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CHAPTER 1
Short Answer
1. Provide a definition of development economics. Justify your choice carefully.
Answer: See the section in Chapter 1 entitled, “The Nature of Development Economics,”
on Pages 9–10 for some ideas about how the students might answer this
question. They should in some way say that development economics is more
than just growth in GDP.
2. In defining development to include more than just the growth of per capita income, there is an
implicit assumption that the growth of per capita income alone is not sufficient to guarantee
the reduction of poverty and the growth of self-esteem. Is it possible that there could be
growth of per capita income without the achievement of these other objectives?
Answer: Per capita income can show growth even when that growth does not touch vast
portions of the population. The growth may be centered in one area or sector of
the economy for example. Also, most developed countries have, at some time in
their histories, introduced policies emphasizing equity.
3. In what way is development economics greater in scope than traditional economics?
Answer: Development economics must encompass the study of institutional, political, and
social as well as economic mechanisms for modernizing an economy while
eliminating absolute poverty and transforming states of mind as well as physical
conditions. More details found in the chapter.
4. Make a case that development economics might be merely a combination of all the other
subfields of economics, only applied to low-income countries.
Answer: See Question 3 above.
5. What do you think are the most serious obstacles to further progress in the developing world?
Answer: The main point here is to ensure that students are thinking carefully about the
issues raised in the text. You may also wish to draw from the critical questions
on Pages 10–12.
6. In reviewing discussions of life in developing countries, what is it about lifestyles in the

low-income countries compared with lifestyles in the high-income countries that most strikes
you? Why?
Answer: This is an open-ended question to stimulate reflection.
7. It has been said that “underdevelopment is a state of mind.” Comment.
Answer: You may look for a discussion of the role of modern values in the development
process, as on Pages 13–14 of the text.
8. Do you think it is in the material interests of high-income countries to help low-income

countries improve their economic performance? Why or why not?
Answer: Answers might touch on increasing the market for products in which
high-income countries have a comparative advantage, reducing the dangers of
regional war and terrorism, reducing international transmission of disease, and
curbing international migration.
9. How is happiness related to development?
Answer: Answers should make reference to the correlation between happiness and
income level as well as touch on the connection between happiness and social
relationships, personal and democratic freedoms, religious beliefs, and health,
among other factors listed on Page 20. Further, answers should include a
discussion on happiness as being a part of Amartya Sen’s concept of
functionings.
10. What are the Millennium Development Goals (MDGs) and how did they come about? What
do you consider to be the most important of these and why?
Answer: The answer should stress that the goals cover a broad range of objectives both
economic and social. These were put forward so that developing countries
would have numerical targets against which their progress could be judged and,
where warranted, appropriate assistance offered. An interim assessment of the
MDGs can be found at: www.unmilleniumproject.org.
11. Why are women often referred to as playing a central role in economic development?
Answer: An answer should include how women can influence whether or not the next
generation will be impoverished through their role of childrearing based on the
resources they bring to this task and the values they pass to their children.
Another key point that should be mentioned is that empirically, women tend to
allocate a higher percentage of the income under their own control to the family
and children than men.
12. What are the most important characteristics that have shaped Brazil’s economic and social
progress during the last three decades?
Answer: Discussion should include the large degree of income inequality, the need for
land reform as a result of the dualistic nature of the land tenure system and the
environmental challenge faced by what is one of the world’s most
environmentally diverse countries.
Multiple Choice
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.
2. Which of the following demonstrates international interdependence?
A. the oil shocks
B. the debt crisis
C. global warming
D. all of the above.
3. A subsistence economy is
A. a very low income economy.
B. an economy in which people make what they consume.
C. an economy in which people receive food for pay.
4. Development economics is the study of the
A. alleviation of absolute poverty.
B. transformation of institutions.
C. allocation of resources in developing countries.
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.
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.
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
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.
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.
10. It is not possible for a country to experience
A. economic development without economic growth.
B. economic growth without economic development.
C. economic growth and economic development simultaneously
D. both (a) and (b) are correct.
CHAPTER 2
Short Answer
1. Explain how low levels of living can turn into a vicious cycle in developing countries.
Answer: See the section on low levels of living in the chapter.
2. Carefully explain some of the similar problems faced by otherwise diverse countries in Africa,
Asia, and Latin America.
Answer: This calls for students to summarize some of the main points discussed in the
chapter.
3. What are some of the main ways in which the economies of developing countries differ from
one another?
Answer: See the Key Concepts above for a summary.
4. Explain why purchasing power parity measures of income levels tend to show a smaller
difference between poor and rich countries.
Answer: PPP measures show the number of units of developing country currency
required to purchase a basket of goods and services in the developing country
market that costs one dollar in the U.S. Prices for most services tend to be much
cheaper in developing countries than in the U.S.
5. In what way does nationalism tend to be a hindering force in attaining modern economic
growth and development, and in what way a facilitating force?
Answer: This is a question that would depend on what you have covered in lecture.
6. What are the three main indicators that make up the Human Development Index?
Answer: Life expectancy, educational attainment, GDP per capita measured in PPP
terms.
7. If countries are first ranked by level of real GDP per capita, and then by the value of the
Human Development Index, would you expect the ranking of countries to be similar or
different? Explain.
Answer: The final column of Table 1 in the Human Development Report (hdr.undp.org)
shows the difference in ranking between the two classification methods and
students can be directed to that.
8. Comment on the following statement: The level and growth rate of real GDP per capita can be
a misleading indicator of development. At the same time, countries that experience sustained
increases in real GDP per capita over time will tend to be more developed.
Answer: Open-ended essay.
9. What are the three major components of economic growth?
Answer: Capital accumulation, labor force growth, and technological progress.

