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Chapter 5 : States and Markets
MULTIPLE CHOICE
1. After David Ricardo and Karl Marx, economists shifted to trying to understand how markets worked,
and economic growth was:
a.
taken for granted.
b.
taken to a higher level of research.
c.
suppressed as an area of research, as a reaction to the writings of Marx and Engels.
d.
assumed to have already been achieved by all nations in the world of that day.
2. Since the end of World War II, the debate in economic development has been organized around:
a.
suppressing worldwide communist revolution.
b.
a revival of the insights offered by John Stuart Mill.
c.
the proper role of government in development.
d.
creating a multipolar world.
3. The Harrod-Domar model placed investment and capital at the center of:
a.
exploitation of the masses.
b.
economic growth.
c.
enhancing a nation’s status among the community of nations.
d.
the tariff and quota debate.
4. In the 1960s, which economist developed the theory of the “two-model gap,” proposing that there was
not just a savings gap but also a foreign exchange gap and that the latter was the major constraint on
development?
a.
John Maynard Keynes
c.
Vinay Bhargava
b.
Milton Friedman
d.
Hollis Chenery
5. It is argued that the Marshall plan succeeded in rebuilding war-torn nations after World War II due to:
a.
the people’s knowledge and understanding of the role of government and
government-created institutions.
b.
the directives laid out within the plan by Marshall and Truman.
c.
a desire to pursue corporatism an a new economic model.
d.
the influence of the Protestant work-ethic, as described by Max Weber.
6. Although aid to post-World War II nations was successful in helping them rebuild, similar aid to
less-developed nations failed to produce the same results because:
a.
miscalculations of aid were based on per capita income in each nation.
b.
critical institutions within these governments were missing.
c.
countries refused to play by “the rules of the game.”
d.
of the problem of asymmetric information.
7. After World War II, many leaders of former British colonies, who had been educated at British
universities, espoused:
a.
strong monarchical views.
c.
Fabian socialist views.
b.
Keynesian economic doctrines.
d.
Peronist economic and leadership values.
8. The Soviet Union was attractive to developing countries because:
a.
it was very effective at producing and supplying consumer goods.
b.
it had transformed a backward economy into an industrial powerhouse that defeated the
strongest military in the world—Nazi Germany.
c.
Lenin’s Capitalism, the Highest Stage of Imperialism was a best-seller in their nations.
d.
the people were fascinated with the idea of becoming technocrats.
9. During the 1950s, all of the following countries were inspired by the Soviet model of development
EXCEPT for:
a.
China.
c.
Ghana.
b.
India.
d.
Burma.
10. Raul Prebisch, based at the Economic Commission for Latin America and Hans Singer, based at the
United Nations Industrial Development Organization, both provided the intellectual rationale for:
a.
import substituting industrialization.
b.
the rapid development of the service sector industry.
c.
free trade.
d.
liberation theology.
11. One of the criticisms of the growth policies of the 1960s was that too much attention was paid to the
growth rate of GDP and not enough attention was paid to:
a.
the foreign exchange rate.
b.
monetary and fiscal policies.
c.
how the benefits of growth were distributed.
d.
General Agreement on Tariffs and Trade (GATT).
12. East Asia’s “four tigers” (Korea, Singapore, Hong Kong, and Taiwan) all achieved rapid industrial
growth by:
a.
eliminating virtually all government interventions.
b.
heavily subsidizing exports, while prohibiting competing imports.
c.
imposing effective central planning.
d.
fostering a development strategy based on export of manufactures.
13. The international organization responsible for helping developing countries design and finance
structural adjustment programs with the aim of becoming more market-based is the:
a.
World Bank.
b.
Organization of Petroleum Exporting Countries.
c.
United Nations.
d.
International Monetary Fund.
14. Structural adjustment programs are designed to:
a.
promote the growth of industry rather than agriculture.
b.
assure that scarce foreign exchange is rationed in accordance with a five-year plan.
c.
dismantle controls that interfere with market allocation and efficiency.
d.
stop inflation.
15. Compared to the situation in a competitive market, in a monopolistic market, firms generally:
a.
use more efficient technologies.
b.
sell a greater share of output in parallel markets.
c.
produce less, while charging higher prices.
d.
are more likely to succeed in response to infant industry protection.
16. Which of the following is NOT one of the five elements needed to support a well-functioning market
system?
a.
holding the exchange rate fixed
b.
achieving a relatively stable macroeconomic environment
c.
allowing relative prices to reflect relative scarcities
d.
establishing competition
17. The essence of a big bang approach to economic reform is:
a.
letting economic conditions get so bad that reforms are welcomed as a relief.
b.
imposing high tax rates to finance government expenditures.
c.
instituting the full range of structural and stabilization reforms over a short period of time.
d.
restoring growth through heavy military spending.
18. China and Vietnam are examples of formerly planned economies that:
a.
adopted the shock-therapy approach to liberalization.
b.
began their reform programs by privatizing large state-owned industrial enterprises.
c.
suffered severe economic contraction during the transition to a market system.
d.
managed the transition to a market economy in gradual steps.
SHORT ANSWER
IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in
pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two
terms and (2) the relationship between them.
1. Government intervention, non-government intervention
ANS:
Answer will vary
2. Big push, backward linkages
ANS:
Answer will vary
3. General Agreement on Tariffs and Trade (GATT), World Trade Organization (WTO)
ANS:
Answer will vary
4. West Pakistan, East Pakistan
ANS:
Answer will vary
5. Pareto optimality, aid to the poor
ANS:
Answer will vary
6. South Korea, Taiwan
ANS:
Answer will vary
7. Dual price system, unified market-price system
ANS:
Answer will vary
8. Shock therapy, gradualist approach
ANS:
Answer will vary
9. Washington Consensus, post-Washington Consensus
ANS:
Answer will vary
10. Structural adjustment, economic distortions
ANS:
Answer will vary
11. Hard governments, soft governments
ANS:
Answer will vary
