ARBA MINCH UNIVERESITY COLLAGE OF

BUSINESS AND ECONMICS DEPARTMENT OF

ECONMICS

DEVLOPMENT ECONOMICS- II REVIEW

QESTIONS

COURSE CODE: Econ. 3072

CREDIT HOUR: 3

Prepared by: KAYRANTO KASHO (Msc.)

Feb, 2023
Arbaminch, Ethiopia

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PART I: CHOOS THE BEST ANSWER

1. Which of the following is NOT a cost of population growth?

A. High fertility increases the health risks of pregnancy, and closely spaced births have been
shown to reduce birth weight and increase child mortality rates.
B. A large fraction of developing country food requirements is the result of population
increases.
C. increase in international migration
D. Pollution
E. None of the above
2. The world’s population is very unevenly distributed by
A. Geographic region,
B. Fertility and mortality levels,
C. Age structures.
D. All of the above
3. Which one of the following is not true about Malthusian population trap?
A. Population to grow at geometric rate
B. Food supplies could expand only at a roughly arithmetic rate
C. Population inevitably forced to live at subsistence levels of income
D. None of the above
4. One is not among Malthusian positive checks on population growth
A. Starvation
B. Disease
C. Sexual abstinence
D. Wars
5. Which one of the following is not true about neoclassical theory of fertility?
A. The higher the household income, the lower the demand for children.
B. The lower the net price of children, the lower the quantity demanded.
C. The higher the price of all other goods relative to children, the greater the quantity of
children demanded.

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 D. The greater the strength of tastes for goods relative to children, the fewer children
demanded.
6. Which of the following explains Hidden momentum of population growth?
A. Is a dynamic latent process of population increase that continues even after a fall in birth
rates because of a large youthful population that widens the population parent base
B. is a situation where the greatest portion of the population is made up of the young
implying a higher growth rate it future.
C. The social, economic, and institutional forces that have influenced fertility rates over
the course of centuries do not simply evaporate at the urging of national leaders.
D. The hidden momentum of population growth relates to the age structure of many
developing countries’ populations.
E. All of the above
7. According theory of family fertility price or cost of children rises as a result of except,_____
A. Increased educational and employment opportunities for women
B. A decrease in school fees
C. The establishment of minimum-age child labor laws
D. The provision of publicly financed old-age social security schemes
E. None of the above
8. According economic theory of fertility the demand for children in developing countries
determined by the following except?
A. Family preferences for a certain number of surviving
B. Opportunity cost” of rearing these children
C. Family income.
D. Expected return in the form of both child labor and the provision of financial support for
parents in old age
E. None of the above
9. Cities are formed because they provide cost advantages to producers and consumers through
what are called________?
A. agglomeration economies
B. Urbanization economies
C. Localization economies
D. All
E. None of the above
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10. __________was thought to be a natural process in which surplus labour was gradually
withdrawn from the rural sector to provide needed manpower for urban industrial growth.
A. External migration
B. Urban to Rural migration
C. Internal migration
D. Annual migration
E. None of the above
11. Which one the following is wrong about Rural-Urban migration?
A) It is now abundantly clear from recent LDC experience that rates of Rural-Urban
migration continue to exceed rates of urban job creation
B) No longer is migration viewed by economists as a beneficent process necessary to
solve problems of growing urban labour demand.
C) Migration today, particularly at the largest LDC cities, must be seen as the major
factors contributing to the pervasive phenomenon of urban surplus labour.
D) None of the above
12. Which one of the following is not true about urban informal sector?
A) The sector geared toward capital-intensive, large-scale production
B) The usually self-employed workers in this sector have little formal education, are
generally unskilled, and lack access to financial capital.
C) Workers in the informal sector do not enjoy decent working conditions, and old-age
pensions.
D) Most inhabit shacks that they themselves have built in slums and squatter settlements,
which generally lack minimal public services.
E) All of above
13. In the Lewis model,_________
A) Capital is created by using surplus labor with little social cost.
B) Capital goods are created without giving up the production of consumer goods.
C) To finance surplus labor, additional credit may sometimes be needed.
D) Growth takes place as a result of structural change
E) All of the above
14. In traditional point of view, the role of agriculture in economic development has been viewed
as ‘passive’ in a sense that it is:

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 A) Sympathetic D) Supportive
B) Inert E) All of the above
C) Compassionate

15. The LDCs want foreign capital in the form of _______

A) Loans when they want to retain control of domestic industry
B) Equity when they want to share risks with foreign investors
C) Long-term loans for long-term infrastructure projects
D) All of the above
16. Which of the following statements is not true about import restriction?
A) Import restrictions attract resources to protected industry
B) Import restrictions involve a deadweight loss
C) Import restrictions raise prices for buyers to a product
D) Import restriction shift welfare from producers to consumers
E) All of the above
17. In a non-Harris-Todaro world, if it is observed that poverty is highly correlated with
unemployment then which choice of techniques is likely to reduce poverty?

A) Labor intensive techniques C) Profit maximizing techniques

B) Capital intensive techniques D) None of the above

18. What have been the reasons of deficit in LDCs Balance of Trade in the past?

A) High cost and low quality production C) Very large rise in imports
B) Modest growth of exports D) All of the above

19. A high average level of rear income per head is always associated with a high proportion of
the working population engaged in ________ sector.

A) Tertiary C) Secondary
B) Primary D) All of the above

20. _______ is concern with responding to the felt needs of the rural people, as defined by them.

A) Welfare Oriented Strategy B) Growth Oriented Strategy

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 C) Responsive Strategy E) All of the above
D) Integrated Strategy

21. Which one of the following is consistent with the RD policy objectives of Ethiopia?

A) Equity, poverty reduction & community participation

B) The application of the principles of free market
C) The elimination of food aid dependency.
D) The achievement of economic growth through agricultural transformation.
E) All of the above.

22. Which one of the following is correct about Integrated Rural Development (IRD) practiced
in developing countries around the world in general?
A) In general, IRD as a strategy has been evaluated as less successful for a number of
reasons associated with the then project/program implementations.
B) Conflict of interests of implementing agencies could be taken as one of the reasons for
the failure of IRD.
C) Lack of local capacity to finance or co-finance development projects could also be taken
as another reason for the failure of IRD.
D) The fact that there was a rush to scale up and roll out pilot projects to places where
circumstances were different also discredited IRD efforts around the developing world.
E) All of the above.
23. Which one of the following statements is not correct about the growth-oriented strategy of
rural development?
A) It assumes that, with a free-market economy in place, the benefits of increased production
will gradually “trickle down” to the poor.
B) It is based on the neo-classical assumptions of free-market, competition and efficiency as
ultimate drivers of economic growth and development.
C) It takes for granted that rural economic agents are irrational economic decision makers.
D) It emphasizes that regulation and coordination of private & public agencies should be
through the market mechanism.
E) “A” & “C” are not correct.

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24. An overvalued exchange rate regime affects agricultural output prices with the consequence
that___

A) It encourages import substitution of agricultural products.

B) Agricultural imports become relatively more expensive than the price before devaluation
of the home currency.
C) Agricultural inputs are, by and large, made cheap in domestic markets.
D) It encourages export promotion of agricultural products.
E) It makes agricultural exports to be expensive in international markets.

25. A foreign trade related policy instrument used to influence the domestic price of an imported
agricultural output is ___________

A) A value added tax imposed on the agricultural output.

B) An import subsidy offered to an importer of the agricultural output.
C) A tax imposed on the farm gate prices of domestic producers.
D) An import quota restriction on the agricultural output.
E) The direct fixing of the price of the agricultural output.

26. The Ethiopian RD strategy is most closely related to _______.

A) The welfare oriented strategy D) The holistic strategy

B) The growth oriented strategy E) None of the above
C) The responsive strategy

27. Which one of the following is raised as a point of criticism against the Rural Development
Policies & Strategies of Ethiopia?
A) The fact that the policy gives less emphasis for the supply side problems of agriculture.
B) The fact that the policy overemphasizes on the establishment of small scale rural
enterprises.
C) The fact that the policy pays little attention to the establishment of independent rural
institutions.
D) The fact that the policy sacrifices unnecessarily high amount of resources to enhance
inter sectoral linkages.

