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Appendix
Additional Exam Questions
Exam Questions Part I
1. The change in GDP over time is the most common measure of growth and development. Discuss
the pros and cons of this method. Is there an alternative way to decide which of two countries is
more developed? Explain briefly.
2. You are given the assignment of comparing GDP between Country A and Country B. Suppose each
country produces two goods. The following table lists the quantities produced and the prices in each
country. The current exchange rate is ten pesos per dollar. Determine which country has a higher level
of GDP in dollars, explaining clearly how you arrived at this conclusion. Discuss the validity of the
method you chose.
Country A Country B
Price($) Quantity Price(pesos) Quantity
Food 4 20 40 10
Housing 8 40 50 25
3. List and explain four common barriers to growth among less developed countries. Do you think
today’s developed countries had to overcome these same barriers in their earlier stage of economic
development? Comment to the best of your knowledge.
4. What is the primary difference between economic growth and development? Is it possible to achieve
one without the other? In your answer, use the examples of the two countries from the discussion in
class to illustrate your point.
5. Explain the calculation of the indicator Human Development Index in detail? Give one pro and one
con of this indicator.
6. What are the major differences between the new Human Development Indicator (HDI) and the
original HDI?
7. In this question, you will compare the Lewis model and dependency theory.
a. Discuss the main idea behind each theory, including an explanation of how growth occurs
b. Compare the validity of each theory; in other words, does each theory have important insights
8.Prices of Big Macs in various countries have been used to illustrate purchasing power parity exchange
rates between countries.
a. Suppose the price of a Big Mac in Moscow is 11,000 rubles, and in the U.S., the price is $2.50.
b. Define purchasing-power-parity exchange rates and explain why Big Mac prices can provide
c. Your friend comes back from Moscow and says he received 5,800 rubles per dollar on the street
d. Suppose Russian GDP is 1,130 billion rubles in 1997, the price of a Big Mac is 11,000 rubles, the
9. For all their diversity, developing countries are linked by a range of common economic conditions/
problems. Mention and briefly explain four of these common problems. Use the example of one of
the countries discussed in class to highlight these economic problems.
10. This is a four-part question:
a. The Harrod-Domar model is part of the linear stages of growth theories. What are the three
b. What is the source of growth according to the Harrod-Domar model?
c. Is the Harrod-Domar model likely to be useful as an explanation of growth in developing
d. Explain why modern growth theory is preferable to the Harrod-Domar model as an explanation
11.Explain briefly why following the Lewis model may fail to lead to successful long-term development.
12. Explain what is meant by the term surplus labor. What is the significance of surplus labor in
explaining growth in an economy described by the Lewis model?
13. The less developed countries today have an advantage over the developed countries because they
have all of the past experiences of the developed countries to draw from. In other words, less
developed countries can draw on the experiences of the developed countries and their technologies,
and they too will reach a more developed state. Carefully discuss the validity of this statement.
14. The dominant characteristic of the Harrod-Domar model is also its ultimate flaw in terms of it being a
useful model for planning or explaining economic growth in developing countries. Please explain.
15. True or False: economic development is equivalent to economic growth? Explain.
16. True or False: economic development is equivalent to industrialization? Explain.
17. True or False: it is more accurate to use the purchasing power parity method than it is to use the
exchange rate method to compare GDP between different countries? Explain.
18. What is the main idea behind the international dependence model? Discuss whether you think this
theory has any merit.
Exam Questions Part II
1. True or False: LDCs that pursue capital-intensive growth can be expected to have lower values of
income inequality as measured by the Gini coefficient? Explain.
2. Explain the apparent paradox that people having the most children can least afford them and those
who can afford them most have the fewest number of children.
3. This is a four-part question relating to factor markets and unemployment in LDCs:
a. If wages are perfectly flexible, then there will be no involuntary unemployment. True, False,
Explain.
b. Give three reasons why wages may not be perfectly flexible.
4. Certain growth strategies or patterns of growth may result in greater income inequality within
the country. You are asked to advise on policies to increase economic growth while at the same
time improve income inequality. What would you do to further both goals at the same time?
Discuss 2 to 3 options. You may pick a combination of policies that will address both goals.
5. In many countries, despite growth in GDP, surplus labor did not disappear, as predicted by the Lewis
model, and was merely relocated. Please explain this statement. Hint: Think about the causes of
unemployment.
6. Empirically, population growth slows as per capita income increases. Please explain why this is true.
7. Should developing countries attempt to limit population growth? Why or why not?
8. This is a three-part question:
a. Subsidizing wages in the urban area, so that a firm receives a certain payment per worker hired,
b. Suppose the rural wage is 4, the urban wage is 10, and the probability of finding a job in the
c. Illustrate graphically what happens to the number of workers hired, the number of people
unemployed, and the cost to the government of a wage subsidy, using a labor supply and
9. How does a shift from emphasizing economic growth to economic development alter the choice of
growth strategy? What sort of strategy may be pursued in each case? Hint: What does development
include as an objective that growth does not? Comment on the pros and cons of each strategy.