10. Explain the lingering effects of colonialism and how it is still playing a role in hindering
economic development in the developing world.
Answer: Answers should be based on the points covered in the section on the colonial
impact as well as in lecture.
11. Why might the use of more advanced technology not be a sufficient condition for sustained
economic growth?
Answer: It may require an inefficiently high capital labor ratio and complementary factors,
especially education, may be lacking. Additional points depend on lecture
coverage.
12. The 2006 Human Development Report reported that the HDI of South Africa was 0.653 (and
its rank was 121) and that of the Peru was 0.767 (and its rank was 82). South Africa’s per
capita income (in PPP dollars) was 11,192 and that of Peru was 5,678. Comment and explain.
Answer: Instructors can use figures similar to those in the question from the most recent
issue of the HDR (at hdr.undp.org) in updating this question. Students should
discuss the difference between economic growth (per capita income) and
economic development by discussing the components of the HDI.
13. What are remittances and what role do they in developing countries? How could this
potentially benefit an economy?
Answer: An answer should pose a definition, mention how remittances reduce poverty for
many migrants and their families, and speak to the possible net increase in labor
force skills driven by the desire to emigrate.
14. Are living standards in developed and developing countries converging? Give evidence to
support your answer.
Answer: Answers should refer to Figures 2.7–2.9 and the supporting text.
How do differences in culture lead to comparative development?
Answer: Cultural factors effect the development and amount of emphasis put on
education, institutions, and how effective civil society is. An important part of
the answer should be how the role of culture has not been clearly established
due to its complexity.
15. In what way(s) do the development paths chosen by Pakistan and Bangladesh differ? What are
the main factors that have contributed to these differing paths?
Answer: The key differences are the aspects of economic development discussed in the
chapter. The case study at the end of the chapter provides comparative figures
for the two countries and the main factors contributing to the divergent paths.
16. How is poverty measured? What is the extent of poverty in the developing world?
Answer: The concept of absolute poverty is discussed in the text and the progression of
absolute poverty in the developing world is shown in Figure 2.6. If the concept
of relative poverty was discussed in the lectures, instructors may look for that
distinction in the answer.
17. What are the major differences between the new HDI and the original HDI?
Answer: Open ended essay. Refer to pages 51–55 of text for the discussion.
Multiple Choice
1. An example of an upper-middle income country is

A. India.
B. Brazil.
C. Indonesia.
D. Nigeria.
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.
3. Which of the following is not an upper-middle income country?
A. Brazil
B. South Africa
C. Pakistan
D. Argentina
4. Which of the following is a low-income country?
A. Mexico
B. Thailand
C. Turkey
D. Bangladesh
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.
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
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
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
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
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.
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
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
13. 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
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.
C. higher output levels are achieved by more labor intensive methods.
D. higher output levels are achieved.
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.
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.
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.
18. The dependency burden is
A. a measure of the degree to which the less developed countries are dependent on
the rich industrial
B. countries.
C. the average number of children that a woman gives birth to during her lifetime.
D. the number of babies born per 1000 persons.
E. the percent of the population that is below 15 and above 65 years of age.
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.
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.
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.
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
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
CHAPTER 3
Short Answer
1. What are the main differences between the linear stages and international dependency models
of development?
Answer: Lack of development is generated internally with the linear stages model, and is
attributed to a lack of savings and investment. It is generated externally in the
dependency model, and is the result of actions taken by the developed countries.
2. Why is the debate between the international dependence and the neoclassical
counter-revolution schools referred to as “finger pointing?”
Answer: The text stresses that most members of the former school tend to be developing
country economists, while most members of the latter school are developed
country economists. The former blames under development on policies adopted
by the developed countries, while the latter blames policies adopted by the
developing countries.
3. Describe some of the advantages and disadvantages of each of the following schools: linear
stages, structural change, dependence and neoclassical.
Answer: Discussed in detail in the chapter and in the comparative case study at the end of
the chapter.
4. Describe one important criticism of Rostow’s stages of economic growth theory.
Answer: The stages are only necessary and not sufficient conditions, savings is to
aggregate a measure, the theory does not take into account the constraints of the
international economic order, and there are counter-examples such as Argentina.
5. Dependency theory characterizes countries as being either in the center or on the periphery.
Explain these two concepts. If this theory is correct, what are the implications for development
strategy?
Answer: Grading would depend on what is covered in lecture, but an answer might
include inward looking trade policies, regional economic integration, collective
action to increase bargaining power in relation to multinational corporations, as
well as creation of state-owned enterprises.
6. Apply what you have learned about development and development theories so speculate on
the following thought experiment: What if anything might be different about today’s
international economic order if the Spanish had colonized North America and the English had
colonized South America?
Answer: You may wish to note for students that there may be more than one correct
answer. Careful reasoning and application of the material is necessary.
7. Does it follow from the false-paradigm model that World Bank economists are intentionally
trying to keep developing countries from realizing genuine development? Why or why not?
Answer: It does not exclude this possibility, but suggests that this may be done
unwittingly as result of having to work within narrow policy parameters defined
by the international economic system.
8. Patterns of development or structural change analysis stress internal change in a developing

