macro answer - Chapter 38 Macro Policies in Developing Countries Answer Key True False Questions 1 About 75 percent of the world's population lives in

macro answer - Chapter 38 Macro Policies in Developing...

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Unformatted text preview: Chapter 38 Macro Policies in Developing Countries Answer Key True / False Questions 1. About 75 percent of the world's population lives in developed, rather than developing, countries. FALSE About 5 billion of the world's 6.6 billion people live in developing countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Characteristics of Developing Nations 2. When income comparisons are made using purchasing power parity rather than market exchange rates, the gap in per capita income between developed and developing countries becomes smaller. TRUE Purchasing power parity comparisons show that goods cost significantly less in developing countries than in developed countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-1 Topic: Purchasing Power Parity 3. Developing countries tend to focus more on the goal of economic growth than developed countries. TRUE Because developing countries are so much poorer than developed countries, increasing per capita income is a much higher priority in developing countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-2 Topic: Development and Growth 4. Communal property rights and tradition, rather than market institutions, determine economic relationships in many developing countries. TRUE Many market institutions, such as property rights and contract law, do not exist or are poorly developed in many developing countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-3 Topic: Institutional Problems 5. Developing countries, like most developed countries, have a dual economy. FALSE Developed economies do not have dual economies; they do not have a traditional sector, like most developing countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Medium Learning Objective: 38-4 Topic: Dual Economy 6. A regime change occurs when a government changes one aspect of its actions. FALSE A regime change occurs when the government changes the entire atmosphere in which policy decisions occur. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-5 Topic: Institutional Problems 7. The central banks of many developing countries choose to pursue policies that generate high levels of inflation because the benefits of doing so seem to exceed the costs. TRUE In many cases, money creation is the only means governments in developing countries have to finance their expenditures. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-6 Topic: Monetary Policy 8. If a currency is convertible for the current account, then it is fully convertible. FALSE Currencies that are convertible for the current account are not convertible for the capital account. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-7 Topic: Foreign Exchange and Investment 9. Educational policy in most developing countries focuses too much on primary and secondary education and not enough on higher education. FALSE Most educational systems in developing countries are modeled on the educational systems of developed countries and give too much weight to higher education. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-8 Topic: Education 10. If political instability and corruption could be eliminated, economic growth would increase in most developing countries. TRUE Developing countries suffer from a myriad of problems, of which corruption and political instability are two. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-8 Topic: Institutional Problems Multiple Choice Questions 11. Roughly what percentage of the world's population lives in the developing countries? A. 25 percent. B. 50 percent. C. 75 percent. D. 90 percent. Roughly 5 billion of the world's 6.6 billion people live in developing countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Characteristics of Developing Nations 12. Annual per capita income in the developing countries is closest to: A. $100 B. $500 C. $2,000 D. $6,000 See the figures cited in the textbook. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Characteristics of Developing Nations 13. Using exchange rates based on purchasing power parity to compare per capita incomes in developing and developed countries might lead one to conclude that people in developing countries: A. are no worse off than if market exchange rates are used. B. are worse off than if market exchange rates are used. C. are better off than if market exchange rates are used. D. do not use markets enough to make such a comparison feasible. Using purchasing power parity to compare incomes reveals that market exchange rates significantly undervalue the output produced in developing countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Purchasing Power Parity 14. Ecuador's GDP per capita in 2008, based on market exchange rates, was $3,100. In that same year, Ecuador's GDP per capita based on purchasing power parity was $7,700. The difference between these two measures of GDP per capita is most likely explained by: A. Ecuador's dual economy. B. differences in relative prices between Ecuador and other countries. C. Ecuador's limited capital account convertibility. D. credentialism. Purchasing power parity is a method of comparing income by controlling for differences in relative prices across countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-1 Topic: Purchasing Power Parity 15. Suppose that a typical basket of goods costs 400 pesos in Mexico and 25 pounds in Britain and that the market exchange rate is 25 pesos per pound. Using purchasing power parity, the appropriate exchange rate for comparing the incomes of the two countries is: A. 0.25 pesos per pound. B. 10 pesos per pound. C. 16 pesos per pound. D. 25 pesos per pound. According to purchasing power parity, the appropriate exchange rate for any comparison is the one that equates the cost of the basket of goods in the two countries. Therefore 400 pesos = 25 pounds * PPP exchange rate (pesos per pound). PPP exchange rate = 16 pesos per pound. AACSB: Analytic BLOOM'S TAXONOMY: Application Difficulty: Hard Learning Objective: 38-1 Topic: Purchasing Power Parity 16. Infant mortality rates in developing countries: A. are substantially higher than in developed countries. B. are about the same as in developed countries. C. are substantially lower than in developed countries. D. cannot be computed because the data are not available. Infant mortality rates in developing countries are roughly 10 times as great as in developed countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Characteristics of Developing Nations 17. Development refers to an increase in: A. productive capacity with no change in output. B. output with no change in productive capacity. C. output brought about by an increase in inputs. D. output brought about by a change in the production function. Development occurs when the underlying institutions that determine production evolve over time, causing the production process to evolve as well. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Development and Growth 18. In contrast to development, growth refers to an increase in: A. productive capacity with no change in output. B. output with no change in productive capacity. C. output brought about by an increase in inputs. D. output brought about by a change in the production function. Growth occurs when the production function does not change but the quantity of inputs increases. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Development and Growth 19. In some developing countries such as Chad, per capita income could be less than: A. 1/10 of the per capita income in the United States. B. 1/100 of the per capita income in the United States. C. 1/1,000 of the per capita income in the United States. D. 1/10,000 of the per capita income in the United States. See the figures cited in the textbook. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Characteristics of Developing Nations 20. In a developing country a person most probably will: A. go to school. B. wear designer clothes. C. eat enough to have the adequate number of calories per day. D. work hard from childhood to old age. See the facts listed in the textbook. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Characteristics of Developing Nations 21. The "Purchasing Power Parity" (PPP) consists of a method of comparing the: A. labor force in different countries. B. daily calories supplied in different countries. C. income in different countries by looking at the domestic purchasing power of money. D. life expectancy rates in different countries. The purchasing power parity (PPP) is a method of comparing income by studying the domestic purchasing power of money in different countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-1 Topic: Purchasing Power Parity 22. Some economists and international organizations use the PPP method in order to compare the: A. income among countries. B. income among citizens of a country. C. life expectancy rates among countries. D. labor mobility among countries. The purchasing power parity (PPP) is a method of comparing income among countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-1 Topic: Purchasing Power Parity 23. Countries such as China and South Korea have increased not only the size of their labor force but also the quality of their labor force over time. Workers in these countries have higher levels of education and skills that promote changes in the productivity per worker. If this is the case, these countries have experienced: A. growth but not development. B. development but not growth. C. both development and growth. D. neither growth nor development. These countries have experienced both development and growth. Development occurs when the nature of the production function changes and growth occurs when the quantity of inputs increases. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-1 Topic: Development and Growth 24. The United Nations, in its annual publication Human Development Report, computes what it calls the human development index. If the purpose of this index is to measure development rather than growth, which of the following factors is most likely to be included in it? A. Number of workers in the labor force. B. Literacy rate. C. Size of the capital stock. D. Availability of natural resources. Development refers to changes in underlying institutions, such as schools, that alter the production function. Growth occurs when the availability of inputs increases. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Hard Learning Objective: 38-2 Topic: Development and Growth 25. The normative economic goals of developing countries: A. are the same as those of developed countries. B. focus primarily on achieving economic stability. C. focus primarily on achieving an equitable distribution of income. D. focus primarily on meeting basic needs. Because the level of poverty is so high in most developing countries, meeting basic needs is the overriding economic goal. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Medium Learning Objective: 38-2 Topic: Characteristics of Developing Nations 26. Developing countries have: A. the same normative economic goals as developed countries even though they have much lower per capita incomes. B. different normative economic goals than developed countries because they have much lower per capita incomes. C. different normative economic goals than developed countries because they have less unemployment. D. different normative economic goals than developed countries because they have lower inflation. Because developing countries are not yet able to meet the basic needs of their citizens, they place a much greater emphasis on these needs than wealthier countries. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-2 Topic: Characteristics of Developing Nations 27. Developing countries place: A. greater emphasis on both development and growth than developed countries. B. greater emphasis on development and less emphasis on growth than developed countries. C. greater emphasis on growth and less emphasis on development than developed countries. D. less emphasis on both growth and development than developed countries. Achieving higher levels of output and institutional change receive greater weight for developing countries because unlike developed countries, they are poor and lack the institutions necessary for development. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-2 Topic: Characteristics of Developing Nations 28. The difference in terms of economic goals between developing countries and developed countries is that: A. developing countries focus primarily on achieving an equitable distribution of income while developed countries focus on higher economic growth rates. B. developing countries focus primarily on achieving economic stability while developed countries focus on an acceptable growth rate. C. developing countries focus primarily on meeting basic needs while developed countries focus on economic stability. D. there are no differences between the economic goals of developing and developed countries. Because the level of poverty is so high in most developing countries, meeting basic needs is the overriding economic goal. In developed countries the main economic goal is macroeconomic stability. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Medium Learning Objective: 38-2 Topic: Characteristics of Developing Nations 29. The macroeconomic policy choices of developing countries like Zambia and Namibia: A. are similar to those of developed countries because their institutions are similar. B. differ from those of developed countries even though their institutions are similar. C. are similar to those of developed countries even though their institutions differ. D. are different from those of developed countries because their institutions are different. The macroeconomic policy choices of developing countries differ from those of developed countries because their fiscal and monetary institutions differ. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-3 Topic: Institutional Problems 30. Because the political institutions of many developing countries are weak: A. it is easier for them to conduct activist economic policies that foster development. B. it is harder for them to conduct activist economic policies that foster development. C. it is no more difficult for them to adopt activist economic policies than it is for developed countries. D. a laissez-faire policy is counterproductive. In the absence of institutionalized checks and balances, politicians in developing countries all too often pursue policies that promote their own interests rather than the public interest. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-3 Topic: Institutional Problems 31. Developing countries have different institutional priorities than developed countries for all of the following reasons except that they: A. have dual economies, unlike developed countries. B. have more socially-minded leaders than developed countries. C. have weaker financial institutions than developed countries. D. lack the institutional ability to collect taxes, unlike developed countries. Because developing countries lack the institutional checks and balances found in the political systems of developed countries, their leaders can often use their office to enrich themselves and their friends and family. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Comprehension Difficulty: Easy Learning Objective: 38-3 Topic: Institutional Problems 32. In most developing countries, an effective fiscal policy is: A. easier to conduct than in developed economies because there are fewer institutional checks and balances. B. easier to conduct than in developed economies because politicians tend to be more socially-minded. C. harder to conduct because taxes are difficult to collect. D. harder to conduct because fiscal policy is discretionary in developing countries, unlike developed countries. An effective fiscal policy is difficult to conduct because developing countries often lack the institutional structures necessary to collect taxes. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Medium Learning Objective: 38-3 Topic: Fiscal Policy 33. Which form of taxation do many developing countries rely on the most? A. Import taxes or tariffs. B. Income taxes. C. Sales taxes. D. Corporate taxes. Because import tariffs are relatively simple and inexpensive to collect, many developing countries rely on them as a primary source of revenue. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Medium Learning Objective: 38-3 Topic: Fiscal Policy 34. Relative to developed economies, budget deficits are: A. more likely in developing economies. B. less likely in developing economies. C. equally likely developing economies. D. politically less acceptable in developing countries. Budget deficits are more likely in developing countries because they find it more difficult to raise tax revenue and because government expenditures in these countries are often driven by political considerations. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Medium Learning Objective: 38-3 Topic: Fiscal Policy 35. When considering activist fiscal policy in developing countries, these governments: A. usually have greater flexibility in determining expenditures than governments in developed countries. B. have about the same degree of flexibility in determining expenditures as governments in developed countries. C. usually have less flexibility in determining expenditures than governments in developed countries. D. do not have to worry about their expenditures because they have no taxes with which to finance them. Governments in developing countries often have little flexibility in determining expenditures if they wish to remain in power. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Learning Objective: 38-3 Topic: Fiscal Policy 36. The dual nature of financial markets in developing countries—traditional and modern —implies that central banks in developing countries: A. play essentially the same role as they do in developed economies. B. find it more difficult to conduct monetary policy than central banks in developed economies. C. find it easier to conduct monetary policy than central banks in developed economies. D. have effectively no role to play in the conduct of monetary policy. Because the traditional sector of most developing economies is based on barter and cash rather than credit, it is more difficult for central banks to conduct monetary policy in developing economies. AACSB: Reflective Thinking BLOOM'S TAXONOMY: Knowledge Difficulty: Easy Lea...
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