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 E. None of the above.
28. Of the following, one is not show the role of foreign trade in development:

A) Market expansion D) Encumbrances domestic investors

B) Foreign exchange earnings E) None of the above
C) Incentives for the foreign investors
29. Which one of the following is correct about terms of trade?
A) If export prices decline, a greater volume of exports will have to be sold merely to keep
total earnings constant
B) It focuses on prices of exports than imports
C) If import prices declines the greater the volume of export will be
D) It shows net difference between export and import
E) If the export prices increase less than the import prices, a country has a positive terms of
trade
30. Identify correct statement about BOP?
A. If export greater than import it leads to current account deficit which makes country net
borrower in the world market
B. If import is greater than export it leads to current account positive, which makes country
is net lender in the world market
C. If export exceeds import it leads to current account is positive, which makes country is
net lender in the world market
D. If import less than export capital account is surplus
E. None of the above
31. Stressing the need for LDCs to evolve their own styles of development and to control their
own destiny is attributable to, ______
A. Outward-looking development policies
B. Inward-looking development policies
C. Policies to encourage exogenous technologies
D. Export promotion and import substitution
E. Policies to discourage indigenous technologies
32. What are the distinction between urbanization economies and localization economies?

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 A. The former, economies are external to the firm but internal to the industry while the latter
economies are external to the firm and to the industry but internal to the city
B. The latter, economies are external to the firm but internal to the industry while the former
economies are external to the firm and to the industry but internal to the city
C. Urbanization economies are internal to the firm but external to the industry while
localization economies are internal to the industry and external to the city
D. Localization economies arise from the presence of a large number of firms in the same
industry in the same place
E. Both of them are the same

33. Which one of the following is demand side factors affecting primary-product exports?

A. Poor climate D. Low income elasticity of

B. Bad soils agricultural product
C. Antiquated rural institutional E. None of the above
34. All of the following explains the structure of agrarian systems in the developing world,
except ______

A. Agriculture is still a major source of economic growth in agriculturally based countries.

B. Agriculture now contributes only a small share to GDP growth (7% on average) in
urbanized countries.
C. Agriculture accounts for some 32% of GDP growth on average in agriculturally based
countries.
D. Most of the world’s rural people some 2.2 billion live in what the report categorizes as
transforming countries.
E. None of the above

35. Foreign debt also includes obligations to international organizations which can be measured
in terms of:_______

A. Foreign exchange reserves relative to outstanding foreign debt

B. Foreign debt to exports
C. Foreign debt to gross domestic product (GDP).
D. All of the above

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E. None of the above

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36. Which one of the following is not true about urban informal sector?
A. The sector geared toward capital-intensive, large-scale production
B. The usually self-employed workers in this sector have little formal education, are
generally unskilled, and lack access to financial capital.
C. Workers in the informal sector do not enjoy decent working conditions, and old-age
pensions.
D. Most inhabit shacks that they themselves have built in slums and squatter settlements,
which generally lack minimal public services.
E. All of above
37. Which one of the following is not true about Lewis model of rural urban migration?
A. Modern sector might refer to the use of new technology which is intensive in the use
of capital.
B. The traditional sector in this model is viewed as a supplier of labor whereas the role
of modern sector is to soak up this supply.
C. Capital accumulation in the modern sector becomes the engine of development.
D. None of the above
38. Both are economic motivation of foreign aid except one?
A. Foreign-Exchange Constraints
B. Purchasing their security and propping up their sometimes-shaky regimes
C. Growth and Savings
D. Economic Motivations and Self-Interest
E. None of the above
39. Which one of the following is demand side factors affecting primary-product exports?
F. Poor climate
G. Bad soils
H. Low income elasticity of agricultural product
I. Antiquated rural institutional
J. None of the above
40. Which one of the following is not true about Harris-Todaro model of Migration?
A. It assumes two sectors in the economy: a rural sector and a formal urban sector
B. If Urban expected incomes > average rural incomes, the decision is to migrate
C. If Urban expected incomes < average rural incomes, the decision is to migrate
D. Migration is primarily an economic phenomenon, which for the individual migrant can be
a quite rational decision despite the existence of urban unemployment.
E. None of the above
41. Which one of the following is causes of Urban Giantism?
A. Import substitution industrialization: less trade, incentive to concentrate in a single
city largely to avoid transportation costs