country’s economic, industrial, and institutional structure. What are some of the most
important changes?
Answer: Discussed In Text.
9. Explain the concept of the “idea gap” in development economics.
Answer: Developing Countries Lack Knowledge, information, and skills for production
and productivity in comparison to more developed countries.
10. Assume a closed economy, perfectly elastic labor supply, and linear technology. Suppose the
incremental capital-output ratio (ICOR) is 3, the depreciation rate is 3%, and the gross savings
rate is 10%. Use the Harrod-Domar growth equation to determine the rate of growth. What
would the gross savings rate have to be to achieve 5% growth? Assuming a perfectly elastic
labor supply, state one criticism of this model from an exogenous growth theory viewpoint and
another criticism of this model from an endogenous growth theory viewpoint.
Answer: This question may be asked later in the course or may be broken up into several
questions. Whether to use it at this stage will depend on how much coverage
you gave this topic in lecture, especially for the last part of the question and also
whether the Harrod-Domar model was covered assuming a zero depreciation
rate (as in the text) or a positive depreciation rate. Answer: growth rate of 0.003,
that is 0.3%, and 0.24, or 24% savings rate. Exogenous: does not allow factor
substitution; endogenous: does not address sources of productivity growth, or
the savings decision.
11. What are the key assumptions of the Lewis model that give rise to its conclusions? How
would the theory’s conclusions differ if these assumptions do not hold?
Answer: There may be a variety of answers depending on what was emphasized in the
lecture. The answer should include the existence of surplus labor in the rural
sector that guarantees an infinitely elastic labor supply in industry until the
surplus is exhausted and a propensity to save by industrialists equal to one. The
lack of rural surplus labor (and infinite labor supply) would imply that when
industrialists reinvest their profits there is no guarantee that their surplus
increases. A low marginal propensity to save by industrialists puts a break on
the labor transfer process.
12. During the past decade, India has invested about 22% of its GDP while China’s investment
rate has been double that of India’s. India’s annual growth rate has been about 6% while that
of China has been about 9%. What conclusions can you draw?
Answer: Students are asked to relate investment rates to the rate of economic growth
through the Harrod-Domar model. The students should calculate the ICOR for
the two countries and note that India’s ICOR (about 3.67) is lower than China’s
(about 5).
Multiple Choice
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
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
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 level of savings and investment.
D. a lack of government regulation.
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
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
6. The neoclassical counter-revolution school supports
A. trade restrictions.
B. state-owned enterprises.
C. eliminating government regulations
D. limitations on foreign investors.
7. Implicit assumptions from which theories evolve are known as
A. a paradigm.
B. biases.
C. stylized facts.
D. normative economics.
8. On which of the following does the neoclassical counter-revolution school most blame
underdevelopment?
A. misguided government policies
B. relatively rigid cultural traditions
C. the legacy of colonialism
D. unfair trade practices on the part of developed countries
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
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.
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.
12. According to the dependence theory, the developing world is known as the
A. backward areas.
B. periphery.
C. first world.
D. center.
13. The underlying assumption of the Harrod-Domar growth model is that
A. the incremental capital-output ratio 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.
14. The supply curve of labor to industry in the Lewis model is horizontal if there is surplus labor
in agriculture. This condition persists as long as
A. the marginal product of labor is less than the average product of labor in
agriculture.
B. the marginal product of labor in agriculture is less than the marginal product of
labor in industry.
C. there are diminishing returns to labor in agriculture.
D. the marginal product of labor in agriculture is zero.
15. International dependence theories distinguish between two groups of countries known as
A. rich-poor.
B. developed-developing.
C. center-periphery.
D. independent-dependent.
16. Which of the following is an assumption of the Lewis two-sector model?
A. surplus labor industry.
B. positive marginal product of labor in agriculture.
C. an upward sloping labor supply curve in industry.
D. none of the above
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.
18. The linear stages theory of economic growth fails to recognize that increased investment is
A. both 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.
19. Which of the following are components of economic growth
A. growth in labor force.
B. technological progress.
C. investment.
MINI TEST
1. If a country experiences a rapid increase in per-capita income due to discovery of new oil reserves,
then it is experiencing:
A. growth but not necessarily development
B. both growth and development
C. development but not growth
D. neither growth nor development
2. Development economics is concerned with

A. economic, social and political institutions
B. efficient allocation of scarce resources and economic, social, political, and institutional
mechanisms
C. imperfect resource and commodity markets
D. efficient allocation of scarce resources
3. As defined by the 1987 UN World Commission on Environment and Development, which of the
following best describes sustainable development?
A. Development that meets the needs of the present without compromising the ability of
future generations to meet their own needs
B. Development for which financial resources will be available over the medium and long
term
C. Development with a small carbon footprint
D. Development strategies that can be easily replicated by other countries or regions
4. “NICs” refers to
A. non-income classified countries
B. newly incorporated countries.
C. non-incorporated countries
D. newly industrializing countries
5. A supply side vicious circle of poverty suggests that poor nations remain poor because
A. there is a lack of effective government
B. saving remains low
C. investment remains low
D. saving and investment remain low
6. Fill in the blanks. Economic development is a(n) __________ process which can at best be
explained by ____________.
A. Complex; several factors
B. linear process; specific factors
C. government controlled; institutional factors
D. external; factors outside the control of any country
7. Developing countries are commonly characterized by
A. low levels of living, high levels of income inequality, and high dependency burdens.
B. low levels of productivity, prevalence of imperfect markets, and high rates of population
growth
C. primary-product exports, inadequate education and vulnerability in international relations
D. all of the above
8. Development is now thought to mean

A. increases in the share of modern manufacturing sector.
B. economic growth, accompanied by dramatic change in social and political institutions,
as well as in the attitudes of the people
C. a movement towards national food security
D. sustained increases in GNI per capita
9. Compared to the developed countries, the LDCs have

A. higher saving rate
B. higher population growth rate, higher birth rates and higher death rates
C. higher share of urban population
D. Higher share of labor in modern sector
10. The three core values of development are

A. sustenance, freedom, and security.
B. Freedom, security, and democracy
C. sustenance, democracy, and free markets
D. sustenance, self-esteem, and freedom
MID-TERM TEST 1
T-F, explain
1. Economic growth is necessary and sufficient to eradicate most of absolute poverty
FALSE. Economic growth is only a necessary condition, but it is not sufficient to consider the
contribution.
2. As incomes rise there tends to be a shift of labor from the services sector to the industrial
sector.
FALSE. Labor can transition from rural areas to urban areas, and it is also possible for them to
transition from agriculture to industry, rather than strictly asserting that the transition is always from
industry to services.
3. In the Lewis model, wage in the modern urban industrial sector is unchanged during the
development process
FALSE. Turning point: Wages transition from being constant to gradually increasing. In the Lewis
two-sector model, there are two stages or phases. In the initial stage, wages remain unchanged, but in
the later stage, they start increasing.
4. Most lists of basic human needs include basic transportation, such as bicycles
FALSE. Five human basic needs: food, water, clothing, sleep and shelter
5. Economic growth rate in developed countries is higher than developing countries

