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Sample Test Questions for Development Economics

Below are a set of sample test questions taken from previous exams in Development Economics.
The answers are indicated by the *. Please note that it is possible that questions may have the * in
the wrong place. You should think through all of these.
Also, these are only sample questions. They are put here because students often think it is helpful
to see past exams. The fact that these are here does not represent a commitment that questions on
your exam will be like these or on the same subject matter. This is especially so because the
subject matter and organization of the course has recently been adjusted. In addition, as the
material covered between exams changes semester to semester, the questions here are not broken
into specific exams.
1. A supply side vicious circle of poverty suggests that poor nations remain poor because
a. saving remains low b. investment remains low c. there is a lack of effective government d. all
of the above e.* a and b above
2. The International Comparisons Project, which used purchasing power parity rates rather than
market exchange rates, has found that the real standard of living in many less developed
countries (LDCs) is even lower than indicated by their dollar per-capita income.
a. true b.* false
3. As incomes rise there tends to be a shift of labor from the services sector to the industrial
sector.
a. true b.* false
4. Which of the following is not typically an element in the structural change that accompanies
development?
a.* increase in the share of agriculture in GDP (gross domestic product) b. increase in
manufacturing as a share of GDP c. increase in urbanization d. All of the above changes
accompany development
5. The essence of Engel's law is that as family incomes rise
a. the savings rate increases b.* the proportion of income spent on food declines c. expenditure
on food declines d. proportion of income spent on luxuries declines
6. Economic growth measures the
a. growth of productivity b. increase in nominal income c.* increase in output d. none of the
above
7. Non-traded goods do not enter measured GDP because
a. they are intermediate goods b.* they are not traded in the market c. there is no value-added in
the production of such goods d. their value is not captured by the exchange rate method of
conversion to a common unit

8. The concept of opportunity cost is based upon the principle of


a. need b. consumption c.* scarcity d. profit
9. Which of the following is an INCORRECT statement about a budget constraint
a. Points on a budget constraint represent combinations of the goods that exactly use up income
b. Points within the budget constraint represent combinations of the goods that do not use up all
the income. c.* If points A and B lie on the budget constraint, we can deduce that people will be
indifferent between the two d. If the price of one good decreases, all else the same, the budget
constraint will swivel or rotate outward
10. When the manufacturer of power looms expands, there are forward linkage effects due to
a. lost employment in the hand-loom sector b. increased incomes of workers that manufacture
looms c.* increased output of woven cloth made by the power looms d. increased demand for
electric motors
11. Economic growth is necessary and sufficient to eradicate most of absolute poverty.
a. true b.* false
12. Income level or GDP is criticized as an indicator of development mainly because it takes no
account of the distribution of income.
a.* true b. false
13. A certain amount of goods and services is necessary for a minimum standard of living. This is
called
a.* basic needs b. absolute poverty c. an international standard of living d. the concept of
development
14. With perfect income equality the Gini coefficient in a country would be
a. infinity b. 1 c. .5 d.* 0
15. Rawls argued that the income distribution should be determined
a. by a free vote of all groups on a society b. by whatever the poor decide is an acceptable
minimum level c.* by what all society agrees to behind a `veil of ignorance' d. as entirely equal
income shares for all groups
16. All but one of the following are methods to represent overall income inequality:
a. variance b. Gini coefficient c. ratio of the top income decile to the lowest income decile d.
Lorenz curve e.* GDP per capita
17. The concept of choice would become irrelevant if
a. we were dealing with a very simple, one-person economy b. poverty were eliminated c.*
scarcity was eliminated d. capital was eliminated

18. Examine the following diagram:

The Gini coefficient is


a.* A/(A+B) b. B/(B+A) c. A/B d. (A+B)/A
19. According to Simon Kuznets, the relationship between GNP per capita and inequality in the
distribution of income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d.* first
increasing and then decreasing
20. The physical quality of life index (PQLI) is an aggregation of widely available indicators of
basic human needs. Which of the following is not a component of the PQLI:
a. life expectancy b.* per capita income c. infant mortality d. literacy
21. If Lorenz curves cross, we say there is less inequality in the case where
a. the poorer get a larger percentage of income b. the poorer get a smaller percentage of income
c. the richer are less rich d.* we cannot say
22. If the development process is characterized by what we have called "modern sector
enlargement", the relationship between GNP per capita and inequality in the distribution of
income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d.* first
increasing and then decreasing
23. If the development process is characterized by what we have called "modern sector
enlargement", the relationship between GNP per capita and poverty in the distribution of income
can be expressed as
a.* a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d. first
increasing and then decreasing
24. Whereas the headcount measure tells us the number of poor and the poverty gap measure
tells us about the average depth of poverty among the poor, the Foster-Greer-Thorbecke measure
(also called P-alpha) tells us about the number, the average depth of poverty and
a. average income b. inequality in the population c.* inequality among the poor d. variance of
average income
25. The concept of Purchasing Power Parity
a. is based upon the cost of hamburgers around the world b.* is based upon the cost of the same
market basket of goods in different countries c. is based upon the market exchange rate d. is
based upon the nominal exchange rate

26. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is 2.5, the
headcount measure tells us what percentage of the population is in poverty
a. 40 b. 3 c. 2 d.* 60
27. If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is 2.5, the
average income shortfall measure tells us the average depth of poverty among the poor is
a.* 5/6 b. 5/2 c. 2 d. 0
28. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3,
5), and the poverty line in both countries is 2.5, by the headcount measure which country has
more poverty?
a. C b. D c.* poverty is the same in C and D d. we cannot tell from the information given
29. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3,
5), and the poverty line in both countries is 2.5, by the average income shortfall measure which
country has more poverty?
a. C b.* D c. poverty is the same in C and D d. we cannot tell from the information given
30. If the distribution of income in country C is (1, 2, 2, 3, 5) , and in country D it is (1, 1, 2, 3,
5), and the poverty line in both countries is 2.5, by the Lorenz curve which country has more
inequlity?
a. C b. D c. inequality is the same in C and D d.* we cannot tell from the information given.
31. The empirical evidence indicates that today's developing countries are undergoing a
demographic transition very similar to what the developed countries experienced in the past.
a. true b.* false
32. The dependency ratio is the ratio of
a. children to adults in the population b. unemployed to employed workers in the labor force c.
foreign aid to total GNP d.* non-working age group population to working age population
33. Malthus argued that the poor would always remain poor because
a.* population growth tends to outrun growth of food production b. they do not save enough c.
there are not enough resources to educate them d. all of the above
34. Compared to the developed countries, the LDCs have
a. higher birth rates and lower death rates b.* higher birth rates and higher death rates c. lower
birth rates and lower death rates d. lower birth rates and higher death rates
35. Children have costs and benefits to parents, and
a. fathers and mothers share these equally b. the impact on family income is always negative, so
children can be viewed as consumer durables c.* there is a trade off to parents between quantity
and quality of children d. the income elasticity of demand for children is strongly negative e.
none of the above

36. Both the Ricardian growth model and the Lewis model share the assumption that population
growth will outpace food production in the long run.
a. true b.* false
37. The Lewis model of the dual economy makes the following assumption(s)
a. The rural wage initially remains constant b. Industry makes a profit by employing cheap labor
c. Rural wage will rise when industry expands sufficiently d.* all of the above e. none of the
above
38. Industry faces an elastic supply curve of labor because the marginal product of labor in
agriculture is
a. lower than its marginal product in industry b. less than the average product in agriculture c.*
very low or zero d. constant at all levels of agricultural output
39. Underemployment is a situation where
a. people who are willing to work are unable to find jobs b. many people in the labor force hold
two or more jobs c.* people are working full-time and hard, yet have a low marginal product d.
people work in a free labor market with a very low wage
40. The Malthusian theory of population growth, as formulated by Malthus, proved
a. entirely correct for human behavior b.* overly pessimistic about future productivity increases
c. that food output will decline with population growth d. none of the above
41. The endogenous growth model confirms the neoclassical model's implications about
convergence.
a. true b.* false
42. An LDC has an ICOR of 5 and a savings rate s = 15%. If current GDP is $1000, what will be
GDP next year?
a. $1150 b. $850 c. $1200 d.* $1030
43. The hypothesis of the 'advantage of backwardness'
a. explains how LDCs may catch-up in productivity b. implies that already known technology
can be transferred relatively cheaply from the advanced countries to the LDCs c. is incorrect;
there are no advantages to backwardness d.* a and b above
44. 'L' shaped isoquants do not imply
a. that inputs are used in fixed proportions b. incremental capital-output ratio is constant c.*
increasing returns to scale d. no substitution between inputs
45. Which is a measure of absolute poverty?
a. Headcount. b. average income shortfall. c. Sen index. d.* all of the above.
46. The Lorenz criterion
a. allows us to rank all countries by the degree of inequality. b. allows us to rank all countries by