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 B. “Bread and circuses” to prevent unrest (evidence: stable democracies vs unstable
dictatorships).
C. Hub and spoke transportation system (rather than web) make transport costs high for
small cities.
D. Compounding effect of locating the national capital in the largest city.
E. All
42. Which one of the following is not true about terms of trade?
A. Ratio between the price of a typical unit of exports and the price of a typical unit of
imports.
B. Ratio between the price of a typical unit of import and the price of a typical unit of
export.
C. It can be interpreted as the amount of import goods an economy can purchase per unit
of export goods.
D. An improvement of a nation's terms of trade benefits that country in the sense that it
can buy more imports for any given level of exports.
E. None of the above
43. Which one of the following is not true about outward-looking export promotion versus
inward-looking import substitution development polices?
A. Outward-looking development policies encourage not only free trade but also the free
movement of capital, workers, enterprises and students, the multinational enterprise,
and an open system of communications.
B. Inward-looking development policies stress the need for LDCs to evolve their own
styles of development and to control their own destiny.
C. Advocates of import substitution (IS) believe that LDCs should initially substitute
domestic production of previously imported simple consumer goods
D. Advocates of export promotion (EP) of both primary and manufactured goods cite the
efficiency and growth benefits of free trade and competition.
E. None of the above
44. Which one of the following is criticisms of Lewis model?
A. The assumption of an unlimited labor supply.
B. They believe the capitalist wage rate may rise before all surplus rural labor is
absorbed.
C. Lewis’s critics argue that the larger industrial labor force contributes to greater food
demand, but the capacity to produce food is unchanged.
D. Lewis overestimates the extent that the availability of cheap rural migrant labor can
stimulate industrial growth.
E. All of the above

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45. Which one of the following explains the structure of agrarian systems in the developing
world except?
F. Agriculture is still a major source of economic growth in agriculturally based
countries.
G. Agriculture now contributes only a small share to GDP growth (7% on average) in
urbanized countries.
H. Agriculture accounts for some 32% of GDP growth on average in agriculturally based
countries.
I. Most of the world’s rural people—some 2.2 billion—live in what the report
categorizes as transforming countries.
J. None of the above
46. Suppose migrants are risks averse, then in the Harris-Todaro model, in equilibrium, the
expected urban wages will be _________ the rural wage rate
A. Greater than,
B. Equal to
C. Less than
D. None of the above
47. Foreign debt also includes obligations to international organizations which can be measured
in terms of:
F. Foreign exchange reserves relative to outstanding foreign debt
G. Foreign debt to exports
H. Foreign debt to gross domestic product (GDP).
I. All of the above
J. None of the above
48. The Harris-Todaro model describes rural-urban migration in developing countries and its key
assumptions are:
A. People base migration decisions on the EXPECTED rather than the actual wage gap
between rural and urban areas,
B. The actual wage gap between rural and urban areas is positive.
C. The expected urban wage is the actual, urban wage rate times the probability of
finding employment in urban areas.
D. The key message of the model is that there might be significant migration from rural
to urban areas, even if there is high unemployment in cities.
E. All of the above

49. According to Thomas Malthus, increases in population will eventually __________________

in living standards.
A. Lead to a decline
B. Lead to a significant growth

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 C. Lead to a slight increase
D. None of the above