FALSE. The economic growth rate in developed countries tends to be lower than that of developing
countries. Developed countries usually have more mature economies, and as a result, their growth
rates are generally slower compared to developing countries. Developing countries leverage the
advantages of developed countries to take advantage of their resources and capabilities.
6. A supply side vicious circle of poverty suggests that poor nations remain poor because there is
a lack of effective government
FALSE. A supply side vicious circle of poverty suggests that poor nations remain poor because saving
and investment remain low
7. Both the Harrod Domar growth model and the endogenous model share the idea that an
increase in investment will result in economic growth in the long run
FALSE. Investing in physical capital alone does not lead to long-term economic growth; it only
represents physical capital in the Harrod-Domar model. Investing in physical capital only leads to a
point of stagnation. The Lewis model emphasizes the importance of human development.
8. The International Comparisons Project, which used purchasing power parity rates rather
than market exchange rates, has found that the real standard of living in many less developed
countries (LDCs) is even lower than indicated by their dollar per-capita income.
FALSE. The International Comparisons Project using purchasing power parity rates has found that the
real standard of living in many less developed countries is often higher than indicated by their dollar
per-capita income.
9. The endogenous growth model confirms the neoclassical model's implications about
convergence.
FALSE. The endogenous model has an important determining factor, which is human capital, and
there is no possibility of convergence in all countries because there are some developing countries
with lower human capital.
10. Income gaps between rich and poor tend to be less if using PPP exchange rate
TRUE. PPP measures show the number of units of developing country currency required to purchase
a basket of goods and services in the developing country market that costs one dollar in the U.S. Prices
for most services tend to be much cheaper in developing countries than in the U.S.
Multiple Choice
1. Economic growth measures the
A. growth of productivity
B. increase in nominal income
C. increase in nominal income per capita
D. increase in total real income
2. How might a government try to increase output, if the government is to follow the suggestions of
the Harrod-Domar model?
A. By encouraging savings
B. By investment in human capital
C. By promoting import technologies which help firms to produce more productive
D. By beginning to use state-owned enterprises
3. The difference between GDP and GNI in an economy is

A. National Factor Income Index
B. Net Income per Capita
C. Net Factor Income from abroad
D. Net Export value
4. In constant 2009 lira, real GDP in Turkey increased from L206.1 billion in 2015 to L214.7 billion in
2016. Investment in 2015 totaled L43 billion. What was the value of the ICOR?
A. 4
B. 5
C. 0.2
D. It cannot be determined from these data
5. In the Lewis model, what does the term “surplus labor” refer to?
A. Labor that can be withdrawn from the industrial sector without a decrease in the total
production
B. An amount of labor that is so high that it deflates wages throughout the economy
C. Labor that can be withdrawn from the low productivity agricultural sector without a
decrease in the total production
D. Labor that does not have at least a primary level education
6. The Harrod-Domar growth model is based on the relationship of what two economic elements?
A. Tariff and tax levels
B. Population and economic development
C. Raw materials and technology
D. Savings and investment
7. The Lewis model of the dual economy makes the following assumption(s), except:
A. Industry makes a profit by employing cheap labor
B. The rural wage initially remains constant
C. Rural wage will rise when industry expands sufficiently
D. The urban area does not having unemployment
8. The concept of Purchasing Power Parity

A. is based upon the official exchange rate
B. is based upon the cost of the same market basket of goods in different countries
C. is based upon the nominal exchange rate
D. is based upon the cost of hamburgers around the world
9. In the endogenous growth theory, K representative for

A. Physical capital
B. None of physical capital or human capital
C. Human capital
D. Both physical and human capital
10. Non-traded goods do not enter measured GDP because

A. they are intermediate goods
B. they are not traded in the market
C. their value is not captured by the exchange rate method of conversion to a common unit
D. there is no value-added in the production of such goods
MID-TERM TEST 2
Multiple choice
1. The functional income distribution attempts to explain the share of total national income that each
of the factors of production (land, labor, and capital receives, thus the percentage that of income that
labor receives depends on:
a. The contribution of the labour to production
b. The price of labour in the market
c. The supply and demand curve of labour
d. The ownership of labour
2. Human Development Index (HDI) An index measuring national socioeconomic development.

Which of the following is not a component of the traditional HDI:
a.GNI/capita (PPP)
b. GDP/capita (PPP
c. literacy
d. life expectancy
3. The absolute poverty line:

a. shows the average income of the lowest 10 percent of the population
b. varies with the Gini coefficient
c. Varies with different communities.
d. Should not be adjusted from time to time as real income grows
4. Rising per-capita GNP may fail to increase incomes for most citizens because:
a. Gains from growth may be used for expensive glory projects that provide few concrete
benefits to the people.
b. gains from growth may be heavily reinvested, so consumption gains are postponed
c. Those who are already relatively well-off may get all or most of the benefits
d. all of the above
5. 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 has adopted a strategy of redistribution with growth
d. Growth in Bangladesh is calculated using poverty weights rather than incorne weights
6. Assuming that the Gini coefficient for Egypt is 0.403 and the Girt 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.
7. The poverty gap

a. Measures how many people are below an agreed-upon poverty line, but tells us nothing
about the depth of poverty.
b. Measures the total amount of income necessary to raise everyone who is below the poverty
line up to that poverty line.
c. Gives a better indication of the depth of poverty than a simple headcount index.
d. The b and c are both correct.
8. The HDI measures human development based on what concept?