10. Explain the relationship between the opportunity cost of time and population growth.
11.List three reasons why rural development is as important as industrial development in less developed
countries. Include a brief explanation where appropriate.
12. Name three often-pursued policies that distort factor prices. Though often adopted with well
intentioned goals, these policies often have less favorable results in LDCs. Please explain.
13. Explain how population growth or migration can be viewed as a common property or open access
resource problem. Is there a market failure in this case?
14. Why do the poorest countries tend to cause significant environmental damage?
15. What are the three major causes of environmental degradation in LDCs? How can DCs help LDCs
prevent further environmental damage (think very carefully here with respect to offender)?
16. Subsidizing food prices for urban consumers is beneficial because firms can then pay lower wages.
Critically evaluate this statement.
17. Explain how population growth can be both a cause and an effect of underdevelopment.
18. What is meant by sustainable development? How could NNP measures reflect sustained
development?
19. Why have poor nations invested so much money in higher education? Evaluate the soundness of this
policy, sighting examples of countries from case studies covered in the course.
20. What are the primary objectives of Microfinance institutions such as the Grameen Bank, and how do
they operate in contrast to traditional banks?
21. What is the Multidimensional Poverty Index and how is it a more improved measure of poverty?
22. What is the BRAC model? Evaluate its performance with respect to achieving the goals of economic
development? How successfully can this model be replicated in other countries?
23. How can differences in earlier institutions and the policies pursued by nations play an important role
in determining the development related outcomes for the nations? Use the examples of Haiti and
Dominican Republic to illustrate your answer.
Exam Questions Part III
1. Illustrate graphically and explain how a subsidy can be used to encourage the production of
manufactured goods for export.
2. True or False: historically, a country pursuing an import substitution strategy will tend to maintain a
relatively undervalued exchange rate because this will tend to encourage exports and discourage
imports? Explain.
3. A less developed country’s success in emphasizing exports of primary products as a growth strategy
depends on several demand factors and linkage effects. Please explain how these demand factors and
linkage effects can contribute or fail to contribute to economic growth.
4. This is a three-part question:
a. Briefly describe the import substitution strategy as a means towards economic growth.
5. Suppose you are given the following information about the production of bananas and shoes in
Country X and Country Y.
Country X Country Y
Labor days per ton of bananas 2 3
Labor days per shoe 8 9
a. What is the opportunity cost of producing bananas in each country, numerically and in words?
b. Will trade take place, and if so, who exports what?
6. It is in the material interest of the DCs to help the LDCs improve their economic performance. Justify
or oppose this statement and explain.
7. True or False: Country A can produce all products using less labor hours than Country B, so there is
no advantage to Country A from engaging in trade with Country B? Explain.
8. Some of the most successful less developed countries have pursued both import substitution and export
promotion at the same time. Explain why growth in the economy may tend to be highest when both
strategies are followed at the same time. Does this present any challenges in terms of the policies
adopted for each strategy? Explain. Mention briefly which policies may be adopted to promote each
strategy.
9. Explain four reasons why the import substitution strategy may not lead to successful long-term
economic growth in the economy. Note that you are not asked to explain the strategy itself except
where it helps you to explain the limitations of the strategy.
10. Why are linkages emphasized as part of a successful industrialization strategy? Discuss briefly
in terms of the primary product export strategy, the import substitution strategy, and the export
promotion strategy. Hint: What role do linkages play in the success of these three strategies?
11.Many less developed countries have, in the past, simultaneously imposed tariffs on manufactured goods
and maintained an overvalued exchange rate. Explain the logic and apparent contradiction in enacting
both policies together.
12. True or False: producers and consumers are indifferent between a tariff and subsidy protection to
producers? Explain.
13. Why is it optimal for a country to specialize in the production of those goods that use its most
abundant factor?
14. Explain “export promotion policies” and “import substitution policies” with examples of countries
that successfully or unsuccessfully pursued these policies. Why was one policy successful but not
the other? In your opinion, could all LDCs possibly thrive had they followed the successful strategy
between the two? Why or why not?
15. The global financial crisis has impacted almost all nations of the world, some more adversely than
others. Why are many economists concerned about the recovery from the global financial crisis?
16. In the past several decades the world had witnessed several armed conflicts. What are the primary
reasons for armed conflict in developing countries and what factors increases the risks of such
conflicts?
17. East Asia is often cited as a shining example of development done right. How did active government
industrialization strategy and industrial policies, including the collaboration can between private and
public sectors contribute to its success?
18. In your opinion, what are the three most serious obstacles to development faced by most LDCs in the
21st century? Explain.
19. In your opinion, what are the three most serious socioeconomic problems faced by a majority of
developing nations in the 21st century? Explain.