the degree of poverty. c. is a measure of the wealth of a country. d.* is an incomplete measure of
inequality.
47. Consider the following distribution of incomes in country x and country y: country x (2, 3, 4)
country y (6, 9, 12)
a. inequality is higher in x than in y. b. inequality is higher in y than in x. c.* inequality is the
same in x and y. d. the information given is not sufficient to compare inequality in x and y.
48. Consider the following distribution of incomes in country x and country y: country x (2, 3, 4)
country y (6, 9, 12)
a. absolute poverty is higher in x than in y. b. absolute poverty is higher in y than in x. c. absolute
poverty is the same in x and y. d.* the information given is not sufficient to compare absolute
poverty in x and y.
49. Consider an economy with low per capita income. Assume i) whenever per capita income
rises above subsistence level, population grows and ii) whenever it falls below subsistence level,
population shrinks. Given, i) and ii),
a.* a poverty trap exists. b. a critical minimum effort increasing per capita income by 1.5% per
annum is necessary for development to take place. c. the economy is ready for Rostow's take-off
stage. d. none of the above.
50. Which of the following would not be considered as an example of industrialization
a.* Increase in literacy b. Replacement of human with mechanical skills c. Improved economic
organization d. Improved extraction and working of raw materials
51. The production possibility frontier can be considered a measure of
a. Real G.N.P. b. Nominal G.N.P. c.* Potential G.N.P. d. None of the above
52. Most lists of basic human needs include all the following items except
a.* basic transportation, such as bicycles. b. minimal levels of nutrition c. minimal provision of
shelter d. provision of basic health care
53. Rising per-capita GNP may fail to increase incomes for most citizens because:
a. Gains from growth may be used for expensive glory projects that provide few concrete
benefits to the people. b. gains from growth may be heavily reinvested, so consumption gains are
postponed c. Those who are already relatively well-off may get all or most of the benefits d.* all
of the above
54. The idea which suggests that poverty is self-perpetuating because poor nations are unable to
save and invest enough to accumulate the capital stock that would help them grow is
a. the dependency theory. b.* the vicious-circle-of-poverty hypothesis. c. neo-colonialism. d. the
under-consumptionist hypothesis.
55. If the vicious-cycle-of-poverty hypothesis were true at all levels of per capita income, then
a. all economies would develop at the same rate. b.* no nation could ever achieve economic

development. c. no nation would ever fail to reach the highest level of economic development. d.
poverty would not be self-perpetuating.
56. The absolute poverty line:
a. should be adjusted from time to time as real income grows b. shows the average income of the
lowest 10 percent of the population c. varies with the Gini coefficient d.* none of the above.
57. The Gini coefficient provides a measure of:
a. the level of poverty b.* the level of relative inequality c. disguised unemployment d. the rate
of growth
58. To draw a Lorenz curve showing the distribution of income by household, one should first
rank all households according to
a. household size. b. age of head of household. c. wage level. d.* income per capita.
59. One study found that the Gini coefficient for Egypt .403 . was virtually the same as that for
Australia .404. From this information one can conclude that Egypt and Australia
a. had virtually the same number of households in absolute poverty. b. had virtually the same
percentage of households in absolute poverty. c. had virtually the same Human Development
Index level. d.* none of the above.
60. According to the inverted U hypothesis of Kuznets, as economies develop
a. average household incomes first fall and later rise. b. industry's share of GNP first rises and
later falls. c.* income inequality first rises and later falls. d. the population growth rate first rises
and later falls.
61. If 's' is the savings rate and 'v' the capital-output ratio, then 'g' the rate of growth in the
Harrod Domar model is represented by
a. v/s. b. sv. c. sv. d.* s/v.
62. Balanced growth theories of Ragnar Nurkse advocate
a. a steady rate of growth of GNP b. parity between capital stock and labor c.* simultaneous
development of all sectors of the economy d. all of the above.
63. Critical minimum effort refers to
a. the minimum labor input required to raise the MPl b. the ideal ratio in which to combine labor
with capital c.* the big push advocated to raise an economy from continued stagnation d. none of
the above.
64. The Arthur Lewis model utilizes the assumption that,
a.* an unlimited supply of labor is available at a fixed wage rate b. supply of labor is a strictly
increasing function of wage rate c. labor supply grows at a fixed rate d. disguised unemployment
must not exist in the agricultural sector.
65. If a country experiences a rapid increase in per-capita income due to discovery of new oil
reserves, then it is experiencing:

a.* growth but not necessarily development. b. development but not growth. c. both growth and
development. d. neither growth nor development.
66. According to Kuznets, the identifying characteristic of "modern economic growth" is
a. expansion of heavy industry. b. a rapid decline in population growth rates. c.* high rates of
saving and investment. d. application of science to problems of economic production.
67. In constant 1968 lira, real GNP in Turkey increased from L206.1 billion in 1980 to L214.7
billion in 1981. Investment in 1980 totaled L43 billion. What was the value of the ICOR?
a.* 5. b. 0.176. c. L8.6 billion. d. It cannot be determined from these data.
68. All but one of the following elements is a characteristic of the demographic transition. Which
one is the exception?
a. Initially high birth rate and death rate. b. Initially low rate of natural increase. c.* Rapid
increase in the birth rate during the early stages of development. d. A sharp fall in the death rate
followed with a lag by a decline in the birth rate.
69. The supply curve of labor to industry is horizontal if there is surplus labor in agriculture. The
condition occurs as long as:
a. the marginal product of labor in agriculture is less than the average product of labor. b. the
marginal product of labor in agriculture is less than the marginal product of labor in industry. c.
there are diminishing returns to labor in agriculture. d.* the marginal product of labor in
agriculture is zero.
70. Which of the following statements is consistent with Hirschman'ss theory of unbalanced
growth?
a. A country should focus on industry, because agriculture is not a dynamic sector. b. To initiate
the industrialization process a country requires a "big push." c. When certain industries are
developed first, linkage effects will induce the development of new industries. d.* All of the
above.
71. Which of the following is a direct implication of the view that childbearing is an economic
decision?
a. People will not have additional children unless they can earn a profit from doing so. b. Social
factors have no effect on childbearing decisions. c. Compulsory education will increase fertility
by raising each child's prospective earnings. d.* Fertility should fall with improved opportunities
for women to work in jobs outside the home.
72. The primary focus of development strategy during the 1950's was on
a. Reduction in unemployment, b.* Increase in G.N.P., c. Increase in foreign trade, d. Increase in
literacy
73. The extraction of iron ore has increased on account of increased demand for steel. The above
is an example of
a. Forward linkages, b.* Backward linkages, c. Backward and forward linkages, d. None of the
above

74. According to W.W.Rostow, which of the following does not belong to the "precondition for
take off":
a. Increased agricultural productivity, b. Political stability, c. Development of social overhead
capital, d.* Growth of the durable consumer goods industry
75. If a situation exists where it is not profitable for any single producer to expand production
because of market limitation, then the best strategy for the country to adopt would be
a.* Balanced growth strategy, b. Unbalanced growth strategy, c. Employment growth strategy, d.
None of the above
76. An unbalanced growth strategy may be desirable if
a. Indivisibilities are important, b. Expansion costs are important, c.* Both of the above, d. None
of the above
77. Which of the following is not true about agriculture's role in economic development
a. Provides labor for non-agricultural sector, b. Provides a market for non-agricultural
commodities, c. Source of industrial raw materials, d.* None of the above
78. Which of the following is not a weakness of the import substitution strategy of growth
a.* Reduces production of modern sector, b. Leads to an inappropriate domestic K/L ratio, c.
Leads to a balance of payments problem, d. Reduces exports of agricultural goods
79. According to the Harrod-Domar model, an increase in growth rates depends on
a. Increase in capital-output ratio b.* Decrease in capital-output ratio, c. Increase in marginal
propensity to consume, d. None of the above
80.In the Harrod-Domar model, it is assumed that the elasticity of substitution between capital
and labor is
a. Infinite, b. One, c. Between zero and one, d.* Zero
81. In the theory of demographic transition, the rate of growth of population is likely to increase
in
a. Period I, b.* Period II (c) Period III (d) Period I & II
82. According to Malthus, the fixed factor of production is
a. Labor, b. Capital, c.* Land, d. Entrepreneurship
83. According to Malthus, examples of preventive checks are
a. Abortion, b.* Deferred marriage, c. Famine, d. Both a and b
84. In a perfectly competitive economy, if the demand curve for labor is infinitely elastic then all
of the national income will accrue to
a.* Workers, b. Capitalists, c. Landlords, d. None of the above