a. Economic growth
b. Gross domestic product (GDP)
c. Human capabilities and opportunities
d. Political freedom and democracy
9. The indicator used to measure the size of absolute poverty is

a. Absolute poverty gap c. Proportion poverty gap
b. Headcount index d. Multidimensional poverty index
10. If the distribution of income in country C is (1, 2, 2, 3, 5), and in country D it is (1, 1, 2, 3, 5),
which country has more inequality?
a. C c. inequality is the same in C and D
b. D d. we cannot tell from the information given
11. The Lorenz criterion

a. is an incomplete measure of inequality.
b. is a measure of the wealth of a country.
c. allows us to rank all countries by the degree of poverty.
d. allows us to rank all countries by the degree of inequality.
12. According to the inverted U hypothesis of Kurnets, as economies develop

a. average household incomes first fall and later rise
b. income inequality first rises and later falls
c. industry's share of GDP first rises and later falls
d. the population growth rate first rises and later falls.
True – False
1. A country with a Higher GDP per capita will always have a Higher HDI
FALSE.
➔ GDP per capita is not the only factor contributing to HDI. HDI includes Life expectancy,
Education and Living standard countries with high GDP may not always have a higher HDI if
other factors are not equally favorable.
2. Poverty is measured as an absolute income threshold, which is the same across all countries
FALSE.
➔ Poverty is a relative concept that varies across countries and over time. Poverty line is specific
to each country, based on the level of development and the cost of living, which are different
depending on the condition of that country.
3. The "Absolute Poverty Gap” indicator is used to measure the “incidence” of poverty
FALSE.
➔ "Absolute Poverty Gap” measures the depth of poverty rather than its incidence. It provides an
estimate of how far on average the incomes of the poor fall below the poverty line.
4. Income inequality has no impact on economic growth

FALSE.
➔ Income inequality will boost economic growth at the low level of inequality.
➔ Income inequality can maximize/take advantage of input of the production process.
5. The Kuznets inverted U hypothesis has been consistently supported by empirical evidence across all
countries.
FALSE.
➔ The Kuznets are not appropriate for all nations except for certain ones such as Brazil, South
Korea.
➢ Take Brazil as illustration, the degree of income inequality is reflected in the low
share of income going to the bottom 60% and the high share of the top 10% of the
population. The top 10% of income earners about 43% of national income, while
bottom 40% received just 10%.
➔ Income inequality decreases, whereas income does not.
Exercise
1. Given the Cobb – Douglas production function Y=AK𝜶L𝛃
y = 0,06 (economic growth rate); k = 0,03 (Growth rate of capital stock); l = 0,07 (Growth rate of
the labor force); 𝜶 = 0,4 (a weight on capital typically set equal to capital's share in national
income).
How much does each component contribute to the growth rate in output? Which is the most
important factor affecting economic growth?
y = 0,06 l = 0,07
k = 0,03 𝜶 = 0,4
2. World Bank data show that in 1995, the poorest 20% of households accounted for 7.5% of
household income in Niger, the next 20% of households accounted for 11.8% of income, the
middle 20% accounted for 15.5% of income, the second richest 20% accounted for 21.1% of
income, and the top 20% accounted for 44.1% of income.
SAMPLE TEST QUESTIONS FOR DEVELOPMENT ECONOMICS
1. Which of the following is not typically an element in the structural change that accompanies
development?
a. increase in the share of agriculture in GDP (gross domestic product)
b. increase in manufacturing as a share of GDP
c. increase in urbanization
d. All of the above changes accompany development
2. The essence of Engel's law is that as family incomes rise

a. the savings rate increases
b. the proportion of income spent on food declines
c. expenditure on food declines
d. proportion of income spent on luxuries declines
3. The concept of opportunity cost is based upon the principle of

a. need
b. consumption
c. scarcity
d. profit
4. Which of the following is an INCORRECT statement about a budget constraint

a. Points on a budget constraint represent combinations of the goods that exactly use up
income
b. Points within the budget constraint represent combinations of the goods that do not use up
all the income
c. If points A and B lie on the budget constraint, we can deduce that people will be
indifferent between the two
d. If the price of one good decreases, all else the same, the budget constraint will swivel or
rotate outward
5. When the manufacturer of power looms expands, there are forward linkage effects due to
a. lost employment in the hand-loom sector
b. increased incomes of workers that manufacture looms
c. increased output of woven cloth made by the power looms
d. increased demand for electric motors
6. Income level or GDP is criticized as an indicator of development mainly because it takes no account
of the distribution of income.
TRUE. High GDP or income levels can mask significant income inequality, leaving a large portion of
the population with limited access to resources and opportunities for social and economic
advancement. Therefore, considering income distribution is crucial for a more comprehensive
understanding of development alongside GDP or income level.
7. A certain amount of goods and services is necessary for a minimum standard of living. This is
called
a. basic needs
b. absolute poverty
c. an international standard of living
d. the concept of development
8. With perfect income equality the Gini coefficient in a country would be

a. infinity
b. 1
c. .5
d. 0
9. Rawls argued that the income distribution should be determined

a. by a free vote of all groups on a society
b. by whatever the poor decide is an acceptable minimum level
c. by what all society agrees to behind a `veil of ignorance'
d. as entirely equal income shares for all groups
10. All but one of the following are methods to represent overall income inequality:
a. variance
b. Gini coefficient
c. ratio of the top income decile to the lowest income decile
d. Lorenz curve
e. GDP per capita
11. The concept of choice would become irrelevant if

a. we were dealing with a very simple, one-person economy
b. poverty were eliminated
c. scarcity was eliminated
d. capital was eliminated
12. Examine the following diagram: The Gini coefficient is