Part II. Discussion Question

1. What is the relationship between the age structure of a population and its dependency
burden? Is the dependency burden higher or lower in developing countries? Why?
2. Discuss the impact of population growth on per-capita income and its growth.
3. Describe briefly the theory of the demographic transition. At what stage in this transition
do most developing countries seem to be? Explain your answer.
4. Explain the notion of the hidden momentum of population growth. Why is this an
important concept for projecting future population trends in different developing nations?
5. “The world population problem is not just a matter of expanding numbers but also one of
rising affluence and limited resources. It is as much a problem caused by developed nations
as it is one deriving from developing countries.” Comment on this statement.
6. How does the microeconomic theory of fertility relate to the theory of consumer choice?
Do you think that economic incentives and disincentives influence family size decisions?
Explain your answer, giving some specific examples of such incentives and disincentives.
7. List and briefly describe the principal causes of high population growth in developing
countries and the major consequences.
8. Explain why fertility rates are falling much more rapidly in some developing countries than
in others.
9. Outline and comment briefly on some of the arguments against the idea that population
growth is a serious problem in developing nations.
10. Outline and comment briefly on the various policy options available to developing
countries’ governments in their attempt to modify or limit the rate of population growth.
11. What reasons would you give for the rather sizable school dropout rates in developing
countries? What might be done to lower these rates?
12. What are the differences between formal and non-formal education? Give some examples
of each.

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13. It is often asserted that LDC educational systems, especially in rural areas, are unsuited to
the real social and economic needs of development. Do you agree or disagree with this
statement? Explain your reasoning.
14. How would you explain the fact that relative costs of and returns to higher education are so
much higher in LDCs than in developed countries?
15. What is the supposed rationale for subsidizing higher education in many Third World
countries? Do you think that it is a legitimate rationale from an economic viewpoint?
Explain your answer.
16. What do we mean by the economics of education? To what extent do you think educational
planning and policy decisions ought to be guided by economic considerations? Explain,
giving hypothetical or actual examples.
17. What is meant by the statement "The demand for education is a 'derived demand' for high-
paying modern-sector job opportunities"? Many educational specialists claim that families
and children in LDCs demand education not so much as an investment good but as
consumption good. What do you think this statement means and what do you think is the
relative importance of the consumption demand for education among your student friends?
18. What are the links among educational systems, labor markets, and employment
determination in many developing countries? Describe the process of educational job
displacement.
19. Distinguish carefully between private and social benefits and costs of education. What
economic factors give rise to the wide divergence between private and social benefit to-
cost valuations in most developing countries? Should governments attempt through their
educational and economic policies to narrow the gap between private and social
valuations? Explain.
20. Describe and comment on each of the following education -development relationships:
A. Education and economic growth: Does education promote growth? How?
B. Education, inequality, and poverty: Do educational systems typical of most LDCs
tend to reduce, exacerbate, or have no effect on inequality and poverty? Explain with
specific reference to a country with which you are familiar.

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 C. Education and the brain drain: What factors cause the international migration of high-
level educated workers from LDCs to developed countries? What do we mean by the
internal brain drain? Explain, giving examples.
21. Governments can influence the character, quality, and content of their educational systems
by manipulating important economic and noneconomic factors or variables both outside of
and within educational systems. What are some of these external and internal factors, and
how can government policies make Education more relevant to the real meaning of
development?
22. What are the principal economic reasons for the widespread failure of rapid LDC industrial
growth to generate equally rapid employment growth? Is such a large output -employment
lag an inevitable result of the process of modern industrial growth? Explain your answer.
23. Why might the problem of rapid urbanization be a more significant population policy issue
than curtailing LDC population growth rates over the next two decades? Explain your
answer.
24. Describe briefly the essential assumptions and major features of the Todaro model of rural-
urban migration. One of the most significant implications of this model is the paradoxical
conclusion that government policies designed to create more urban employment may in
fact lead to more urban unemployment. Explain the reasons for such a paradoxical result.
25. Given the illustration, answer the following items according Harris-Todaro model of rural-
urban migration.
Rural wage=$2 per day
Urban modern wage= $4 per day
Suppose there is 0.5 probability of getting a modern job
a. Will there be migration?
b. If the probability of getting a modern sector job is 0.6, what is the decision to
migration?
c. If the probability of getting a modern sector job is 0.4, what is the decision to
migration?
26. “The key to solving the serious problem of excessive rural-urban migration and rising
urban unemployment and underemployment in” developing countries are to restore a
proper balance between urban and rural economic and social opportunities." Discuss the

