the national capital-output ratio is 4. If the national net
savings rate increases from 8% to 12%, the economic growth rate will increase from
__________ to __________.
Structural Change theory
_____________ focuses on the mechanism by which underdeveloped economies transform
their domestic economic structures from a heavy emphasis on traditional subsistence
agriculture to a more modern, more urbanized, and more industrially diverse manufacturing and
service economy
Agriculture and Industrial
Lewis theory of economic development is a structural- change theory. This theory explains the
mechanism of changing structure of underdeveloped economics from subsistence agriculture to
more modern and more urbanized. List the two sectors that are apart of the Lewis two Sector
model of development.
True
True or False: In the neocolonial dependence model, the world can be thought of as divided into
the "center" and the "periphery."
d) the best government is a small government.
Public choice theory argues that from an economic development perspective,
a)the best government is a large government.
b) socialism is usually an effective way to foster economic development.
c) the typical bureaucrat is actually interested in the welfare of the nation as a whole.
d) the best government is a small government.
e) None of the above
c) Marxism
The neocolonial dependence model is most closely aligned with which sort of thinking?
a) Neoclassical economic thought
b) Classical economic thought
c) Marxism
d) Stoicism
e) Theocratic philosophy
a) Environmental regulations
Within the framework of the Production Possibility Frontier, Which of the following options is not
a component of economic growth?
a) Environmental regulations
b) Labor force growth
c) Physical capital and human capital formation
d) Technological advancement
The False Paradigm Model
The proposition that developing countries have failed to develop because their development
strategies (usually given to them by Western economists) have been base on an incorrect
model of development, one that, for example, over stressed capital accumulation without giving
due consideration to needed social and institutional change.
Autarky
A closed economy that attempts to be completely self-reliant
Marginal Product
The increase in total output resulting from the use of one additional unit of a variable factor of
production.
Occurs when the government creates policies and regulations that encourage growth in urban
sectors of developing countries opposed to rural areas
Explain what is meant by urban bias
Prebisch Singer Hypothesis
According to the _____________ primary producers' terms of trade have steadily fallen.
True
True or False: Policies designed to reduce urban unemployment may not meet the primary goal
they are trying to accomplish because it could lead to a decrease in agricultural output due to
the created jobs raising expected incomes and encouraging more people to migrate from rural
areas.
To moderate price fluctuations
The purpose of commodity buffer stocks is
Inelastic supply curves
Developing countries might be unable to respond smoothly to changing international price
signals because of ___________
Increased technical efficiency, accelerated technical progress, and decreased shortages of
foreign exchange, increased investment
What are the arguments in favor of trade liberalization?
Declining terms of trade
What is an argument in favor of interventionist trade policies?
Industrial policy
Guiding the market through strategic coordination of business investments to increase export
market shares is know as...
Vent for surplus
The opening of export markets for primary products can provide employment for previously
underutilized land and labor. The terms for this is...
Larger countries tend to be less open, developing countries tend to be more open
Who is more open to trade (larger or smaller countries)? And developed vs. developing?
A countries reliance on the revenue made from exporting as the primary source of funding for
development activities
What is export dependence?
Sub Saharan Africa
The dependence on the export of one or two primary products for a majority of the revenue from
exports is most severe in countries in...
Steadily decreasing
The real price trendline for non fuel primary commodities from 1960-2005 has been...
Theory that states that there will be a long-term decline in the terms of trade of primary-
commodity exporters due to a combination of low income and price elasticities of demand
Define Prebisch Singer Hypothesis
What the price would be without tariffs
The nominal rate of protection shows the extent to which the domestic price of imported goods
exceeds...
(Value added with protection minus value added without protection) divided by value added
without protection
The effective rate of protection is...
Current Account, Cash Account, and Capital Account
What are the three categories of the Balance of Payments sheet?
Capital Account
Measures the net change in assets of a developing country, and is the net result of public and
private international investments flowing in and out of a country
Cash Account
Also known as the International Reserve Account, and it's responsibility is to reconcile statistical
inequalities
a) Cash account will have a defecit of 25, if the capital account has a balance 0f 0
If the current account has a surplus of 25, the ________________________.
a) Cash account will have a defecit of 25, if the capital account has a balance 0f 0
b)Capital account will have a defecit of 25, if the cash account has a balance of 0
c) Capital account will have a surplus of 25
d) Cash account will have a surplus of 25, if the capital account has a balance of 0
False
True or False: Economic factors such as the increased availability of jobs, education, and
healthcare will contribute to the motivation for families to want to have a large household.
Prebisch Singer Hypothesis
_______________ argues that the price of primary commodities declines relative to the price of
manufactured goods over the long term, which causes the terms of trade of primary-product-
based economies to deteriorate.
Gini Coeffecient
An aggregate numerical measure of income inequality ranging from 0 (perfect equality) to 1
(perfect inequality) is called the ______________.
True
True or False: The demographic transition model represents the three different stages of
population growth characterized by the first period that begins with high birth and high death
rates, the second period of rapid-growth which entails high birth rates and declining death rates,
and the last stage characterized by low growth, both birth and death rates decline until they start
to stabilize.
Graph depicting the variance of the size distribution of income from perfect equality
What is a Lorenz Curve?
Harris-Todaro model
In the ________________ it is believed that a consumer is rational and uses a cost and benefit
analysis way of thinking. The consumer compares two expected values rather than actual
variables. The individual takes into account the current wage rate in the urban sector and
compares that with the expected earnings of migrating to an urban sector. The urban sector
employment rate and probability of finding work have a direct relationship. The Harris-Todaro
model hits a few key points on why exactly people migrate from rural sectors to urban sectors.
Minifundos, Latifundos
In Latin America, there is a high percentage of inequality among the landowners. due in part to
the agricultural dual system in which farming is divided into __________ and _________.
HIV/Aids, Malaria, and parasitic worms
What are the critical health challenges facing developing countries today?
Africa
According to the World Population Datasheet (2010), which country is expected to experience
the greatest change in population from 2010 to 2050 [Asia, Africa, Europe, Latin America, North
America, or South America]
True
True or False: The World's population is currently at 7.2 billion and is on track to reach 9.5
billion people by the year 2050, according to the World Population Datasheet (2010, 2014)