a. A/(A+B)
b. B/(B+A)
c. A/B
d. (A+B)/A
13. According to Simon Kuznets, the relationship between GNP per capita and inequality in the
distribution of income can be expressed as
a. a strictly decreasing relationship
b. a strictly increasing relationship
c. no relationship
d. first increasing and then decreasing
14. The physical quality of life index (PQLI) is an aggregation of widely available indicators of basic
human needs. Which of the following is not a component of the PQLI:
a. life expectancy
b. per capita income
c. infant mortality
d. literacy
15. If Lorenz curves cross, we say there is less inequality in the case where
a. the poorer get a larger percentage of income
b. the poorer get a smaller percentage of income
c. the richer are less rich
d. we cannot say
16. If the development process is characterized by what we have called "modern sector enlargement",
the relationship between GNP per capita and inequality in the distribution of income can be expressed
as
c. no relationship
17. If the development process is characterized by what we have called "modern sector enlargement",
the relationship between GNP per capita and poverty in the distribution of income can be expressed as
c. no relationship
18. Whereas the headcount measure tells us the number of poor and the poverty gap measure tells us
about the average depth of poverty among the poor, the Foster-Greer-Thorbecke measure (also called
P-alpha) tells us about the number, the average depth of poverty and
a. average income
b. inequality in the population
c. inequality among the poor
d. variance of average income
19. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is 2.5, the headcount
measure tells us what percentage of the population is in poverty
a. 40
b. 3
c. 2
d. 60
20. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is 2.5, the average
income shortfall measure tells us the average depth of poverty among the poor is
a. 5/6
b. 5/2
c. 2
d. 0
21. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3, 5), and
the poverty line in both countries is 2.5, by the headcount measure which country has more poverty?
a. C
b. D
c. poverty is the same in C and D
d. we cannot tell from the information given
22. If the distribution of income in country C is (1, 2, 2, 3, 5), and in country D it is (1, 1, 2, 3, 5), and
the poverty line in both countries is 2.5, by the average income shortfall measure which country has
more poverty?
a. C
b. D
c. poverty is the same in C and D
d. we cannot tell from the information given
23. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3, 5), and
the poverty line in both countries is 2.5, by the Lorenz curve which country has more inequality?
a. C
b. D
c. inequality is the same in C and D
d. we cannot tell from the information given.
24. The empirical evidence indicates that today's developing countries are undergoing a demographic
transition very similar to what the developed countries experienced in the past.
FALSE.
➔ Developing countries face distinct demographic challenges that can result in young population
and higher population growth rates compared to the historical demographic transitions of
developed nations.
25. The dependency ratio is the ratio of

a. children to adults in the population
b. unemployed to employed workers in the labor force
c. foreign aid to total GNP
d. non-working age group population to working age population
26. Malthus argued that the poor would always remain poor because
a. population growth tends to outrun growth of food production
b. they do not save enough
c. there are not enough resources to educate them
d. all of the above
27. Children have costs and benefits to parents, and

a. fathers and mothers share these equally
b. the impact on family income is always negative, so children can be viewed as consumer
durables
c. there is a trade off to parents between quantity and quality of children
d. the income elasticity of demand for children is strongly negative e. none of the above
28. Both the Ricardian growth model and the Lewis model share the assumption that population
growth will outpace food production in the long run.
FALSE.
➔ The Ricardian growth model, focusing on comparative advantage and specialization, and the
Lewis model, highlighting structural transformation, do not share the assumption that
population growth will outpace food production in the long run
29. The Lewis model of the dual economy makes the following assumption(s)
a. The rural wage initially remains constant
b. Industry makes a profit by employing cheap labor
c. Rural wage will rise when industry expands sufficiently
d. all of the above
e. none of the above
30. Industry faces an elastic supply curve of labor because the marginal product of labor in agriculture
is
a. lower than its marginal product in industry
b. less than the average product in agriculture
c. very low or zero
d. constant at all levels of agricultural output
31. Underemployment is a situation where

a. people who are willing to work are unable to find jobs
b. many people in the labor force hold two or more jobs
c. people are working full-time and hard, yet have a low marginal product
d. people work in a free labor market with a very low wage
32. The Malthusian theory of population growth, as formulated by Malthus, proved

a. entirely correct for human behavior
b. overly pessimistic about future productivity increases
c. that food output will decline with population growth
d. none of the above
33. An LDC has an ICOR of 5 and a savings rate s = 15%. If current GDP is $1000, what will be GDP
next year?
a. $1150
b. $1200
c.$1030
34. The hypothesis of the 'advantage of backwardness'

a. explains how LDCs may catch-up in productivity
b. implies that already known technology can be transferred relatively cheaply from the
advanced countries to the LDCs
c. is incorrect; there are no advantages to backwardness
d. a and b above
35. 'L' shaped isoquants do not imply

a. that inputs are used in fixed proportions
b. incremental capital-output ratio is constant
c. increasing returns to scale
d. no substitution between inputs
36. Which is a measure of absolute poverty?

a. Headcount
b. average income shortfall
c. Sen index
d. all of the above.
37. Consider the following distribution of incomes in country x and country y: country x (2, 3, 4)
country y (6, 9, 12)
a. inequality is higher in x than in y
b. inequality is higher in y than in x
c. inequality is the same in x and y
d. the information given is not sufficient to compare inequality in x and y.
38. Consider the following distribution of incomes in country x and country y: country x (2, 3, 4)
country y (6, 9, 12)
a. absolute poverty is higher in x than in y
b. absolute poverty is higher in y than in x
c. absolute poverty is the same in x and y
d. the information given is not sufficient to compare absolute poverty in x and y.
39. Consider an economy with low per capita income. Assume i) whenever per capita income rises
above subsistence level, population grows and ii) whenever it falls below subsistence level, population
shrinks. Given, i) and ii),
a. a poverty trap exists
b. a critical minimum effort increasing per capita income by 1.5% per annum is necessary for
development to take place
c. the economy is ready for Rostow's take-off stage
40. Which of the following would not be considered as an example of industrialization

a. Increase in literacy
b. Replacement of human with mechanical skills
c. Improved economic organization
d. Improved extraction and working of raw materials
41. The production possibility frontier can be considered a measure of

a. Real G.N.P
b. Nominal G.N.P
c. Potential G.N.P
d. None of the above
42. Most lists of basic human needs include all the following items except
a. basic transportation, such as bicycles
b. minimal levels of nutrition
c. minimal provision of shelter
d. provision of basic health care
43. The idea which suggests that poverty is self-perpetuating because poor nations are unable to save
and invest enough to accumulate the capital stock that would help them grow is
a. the dependency theory.
b. the vicious-circle-of-poverty hypothesis.
c. neo-colonialism.
d. the under-consumptionist hypothesis.
44. If the vicious-cycle-of-poverty hypothesis were true at all levels of per capita income, then
a. all economies would develop at the same rate.
b. no nation could ever achieve economic development.
c. no nation would ever fail to reach the highest level of economic development.
d. poverty would not be self-perpetuating.
45. 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
46. To draw a Lorenz curve showing the distribution of income by household, one should first rank all
households according to
a. household size.
b. age of head of household.
c. wage level.
d. income per capita.
47. One study found that the Gini coefficient for Egypt .403 . was virtually the same as that for
Australia .404. From this information one can conclude that Egypt and Australia
a. had virtually the same number of households in absolute poverty.
b. had virtually the same percentage of households in absolute poverty.
c. had virtually the same Human Development Index level.
48. If 's' is the savings rate and 'v' the capital-output ratio, then 'g' the rate of growth in the Harrod
Domar model is represented by
a. v/s.
b. sv.
c. sv.
d. s/v.
49. Balanced growth theories of Ragnar Nurkse advocate

