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CHAPTER 38: MACRO POLICIES IN DEVELOPING
COUNTRIES
Questions and Exercises
1. Economic statistics do not take into account the quality of life, including the
2. Comparing incomes using exchange rates is a simple conversion of a domestic
3. Using the purchasing power parity method rather than current exchange rates
4. Development refers to an increase in productive capacity and output brought
5. Three ways in which institutions differ in developing countries are: (1) basic
6. In designing their policies, developing countries often rely on advice from the
International (IMF). One reason is that the International Monetary Fund has
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
7. The dual economy refers to the existence of a traditional, less developed (often
8. A regime change is a change in the entire structure within which the government
9. An inflation tax is the transfer of wealth from the holders of IOUs denominated in
10. Governments act to maintain their positions in power, and often feel that in order
to do so, they have no choice but to print more money. At the same time, central
banks in developing countries often do not enjoy full independence, and thus
cannot resist political pressures (and may not want to, since they also desire to
keep the government in power). For those making the decisions, the short-term
benefits of the “inflation solution,” keeping regimes in power, outweigh the costs
of any long-term hyperinflation.
11. Conditionality is the making of loans that are subject to conditions by the IMF.
12. Limited investment and poor use of available funding makes economic growth
difficult in developing countries. Corruption limits investment and growth
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
13. Investment and savings are low in developing countries because income is low,
14. Even though developing countries may be unstable and offer a risky environment
15. When education doesn't match the needs of the society, the degrees become more
important than the knowledge learned. Such a situation may result in jobs being
16. Many of the good students sent to a U.S. college don’t return to the developing
Questions from Alternative Perspectives
1. Religious
a. Based on the Bible, many religiously oriented economists believe that
b. The Bible does not provide a single theological perspective about the
conditionality of debt forgiveness. The book of Leviticus in the Hebrew
Scriptures introduces the concept of the Year of the Jubilee as an ethical norm for
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2. Institutionalist
a. Often the finger is pointed at the developing nations themselves. Many
b. The direct consequences are experienced by the people in the country. However,
c. The more one believes that the cause and consequence of a lack of development
3. Feminist
a. Women are likely given credit because they often are the harder workers and have
b. It suggests that policies aimed at educating women and in promoting gender
4. Religious
a. Loans place someone in someone else’s debt, and can prevent people from having
b. Loans that are used to positively transform a society, and which generate revenues
c. The conditions for micro loans such as those from Grameen Bank “are to
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
5. Radical
a. This is a judgment question and judgments differ. Radical economists are very
b. This is a judgment question and judgments differ. Radical economists are very
Issues to Ponder
1. Answers will differ. Students can use the list in the text for some examples of the
2. You can’t just judge an economy; you must judge the entire culture. Some
3. Suicide rates are lower in developing countries because there is little ambiguity
and few questions about the meaning of life. Americans could learn a great deal
4. This exercise asks you to spend a day living like someone in a developing
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
5. This exercise has students interview a foreign student in their school or class
6. a. I agree with this statement because of the differing importance of institutions. A
detailed knowledge of a country’s institutions and culture is necessary to make
b. This argument is made for developing countries because culture and traditional
7. This is a student research question. The information for a, b and c is easily found
8. Governments in developing countries often seem more arbitrary and oppressive
than governments in developed countries because of their lack of stable,
9. An investor thinking of making an investment in a developing country would be
concerned about the country’s political stability and its economic condition
10. Overpopulation can be an obstacle to development. Whether a country should
control the size and the makeup of its population is a matter of considerable
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11. The UN could encourage the development of microcredit banks, like the Grameen
12. a. I would want to emphasize those skills that have the highest per-dollar return—
b. This differs from the ideal educational system in the United States because the
U.S. culture is different and U.S. economic problems are different. Thus, in the
c. How much of the U.S. education system involves credentialism is a matter of
debate, both about what are the relevant skills and how much credentialism exists.
13. The right education is a necessary component of any successful development
strategy. The wrong education is an enormous burden. Developing countries tend
14. a. If one cannot get a title to land, one cannot borrow on it, and thus cannot
b. Without titles, public utilities do not know whom to bill for services, and
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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