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 reasoning behind this statement, and give a few specific examples of government policies
that will promote a better balance between urban and rural economic and social
opportunities.
27. For many years, the conventional wisdom of development economics assumed an inherent
conflict between the objectives of maximizing output growth and promoting rapid
industrial employment growth. Why might these two objectives be mutually supportive
rather than conflicting? Explain your answer.
28. What is meant by the expression "getting prices right"? Under what conditions will
eliminating factor-price distortions generate substantial new employment opportunities?
(Be sure to define factor-price distortions.)
29. The informal sector is becoming an ever-larger part of the urban economy. Distinguish
between the urban formal and informal sectors, and discuss both the positive and negative
aspects of the informal urban labor market.
30. Why should any analysis of development problems place heavy emphasis on the study of
agricultural systems, especially peasant agriculture, and the rural sector?
31. What are the principal reasons for the relative stagnation of developing-country agriculture
in Africa? How can this disappointing performance be improved on in the future? Explain
your answer.
32. Discuss three main systems of agriculture found in the developing world. To what extent
are these systems concentrated in three major developing regions?
33. We described three stages in the transition from subsistence to specialized agriculture.
What are the principal characteristics of each of these stages?
34. What is meant by comprehensive or integrated rural development? What criteria would you
use to decide whether or not such integrated rural development was or was not taking
place?
35. If land reform is efficient, why do you think it is not more commonly implemented?
36. Why is a proper understanding of risks faced by smallholder farmers of such fundamental
importance to agricultural development policy?
37. Explain the argument that effective agricultural policies centre around the role of women.
38. The poorest farmers tend to work on farms with the poorest soil and water conditions. Do
you think this is the cause, the effect, or both?

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39. The effects of international trade on a country’s development are often related to four basic
economic concepts: efficiency, growth, equity, and stability. Briefly explain what is meant
by each of these concepts as it relates to the theory of international trade.
40. Briefly summarize the major conclusions of the traditional theory of free trade with regard
to its theoretical effects on world and domestic efficiency, world and domestic economic
growth, world and domestic income distribution, and the pattern of world production and
consumption.
41. Proponents of free trade, primarily developed country economists, argue that the
liberalization of trading relationships between rich and poor countries (the removal of tariff
and nontariff barriers) would work toward the long-run benefit of all countries. Under what
conditions might the removal of all tariffs and other impediments to trade work to the best
advantage of developing countries? Explain.
42. Critics of international trade from developing countries sometimes claim that present
trading relationships between developed and underdeveloped countries can be a source of
“antidevelopment” for the latter and merely serve to perpetuate their weak and dependent
status. Explain their argument. Do you tend to agree or disagree? Explain why.
43. Manufactures now account for a majority of exports from the developing world. What
factors have limited the benefits that developing countries receive from this progress?
44. Explain the distinction between primary and secondary inward- and outward-looking
development policies.
45. What are the possibilities, advantages, and disadvantages of export promotion in
developing nations with reference to specific types of commodities (e.g., primary food
products, raw materials, fuels, minerals, manufactured goods)?
46. Most less developed countries in Latin America, Africa, and Asia pursued policies of
import substitution as a major component of their development strategies. Explain the
theoretical and practical arguments in support of import substitution policies. What have
been some of the weaknesses of these policies in practice, and why have the results often
not lived up to expectations?
47. How do the trade policies of developed countries affect the ability of less developed
countries to benefit from greater participation in the world economy? How do nontrade

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 domestic economic policies of rich nations affect the export earnings of developing
countries?
48. Explain the distinction between organized and unorganized money markets.
49. In the context of development priorities, what are the relative roles of central banks,
commercial banks, development banks, informal and unorganized sources of credit, and
microfinance such as the Grameen Bank of Bangladesh?
50. What is meant by financial repression, financial liberalization, currency substitution, and
unorganized money markets, and how do they relate to financial policy in developing
countries?
51. List and briefly discuss the seven market failures that, Stiglitz and his colleagues say,
justify a strong government role in developing-country financial sectors. Do you agree or
disagree with this assessment? Explain.
52. If the scarcity of administrative capabilities is a serious constraint on development policy
implementation, what can be developing countries do to relieve this constraint? What are
the options? Discuss.

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