Chapter 20: Development Concepts
MULTIPLE CHOICE
1. Which of the following is a positive aspect of the per-capita GDP concept of
development?
a. It only includes market activities.
b. Higher GDP per capita allows people to purchase more goods and services.
c. It excludes factor income flows.
d. All of the above.
2. Which of the following is not an element of the Human Development Index (HDI)?
a. Per capita income.
b. Health.
c. Education.
d. Gini coefficient.
3. If a country has a purchasing power parity (PPP) gross domestic product (GDP) that is
larger than its nominal exchange rate GDP, this means:
a. Services and other non-traded goods are more expensive than in the United States.
b. Services and other non-traded goods are less expensive than in the United States.
c. There must be an error in the calculations.
d. Traded goods must be expanding rapidly.
4. The Lorenz curve and the Gini coefficient are best described as measures of:
a. Poverty.
b. Household size.
c. Income distribution.
d. Extreme poverty.
5. Which of the following is not a prominent criticism of the Human Development Index?
a. It registers the impacts of diseases of affluence.
b. Its weighting of income, health and education is arbitrary.
c. It is too political in assigning declining weights to increases in income.
d. It is based on unreliable data.
6. Development is best viewed as:
a. The expansion of the manufacturing sector.
b. The expansion of the agricultural sector.
c. Changes in the mix of agriculture, manufacturing and services.
d. The contraction of the service sector.
7. Which of the following is not one of the United Nations Millennium Development Goals
(MDGs)?
a. Halve by 2015 the proportion of people suffering from hunger.
b. Halve by 2015 the number of people in extreme poverty.
c. Eliminate by 2015 the number of people in extreme poverty.
d. Universal primary education.
8. Which of the following captures the relationship among gross domestic product (GDP),
gross national income (GNI) and net factor income?
a. GNI = GDP + net factor income.
b. GDP = GNI + net factor income.
c. Net factor income = GDP + GNI.
d. None of the above.
TRUE/FALSE
1. The growth rate of per capita GNI is one important measure of the pace of economic
development.
2. For the United States, GDP/GNI at the nominal exchange rate and the purchasing power
parity (PPP) exchange rate are equal.
3. In the Human Development Index (HDI), education is given a smaller weight than life
expectancy.
4. The Human Development Index (HDI) uses per capita income data at nominal exchange
rates.
5. A country with a Gini coefficient of 0.50 must have a higher level of per capita income
than a country with a Gini coefficient of 0.40.
6. The PPP exchange rate is the rate at which US dollar prices of good are the same in the
United States and the foreign country.
7. A Gini coefficient of 0 represent perfect inequality in the distribution of income.
8. Economic growth does not automatically guarantee human development.
9. Per capita GDP included both market activities and estimates of non-market activities.
10. Since 1981, the number of poor living on less than US$2.00 per day has declined
significantly.
SHORT ANSWER
1. What are the limitations of per capita GDP as a measure of economic development?
2. Does everyone necessarily gain if a country’s per capita income increases?
3. How can we move from measures of per capita income to measures of human
development?
4. Why is it important to use the purchasing power parity (PPP) adjustment when measuring
gross domestic product (GDP) and gross national income (GNI)?
5. For Japan, the purchasing power parity (PPP) gross domestic product (GDP) is less than
standard GDP. Why is this?
6. Cost Rica has a per capita GDP of about one fifth that of the United States. How can it
have such a high Human Development Index (HDI)?
7. What are some of the criticisms of the Human Development Index?
8. What are some of the arguments in defense of the Human Development Index (HDI)?
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9. Why is the equating of development with industrialization misleading?