85. According to A. Sen, famines are most likely to occur on account of


a. Fall in production of agricultural goods, b.* Breakdown in distribution of agricultural goods, c.
Adverse weather conditions, d. Fall in money supply
86-90. Suppose there are 5 workers in an economy and initially all the workers work in the
traditional sector at a wage equal to 1 (call this initial period, period 0). In each subsequent
period, one worker migrates from the traditional sector to the modern sector where wages are
equal to 4. Assuming that the number of workers remains constant, then period 5 all the workers
are in the modern sector.
86. In period 5 the gini coefficient of inequality is
a. 1, b. 0.5, c.* 0, d. None of the above
87. As migration takes place the gini coefficient of inequality
a.* At first rises,then falls, b. At first falls,then rises, c. Falls continuously, d. Rises continuously
88. As migration takes place the income share of the poorest 50%
a. At first rises,then falls, b.* At first falls,then rises, c. Falls continuously, d. Rises continuously
89. As migration takes place the per capita income of the workers
a. At first rises,then falls, b. At first falls,then rises, c. Falls continuously, d.* Rises continuously
90. The income share of the poorest 20% is likely to be at a minimum in which period
a. Period 2, b. Period 3, c.* Period 4, d. Period 5
91. Suppose we hypothesize that wages are set at a subsistence level. Then what observation will
strengthen our hypothesis
a. There is no involuntary unemployment, b.* Wages do not fall as labor productivity changes, c.
Wages fall in the slack agricultural seasons, d. None of the above
92. In a fixed rent tenancy, risk is
a.* Borne by the tenant, b. Borne by the landlord, c. Shared between landlord and tenant, d. None
of the above
93. Which of the following is not a justification for sharecropping
a. It acts as a screening device, b. It shares risks between landlord and tenant, c. It reduces cost of
supervision for the landlord, d. None of the above
94. Rural interest rates are likely to be
a.* Higher than in the organized credit market, b. Same as in the organized credit market, c.
Lower than in the organized credit market, d. None of the above
95. In the Harris-Todaro model, in equilibrium, the expected urban wage rate will be _________
the rural wage rate
a. Greater than, b.* Equal to, c. Less than, d. None of the above

96. Suppose migrants are risks averse, then in the Harris-Todaro model, in equilibrium, the
expected urban wages will be _________ the rural wage rate
a.* Greater than, b. Equal to, c. Less than, d. None of the above
97. Which of the following is not an example of financial repression
a. Forced sales of government debt to the banking system, b. Interest rate controls on loan and
deposit rates, c. Very high rates of monetary growth, d.* Creation of a large public sector
98. According to the Ricardian model, the reason for lower priced services in the LDC's is
a. Labor -productivity in commodities is the same in rich and poor countries, b.* Laborproductivity in commodities is lower in poor countries, c. Labor-productivity in services is lower
in poor countries, d. None of the above
99. Which of the following statements is not true about import restriction
a. Import restrictions attract resources to protected industry, b. Import restrictions involve a
deadweight loss, c. Import restrictions raise prices for buyers to a product, d.* Import restriction
shift welfare from producers to consumers
100. In a non-Harris-Todaro world, if it is observed that poverty is highly correlated with
unemployment then which choice of techniques is likely to reduce poverty
a.* Labor intensive techniques, b. Capital intensive techniques, c. Profit maximizing techniques,
d. None of the above
101. If the birth rate is 6% and the death rate is 2%, the natural rate of population increase is
a. 0 .3% b. 3.0% c.* 4.0% d. 8.0%
102. Historically, low rate of population growth were maintained because of
a. low fertility rates. b.* high mortality rates. c. migration out of developing countries. d.
government restrictions on the number of children families can have.
103. The main domestic source of savings in LDCs is
a. government savings through budget surplus b. corporate retained earnings c.* savings by
households d. savings by public sector enterprises
104. During years of financial repression in LDCs, the real interest rate was often negative due
to:
a. explicit policy by the government b. low interest rates instituted by government to encourage
capital investment c. government policy to combat inflation d.* an inadvertent result of inflation
occurring after nominal interest rates had been fixed.
105. The LDCs want foreign capital in the form of
a. loans when they want to retain control of domestic industry b. equity when they want to share
risks with foreign investors c. long-term loans for long-term infrastructure projects d.* all of the
above

106. If the marginal product of capital is twice that of labor and the price of capital is three times
that of labor, then,
a. capital will be substituted for labor b.* labor will be substituted for capital c. the price of
capital will fall, and price of labor will rise d. twice as much capital as labor will be employed
107. Investment in capital implies
a. future sacrifice for present gain b. buying financial assets such as stocks or bonds c. no
sacrifice because it leads to growth d.* a present sacrifice for expected future gain
108. Autarky refers to a country
a. with an authoritarian government b.* which is self sufficient, and is a closed economy c.
which has free trade with the rest of the world d. none of the above
109. A public works projects pay $5 a day to poor rural laborers who would otherwise earn only
$2 per day from casual labor. The opportunity cost, or shadow wage rate, of labor is:
a.* $2 b. $3 c. $5 d. $7
110. Peasant farmers in LDCs are generally observed to
a. respond appropriately to changes in price incentives b. use available resources efficiently c.*
Both a and b d. Neither a nor b
111. In the household production model, agents choose their hours and type of work so as to
maximize:
a. production b. income c. leisure d.* utility e. short-run consumption