a. a steady rate of growth of GNP
b. parity between capital stock and labor
c. simultaneous development of all sectors of the economy
d. all of the above.
50. Critical minimum effort refers to

a. the minimum labor input required to raise the MPl
b. the ideal ratio in which to combine labor with capital
c. the big push advocated to raise an economy from continued stagnation
51. The Arthur Lewis model utilizes the assumption that,

a. an unlimited supply of labor is available at a fixed wage rate
b. supply of labor is a strictly increasing function of wage rate
c. labor supply grows at a fixed rate
d. disguised unemployment must not exist in the agricultural sector.
52. According to Kuznets, the identifying characteristic of "modern economic growth" is

a. expansion of heavy industry.
b. a rapid decline in population growth rates.
c. high rates of saving and investment.
d. application of science to problems of economic production.
53. In constant 1968 lira, real GNP in Turkey increased from L206.1 billion in 1980 to L214.7 billion
in 1981. Investment in 1980 totaled L43 billion. What was the value of the ICOR?
a. 5.
b. 0.176.
c. L8.6 billion.
d. It cannot be determined from these data.
54. All but one of the following elements is a characteristic of the demographic transition. Which one
is the exception?
a. Initially high birth rate and death rate.
b. Initially low rate of natural increase.
c. Rapid increase in the birth rate during the early stages of development.
d. A sharp fall in the death rate followed with a lag by a decline in the birth rate.
55. The supply curve of labor to industry is horizontal if there is surplus labor in agriculture. The
condition occurs as long as:
a. the marginal product of labor in agriculture is less than the average product of labor.
b. the marginal product of labor in agriculture is less than the marginal product of labor in
industry.
c. there are diminishing returns to labor in agriculture.
d. the marginal product of labor in agriculture is zero.
56. Which of the following statements is consistent with Hirschman's theory of unbalanced growth?
a. A country should focus on industry, because agriculture is not a dynamic sector.
b. To initiate the industrialization process a country requires a "big push."
c. When certain industries are developed first, linkage effects will induce the development of
new industries.
d. All of the above.
57. Which of the following is a direct implication of the view that childbearing is an economic
decision?
a. People will not have additional children unless they can earn a profit from doing so.
b. Social factors have no effect on childbearing decisions.
c. Compulsory education will increase fertility by raising each child's prospective earnings.
d. Fertility should fall with improved opportunities for women to work in jobs outside
the home.
58. The primary focus of development strategy during the 1950's was on
a. Reduction in unemployment
b. Increase in G.N.P.
c. Increase in foreign trade
d. Increase in literacy
59. The extraction of iron ore has increased on account of increased demand for steel. The above is an
example of
a. Forward linkages
b. Backward linkages
c. Backward and forward linkages
60. According to W.W.Rostow, which of the following does not belong to the "precondition for take
off":
a. Increased agricultural productivity
b. Political stability
c. Development of social overhead capital
d. Growth of the durable consumer goods industry
61. If a situation exists where it is not profitable for any single producer to expand production because
of market limitation, then the best strategy for the country to adopt would be
a. Balanced growth strategy
b. Unbalanced growth strategy
c. Employment growth strategy
62. An unbalanced growth strategy may be desirable if

a. Indivisibilities are important
b. Expansion costs are important
c. Both of the above
63. Which of the following is not true about agriculture's role in economic development
a. Provides labor for non-agricultural sector
b. Provides a market for non-agricultural commodities
c. Source of industrial raw materials
64. Which of the following is not a weakness of the import substitution strategy of growth
a. Reduces production of modern sector
b. Leads to an inappropriate domestic K/L ratio
c. Leads to a balance of payments problem
d. Reduces exports of agricultural goods
65. According to the Harrod-Domar model, an increase in growth rates depends on

a. Increase in capital-output ratio
b. Decrease in capital-output ratio
c. Increase in marginal propensity to consume
66. In the Harrod-Domar model, it is assumed that the elasticity of substitution between capital and
labor is
a. Infinite
b. One
c. Between zero and one
d. Zero
67. In the theory of demographic transition, the rate of growth of population is likely to increase in
a. Period I
b. Period II
c. Period III
d. Period I & II
68. According to Malthus, the fixed factor of production is

a. Labor
b. Capital
c. Land
d. Entrepreneurship
69. According to Malthus, examples of preventive checks are

a. Abortion
b. Deferred marriage
c. Famine
d. Both a and b
70. In a perfectly competitive economy, if the demand curve for labor is infinitely elastic then all of the
national income will accrue to
a. Workers
b. Capitalists
c. Landlords
71. According to A. Sen, famines are most likely to occur on account of

a. Fall in production of agricultural goods
b. Breakdown in distribution of agricultural goods
c. Adverse weather conditions
d. Fall in money supply
72-76. Suppose there are 5 workers in an economy and initially all the workers work in the traditional
sector at a wage equal to 1 (call this initial period, period 0). In each subsequent period, one worker
migrates from the traditional sector to the modern sector where wages are equal to 4. Assuming that
the number of workers remains constant, then period 5 all the workers are in the modern sector.
72. In period 5 the gini coefficient of inequality is

a. 1
b. 0.5
c. 0
73. As migration takes place the gini coefficient of inequality

a. At first rises,then falls
b. At first falls,then rises
c. Falls continuously
d. Rises continuously
74. As migration takes place the income share of the poorest 50%
a. At first rises, then falls
b. At first falls, then rises
75. As migration takes place the per capita income of the workers
a. At first rises,then falls
b. At first falls,then rises
76. The income share of the poorest 20% is likely to be at a minimum in which period
a. Period 2
b. Period 3
c. Period 4
d. Period 5
77. Suppose we hypothesize that wages are set at a subsistence level. Then what observation will
strengthen our hypothesis
a. There is no involuntary unemployment
b. Wages do not fall as labor productivity changes
c. Wages fall in the slack agricultural seasons
78. In a fixed rent tenancy, risk is

