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C. macroeconomic policy resulting from IMF conditionality.
D. exchange rate policy imposed by flexible exchange rates.
93. A citizen in a developing country with a currency policy of convertibility on the current
account could do the following transactions except:
A. purchase foreign currency in order to import a BMW.
B. sell foreign currency resulting from the exports of manufactured t-shirts.
C. purchase foreign currency in order to purchase a U.S. treasury bond.
D. sell foreign currency resulting from the sale of a U.S. treasury bond.
94. Buying and selling foreign currency by the central bank is a trade policy whose objective is:
A. stabilizing the exchange rate against external shocks.
B. stabilizing the interest rate against foreign capital outflows.
C. promoting long term economic growth.
D. reducing purchases of assets abroad.
95. The IMF offers loans to developing countries in times of balance of payment constraints, but
the IMF also faces strong criticisms because:
A. the IMF has economists that know little about developing countries and their economic
affairs.
B. the conditions tend to be procyclical, therefore worsening the recessions.
C. contractionary fiscal and monetary policies are always undesirable for any developing
country.
D. contractionary fiscal policy and expansionary monetary policy tend to be ineffective against
balance of payment constraints.
96. Which of the following is not an obstacle to development?
A. Political instability
B. Corruption
C. Overpopulation
D. Excessive investment
97. The problem of political instability has been greatest in which continent?
A. South America
B. Asia
C. Africa
D. Europe
98. Political instability is an obstacle to development in:
A. market economies.
B. socialist economies.
C. both market and socialist economies.
D. neither market nor socialist economies.
99. Political instability is an impediment to development mainly because it:
A. undermines both domestic and foreign investment in a developing country.
B. produces excessive levels of domestic saving.
C. redistributes income.
D. creates cultural and social differences among groups in developing countries.
100. According to most economists, the development of markets is:
A. neither a necessary nor a sufficient condition for development.
B. a necessary condition for development but not a sufficient condition.
C. a sufficient condition for development but not a necessary condition.
D. both a necessary and a sufficient condition for development.
101. The lack of investment in developing countries is at least in part attributable to:
A. overpopulation.
B. low levels of domestic savings.
C. inappropriate education.
D. high levels of foreign aid.
102. Foreign aid:
A. is an important source of funding for investment in most developing countries.
B. does not contribute much to domestic investment in most developing countries.
C. is largely wasted in most developing countries because it comes with no strings attached.
D. provided by developed countries to developing countries represents about 10 percent of the
GDP of developed countries.
103. Foreign investment in developing countries is limited for all of the following reasons
except:
A. developing countries lack the infrastructure necessary to attract foreign investment.
B. it is often viewed in developing countries as exploitive.
C. developing countries try to control the nature of foreign investment in order to obtain greater
benefits from it.
D. domestic saving in developing countries is too limited.
104. Developing countries do:
A. not compete with one another for foreign investment because they lack the infrastructure to
attract it in the first place.
B. not compete with one another for foreign investment because they have sufficient domestic
saving to finance their investment needs.
C. compete with one another for foreign investment, but this competition is beneficial to
developing countries because it insures a more efficient allocation of resources.
D. compete with one another for foreign investment, and this competition reduces the benefits
from foreign investment.
105. Economic takeoff:
A. will eventually occur in all developing countries.
B. occurs when development becomes self-sustaining.
C. typically occurs in the absence of foreign investment.
D. has yet to occur in any developing country.
106. In the early 2000s, Chinese policy indicted members of a forgery syndicate that sold
several hundred diplomas of 19 universities, colleges, and junior colleges to high school
graduates who needed the diplomas to take employment tests. This situation, where having the
certificate of knowledge is more important than the knowledge itself is known as:
A. credentialism.
B. certification.
C. the brain drain.
D. human capital.
107. It is possible to purchase diplomas from diploma mills. The situation in which the degrees
are more important than the knowledge they are supposed to represent is called:
