quiz 2

Question 1

Economies of growth resulting from expansion of the scale of productive capacity of a firm or industry, leading to increases in its output and decreases in its cost of production per unit of output.

Answer 1

economies of scale

Question 2

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. development but not growth.
c. both growth and development.
d. neither growth nor development.

Answer 2

a. growth but not necessarily development.

Question 3

A theory of development in which surplus labour from the traditional agricultural sector is transferred to the modern industrial sector, the growth of which absorbs the surplus labour, promotes

Answer 3

lewis two-sector model

Question 4

The primary focus of development strategy during the 1950’s or after the World War II was on

a. Reduction in unemployment
b. Increase in G.N.P.
c. Increase in foreign trade
d. Increase in literacy

Answer 4

b. Increase in G.N.P.

Question 5

Given constant returns to labor, if 2 workers produced 14,000 bales of hay, how many bales of hay would 5 workers produce?

a. 14,000
b. 25,000
c. 35,000
d. 50,000
e. 65,000

Answer 5

c. 35,000

Question 6

An economy that encourages foreign trade and has extensive financial and non-financial contacts with the rest of the world in areas such as education, culture, and technology.

Answer 6

open economy/trade liberalization/free trade

Question 7

A phenomenon that results from the existence of market imperfections (e.g., monopoly power, lack of factor mobility, significant externalities, lack of knowledge) that weaken the functioning of a free-market economy - it fails to realize its theoretical beneficial results.

Answer 7

market failure

Question 8

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

Answer 8

d. All of the above changes accompany development

Question 9

An economy which there are no foreign trade sanctions or economic contacts with the rest of the world

Answer 9

closed economy

Question 10

Surplus labor theories assume that

a. LDCs are overpopulated.
b. labor contributes nothing to output in LDCs.
c. the marginal product of labor is close to zero in LDCs.
d. urban unemployment is high in LDCs.

Answer 10

c. the marginal product of labor is close to zero in LDCs.

Question 11

the Harrod-Domar growth model suggests that growth is

a. directly related to savings and inversely related to the capital/output ratio.
b. directly related to the capital/output ratio and inversely related to savings.
c. indirectly related to savings and the capital/output ratio.
d. directly related to savings and the capital/output ratio.

Answer 11

a. directly related to savings and inversely related to the capital/output ratio.

Question 12

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.

Answer 12

d. s/v.

Question 13

A functional economic relationship in which the growth rate of gross domestic product (g) depends directly on the national net savings rate (s) and inversely on the national capital-output ratio.

Answer 13

harrod-domar model

Question 14

A concerted, economy-wide, and probably public policy-led, effort to initiate or accelerate economic development across a broad spectrum of new industries and skill

Answer 14

big push

Question 15

An economic situation characterized by persistent low levels of living in conjunction with absolute poverty, low income per capita, low rates of economic growth, low consumption levels, poor health services, high death rates, high birth rates, dependence on foreign economies, and limited freedom to choose among activities that satisfy human wants.

Answer 15

less development/underdevelopment

Question 16

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,
d. None of the above

Answer 16

d. None of the above

Question 17

The false paradigm model attributes lack of development to
(a) inadequate attention to price incentives
(b) inappropriate advice from rich country economists.
(c) low levels of savings and investment.
(d) a lack of government regulation.

Answer 17

(b) inappropriate advice from rich country economists.

Question 18

A situation in which no one may be made better off without making someone else worse

Answer 18

pareto improvement

Question 19

Dual economies are countries

a. with double capital and labor
b. with a modern manufacturing sector as well as a traditional agriculture sector.
c. that specialize in labor-intensive products more than capital-intensive products.
d. with foreign-owned and domestically-owned capital.

Answer 19

b. with a modern manufacturing sector as well as a traditional agriculture sector.

Question 20

Compared to the developed countries, the LDCs have

a. higher birth rates and lower death rates
b. higher birth rates and higher death rates
c. lower birth rates and lower death rates
d. lower birth rates and higher death rates

Answer 20

b. higher birth rates and higher death rates

Question 21

The concept of Purchasing Power Parity

a. is based upon the cost of hamburgers around the world
b. is based upon the cost of the same market basket of goods in different countries
c. is based upon the market exchange rate
d. is based upon the nominal exchange rate

Answer 21

b. is based upon the cost of the same market basket of goods in different countries

Question 22

Technological progress that raises the productivity of capital by innovation
and inventions.

Answer 22

augmenting technology/augmenting technological change

Question 23

It can be achieved even if not experiencing economic development

Answer 23

economic growth

Question 24

Rostow’s economic stages are

a. the preconditions for takeoff, the takeoff, the drive to maturity, and the age of creative destruction.
b. the traditional society, the preconditions for takeoff, the takeoff, the drive to maturity, and the age of high mass consumption.
c. the preconditions for consumption, the replication, the drive to maturity, and the age of high mass consumption.
d. the learning curve, the age of high mass consumption, post-takeoff, and the drive to maturity.

Answer 24

b. the traditional society, the preconditions for takeoff, the takeoff, the drive to maturity, and the age of high mass consumption.

Question 25

A model whose main proposition is that underdevelopment exists in developing countries because of continuing exploitative economic, political, and cultural policies of former colonial rulers toward less developed countries

Answer 25

neocolonial

Question 26

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 moder sector (c) rising real urban wages (d) rising marginal product

Answer 26

(a) surplus labor in the rural sector

Question 27

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 industrial c. there are diminishing returns to labor in agriculture. d. the marginal product of labor in agriculture is zero.

Answer 27

d. the marginal product of labor in agriculture is zero.

Question 28

8. Which of the following is a goal of economic development? a. Economic growth b. Reduction of poverty c. Improvement of human development (education, health, etc). d. All of these answers e. None of these answers

Answer 28

d. All of these answers

Question 29

the principle that if one factor of production is fixed and constant additions of other factors are combined with it, the marginal productivity of variable factors will eventually decline.

Answer 29

the principle of diminishing returns

Question 30

Exogenous technological change generates long-term economic growth

Answer 30

Linear

Question 31

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 beginning to use state-owned enterprises c. By promoting technologies which help firms to produce more output with less capital (lowering the capital to output ratio) d. Both A and B e. Both A and C

Answer 31

e. Both A and C

Question 32

3.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. (a) all of the above

Answer 32

(a) all of the above

Question 33

Growth model in which there are diminishing returns to each factor of production but constant returns to scale.

Answer 33

Linear

Question 34

A technological or engineering relationship between the quantity of a good produced and the quantity of inputs required to produce it.

Answer 34

production function

Question 35

The hypothesis that underdevelopment is due to underutilization of resources arising from structural or institutional factors that have their origins in both domestic and international dualism

Answer 35

structural change/dual economy/dualistic economy

Question 36

A situation in which one party to a potential transaction (often a buyer, seller, lender, or borrower) has more information than another party.

Answer 36

asymmetric information

Question 37

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

Answer 37

d. all of the above

Question 38

the process of building up a country's capacity to process raw materials and to manufacture goods for consumption or further production.

Answer 38

industrialization

Question 39

The notion historically promulgated by the World Bank that successful development policy requires governments to create an environment in which markets can operate efficiently and to intervene only selectively in the economy in areas where the market is inefficient

Answer 39

market-friendly approach

Question 40

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

Answer 40

b. which is self-sufficient, and is a closed economy

Question 41

A state of affairs in which agents' inability to coordinate their behavior (choices) leads to an outcome (equilibrium) that leaves all agents worse off than in an alterative situation that is also an equilibrium.

Answer 41

coordination failure