a. Borne by the tenant
b. Borne by the landlord
c. Shared between landlord and tenant
79. Which of the following is not a justification for sharecropping
a. It acts as a screening device
b. It shares risks between landlord and tenant
c. It reduces cost of supervision for the landlord
80. Rural interest rates are likely to be

a. Higher than in the organized credit market
b. Same as in the organized credit market
c. Lower than in the organized credit market
81. In the Harris-Todaro model, in equilibrium, the expected urban wage rate will be _________ the
rural wage rate
a. Greater than
b. Equal to
c. Less than
82. 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
83. Which of the following is not an example of financial repression

a. Forced sales of government debt to the banking system
b. Interest rate controls on loan and deposit rates
c. Very high rates of monetary growth
d. Creation of a large public sector
84. According to the Ricardian model, the reason for lower priced services in the LDC's is
a. Labor -productivity in commodities is the same in rich and poor countries
b. Labor-productivity in commodities is lower in poor countries
c. Labor-productivity in services is lower in poor countries
85. 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
86. 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
b. Capital intensive techniques
c. Profit maximizing techniques
87. If the birth rate is 6% and the death rate is 2%, the natural rate of population increase is
a. 0 .3%
b. 3.0%
c. 4.0%
d. 8.0%
88. Historically, low rate of population growth were maintained because of

a. low fertility rates
b. high mortality rates
c. migration out of developing countries.
d. government restrictions on the number of children families can have.
89. The main domestic source of savings in LDCs is

a. government savings through budget surplus
b. corporate retained earnings
c. savings by households
d. savings by public sector enterprises
90. During years of financial repression in LDCs, the real interest rate was often negative due to:
a. explicit policy by the government
b. low interest rates instituted by government to encourage capital investment
c. government policy to combat inflation
d. an inadvertent result of inflation occurring after nominal interest rates had been fixed.
91. 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
92. If the marginal product of capital is twice that of labor and the price of capital is three times that of
labor, then,
a. capital will be substituted for labor
b. labor will be substituted for capital
c. the price of capital will fall, and price of labor will rise
d. twice as much capital as labor will be employed
93. Investment in capital implies

a. future sacrifice for present gain
b. buying financial assets such as stocks or bonds
c. no sacrifice because it leads to growth
d. a present sacrifice for expected future gain
94. Autarky refers to a country

a. with an authoritarian government
b. which is self sufficient, and is a closed economy
c. which has free trade with the rest of the world
d. none of the above
95. A public works projects pay $5 a day to poor rural laborers who would otherwise earn only $2 per
day from casual labor. The opportunity cost, or shadow wage rate, of labor is:
a. $2
b. $3
c. $5
d. $7
96. Peasant farmers in LDCs are generally observed to

a. respond appropriately to changes in price incentives
b. use available resources efficiently
c. Both a and b
d. Neither a nor b
97. In the household production model, agents choose their hours and type of work so as to maximize:
a. production
b. income
c. leisure
d. utility
e. short-run consumption

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CHAPTER 1

1. Provide a definition of development economics. Justify your choice carefully.

3. In what way is development economics greater in scope than traditional economics?

Answer: See Question 3 above.

6. In reviewing discussions of life in developing countries, what is it about lifestyles in the

Answer: This is an open-ended question to stimulate reflection.

7. It has been said that “underdevelopment is a state of mind.” Comment.

8. Do you think it is in the material interests of high-income countries to help low-income

9. How is happiness related to development?

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

Answer: See the section on low levels of living in the chapter.

Answer: See the Key Concepts above for a summary.

Answer: Open-ended essay.

9. What are the three major components of economic growth?

Answer: Capital accumulation, labor force growth, and technological progress.

How do differences in culture lead to comparative development?

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

4. Describe one important criticism of Rostow’s stages of economic growth theory.

8. Patterns of development or structural change analysis stress internal change in a developing

Answer: Discussed In Text.

9. Explain the concept of the “idea gap” in development economics.

2. Development economics is concerned with

8. Development is now thought to mean

9. Compared to the developed countries, the LDCs have

10. The three core values of development are

5. Economic growth rate in developed countries is higher than developing countries

3. The difference between GDP and GNI in an economy is

8. The concept of Purchasing Power Parity

9. In the endogenous growth theory, K representative for

10. Non-traded goods do not enter measured GDP because

2. Human Development Index (HDI) An index measuring national socioeconomic development.

3. The absolute poverty line:

Bangladesh 17.3 45.3

Indonesia 14.4 49.4

a. Absolute poverty is more widespread in Bangladesh

7. The poverty gap

8. The HDI measures human development based on what concept?

9. The indicator used to measure the size of absolute poverty is

11. The Lorenz criterion

12. According to the inverted U hypothesis of Kurnets, as economies develop

4. Income inequality has no impact on economic growth

2. The essence of Engel's law is that as family incomes rise

3. The concept of opportunity cost is based upon the principle of

4. Which of the following is an INCORRECT statement about a budget constraint

8. With perfect income equality the Gini coefficient in a country would be

9. Rawls argued that the income distribution should be determined

11. The concept of choice would become irrelevant if

12. Examine the following diagram: The Gini coefficient is

25. The dependency ratio is the ratio of

27. Children have costs and benefits to parents, and

31. Underemployment is a situation where

32. The Malthusian theory of population growth, as formulated by Malthus, proved

34. The hypothesis of the 'advantage of backwardness'

35. 'L' shaped isoquants do not imply

36. Which is a measure of absolute poverty?

40. Which of the following would not be considered as an example of industrialization

41. The production possibility frontier can be considered a measure of

45. The Gini coefficient provides a measure of:

49. Balanced growth theories of Ragnar Nurkse advocate