A. accreditation.
B. diplomacy.
C. credentialism.
D. cretinism.
108. In the early 2000s, some argued that the Indian government impeded foreign investment
with tariffs, investment caps, and tons of red tape. In terms of promoting or retarding economic
growth, such policies:
A. increase growth because they stop exploitation by foreigners.
B. increase growth because they keep people producing for the local market.
C. decrease growth because they slow the growth of capital.
D. decrease growth because they cause inflation.
109. Indians and Indian-Americans have played a pivotal role in powering Silicon Valley's
digital revolution. The emigration of talented people from countries like India to countries like
the United States is often called:
A. the brain drain.
B. outsourcing.
C. credentialism.
D. Malthusianism.
110. In the late 1990s, Thailand, Malaysia, and Indonesia all experienced sharp declines in the
value of their currencies that resulted in economic instability and crisis. The collapse in the
values of their currencies undermined their development by:
A. increasing corruption.
B. reducing investment.
C. decreasing population growth.
D. decreasing political instability.
111. At the end of the Korean War, South Korea was one of the poorest countries in the world.
Fifty years later, it is now considered a developed country. Which of the following phenomena
is most likely to explain South Korea's development over the last 50 years?
A. Credentialism
B. Brain drain
C. Infrastructure investment
D. Increased competition for investment among developing countries
112. Developing countries would benefit the most from a given increase in their education
budgets if they spent more:
A. on higher education.
B. on primary and secondary education.
C. evenly across all types of education.
D. in a way that promotes credentialism.
113. An increase in per capita incomes is guaranteed by:
A. increasing income slower than the population.
B. reducing population slower than income.
C. increasing income faster than the population.
D. increasing population faster than income.
114. Malthus predicted that:
A. population and income would eventually grow at the same rate, so per capita income would
increase over time.
B. population and income would eventually grow at the same rate, so per capita income would
eventually be constant.
C. population would eventually grow faster than income, so per capita income would eventually
begin to decrease.
D. income would eventually grow faster than population, so per capita income would eventually
begin to increase.
115. Inadequate healthcare and disease treatment impede development for all of the following
reasons except:
A. they contribute to overpopulation.
B. they reduce the ability of a person to work.
C. they reduce the ability of a person to care for others.
D. developing countries lack the resources and infrastructure to deal with these problems.
116. Since its independence in 1957, Ghana has experienced more than 12 coups d'etats that
have led to the overthrow of presidents and ministers and in various cases the change of political
regimes. The textbook calls this situation an example of:
A. corruption.
B. lack of appropriate institutions.
C. political instability.
D. overpopulation.
117. According to Hernando De Soto, a Peruvian economist, it takes 168 steps in order to have a
house registered in The Philippines. In Haiti, it takes 111 visits to officials to formalize a
business. However, “if you make the right payments, this tedious process may disappear.” The
textbook calls this situation an example of:
A. corruption.
B. inappropriate education.
C. political instability.
D. overpopulation.
118. According to Hernando De Soto, a Peruvian economist, it takes 13 to 25 years and 168
steps in order to have a house registered in the Philippines. In Haiti, it takes around 12 years and
111 visits to officials to formalize a business. The costs in terms of time and financial resources
to have the property right over a home or a business have promoted the development of informal
sectors or “extra-legal” sectors in various developing countries. The existence of a large informal
sector in numerous developing countries is an example of:
A. corruption.
B. a lack of appropriate institutions.
C. political instability.
D. overpopulation.
119. Frequently, developing countries compete for foreign direct investment to be located in
their countries. Which of the following are not something a developing country would likely
offer?
A. A guaranteed low cost labor force
B. Tax rebates or tax exemptions
C. High environmental regulations
D. The required infrastructure
120. Some argue that developing countries that lack a well-educated general population tend to
have:
A. too much of the right education.
B. too much investment.
C. too many basic skills.
D. too many universities and MBA programs.
