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Chapter 1

Short Answer
1. Provideadefinitionofdevelopmenteconomics.Justifyyourchoicecarefully.
Answer: SeethesectioninChapter1entitled,TheNatureofDevelopmentEconomics,
onPages910forsomeideasabouthowyoumightanswerthisquestion.You
shouldinsomewaysaythatdevelopmenteconomicsismorethanjustgrowthin
GDP.
2. Inwhatwayisdevelopmenteconomicsgreaterinscopethantraditionaleconomics?
Answer: Developmenteconomicsmustencompassthestudyofinstitutional,political,and
socialaswellaseconomicmechanismsformodernizinganeconomywhile
eliminatingabsolutepovertyandtransformingstatesofmindaswellasphysical
conditions.Moredetailsfoundinthechapter.
3.

Whatdoyouthinkarethemostseriousobstaclestofurtherprogressinthedeveloping
world?
Answer: Themainpointhereistoensurethatyouarethinkingcarefullyabouttheissues
raisedinthetext.YoumayalsowishtodrawfromthecriticalquestionsonPages
1012.

4.

Whyarewomenoftenreferredtoasplayingacentralroleineconomicdevelopment?
Answer: Ananswershouldincludehowwomencaninfluencewhetherornotthenext
generationwillbeimpoverishedthroughtheirroleofchildrearingbasedonthe
resourcestheybringtothistaskandthevaluestheypasstotheirchildren.Another
keypointthatshouldbementionedisthatempirically,womentendtoallocatea
higherpercentageoftheincomeundertheirowncontroltothefamilyand
childrenthanmen.

Multiple Choice
1.C

2.D

Chapter 2

4.D

5.C

6.D

7.D

8.B

9.C

10.A

Sample Questions
Short Answer
1. Explainhowlowlevelsoflivingcanturnintoaviciouscycleindevelopingcountries.
Answer: Seethesectiononlowlevelsoflivinginthechapter.
2.

Carefullyexplainsomeofthesimilarproblemsfacedbyotherwisediversecountriesin
Africa,Asia,andLatinAmerica.
Answer: Thiscallsforyoutosummarizesomeofthemainpointslistedinpage40.

3.

Whataresomeofthemainwaysinwhichtheeconomiesofdevelopingcountriesdifferfrom
oneanother?
Answer: Seethediscussioninpage5671;Diversitywithincommonality.

4. Explainwhypurchasingpowerparitymeasuresofincomelevelstendtoshowasmaller
differencebetweenpoorandrichcountries.
Answer: PPPmeasuresshowthenumberofunitsofdevelopingcountrycurrencyrequired
topurchaseabasketofgoodsandservicesinthedevelopingcountrymarketthat
costsonedollarintheU.S.Pricesformostservicestendtobemuchcheaperin
developingcountriesthanintheU.S.
5.WhatarethethreemainindicatorsthatmakeuptheHumanDevelopmentIndex?
Answer: Lifeexpectancy,educationalattainment,GDPpercapitameasuredinPPPterms.
6. Whatarethethreemajorcomponentsofeconomicgrowth?
Answer: Capitalaccumulation,laborforcegrowth,andtechnologicalprogress.

7. Explainthelingeringeffectsofcolonialismandhowitisstillplayingaroleinhindering
economicdevelopmentinthedevelopingworld.
Answer: Answersshouldbebasedonthepointscoveredinthesectiononthecolonial
impactaswellasinlecture.
12. The2003HumanDevelopmentReportreportedthattheHDIofBotswanawas0.614(andits
rankwas125)andthatofthePhilippineswas0.751(anditsrankwas85).Botswanasper
capitaincome(inPPPdollars)was7,820andthatofthePhilippineswas3,840.Comment
andexplain.
Answer: Studentsshoulddiscussthedifferencebetweeneconomicgrowth(percapita
income)andeconomicdevelopmentbydiscussingthecomponentsoftheHDI.

Multiple Choice
1.B2.D3.C4.A5.C6.A7.D8.D9.D10.D11.C12.D13.C

Chapter 3

Sample Questions
Short Answer

1.

DescribeoneimportantcriticismofRostowsstagesofeconomicgrowththeory.
Answer: Thestagesareonlynecessaryandnotsufficientconditions,savingsistoo
aggregateameasure,thetheorydoesnottakeintoaccounttheconstraintsofthe
internationaleconomicorder,andtherearecounterexamplessuchasArgentina.

2.

Assumeaclosedeconomy,perfectlyelasticlaborsupply,andlineartechnology.Supposethe
incrementalcapitaloutputratio(ICOR)is3,thedepreciationrateis3%,andthegross
savingsrateis10%.UsetheHarrodDomargrowthequationtodeterminetherateofgrowth.
Whatwouldthegrosssavingsratehavetobetoachieve5%growth?Assumingaperfectly
elasticlaborsupply,stateonecriticismofthismodelfromanexogenousgrowththeory
viewpointandanothercriticismofthismodelfromanendogenousgrowththeoryviewpoint.
Answer: .Answer:growthrateof0.003,thatis0.3%,and0.24,or24%savingsrate.
Exogenous:doesnotallowfactorsubstitution;endogenous:doesnotaddress
sourcesofproductivitygrowth,orthesavingsdecision.

3.

WhatarethekeyassumptionsoftheLewismodelthatgiverisetoitsconclusions?How
wouldthetheorysconclusionsdifferiftheseassumptionsdonothold?
Answer: Theanswershouldincludetheexistenceofsurpluslaborintheruralsectorthat
guaranteesaninfinitelyelasticlaborsupplyinindustryuntilthesurplusis
exhaustedandapropensity
tosavebyindustrialistsequaltoone.Thelackofruralsurpluslabor(andinfinite
laborsupply)wouldimplythatwhenindustrialistsreinvesttheirprofitsthereisno
guaranteethattheirsurplusincreases.Alowmarginalpropensitytosaveby
industrialistsputsabreakonthelabortransferprocess.

4.

Duringthepastdecade,Indiahasinvestedabout22%ofitsGDPwhileChinasinvestment
ratehasbeendoublethatofIndias.Indiasannualgrowthratehasbeenabout6%whilethat
ofChinahasbeenabout9%.Whatconclusionscanyoudraw?
Answer: Studentsareaskedtorelateinvestmentratestotherateofeconomicgrowth
throughtheHarrodDomarmodel.ThestudentsshouldcalculatetheICORforthe
twocountriesandnotethatIndiasICOR(about3.67)islowerthanChinas
(about5).

5.UsethehandoutonNeoclassicalgrowthmodeltoshowthatwithouttechnologicalprogress
aneconomywillalwaysconvergetoitssteadystatewherepercapitaoutputandincome
remainsconstant.

Multiple Choice
1.D2.A3.B4.D5.B6.C7.A8.A9.A10.B11.C12.B13.B14.D15.C16.D
17.D18.B19D

Chapter 4

Sample Questions
Short Answer
1. Whatthreefactorsdistinguishmodelsofendogenousgrowthfromtheirneoclassical
counterparts?
Answer: Thereareincreasingreturnstocapitalinvestment(asopposedtodecreasing),
thereareincreasingreturnstoscale(asopposedtoconstant),andexternality
effectsareincluded.
2. Explainwhatismeantbythetermcoordinationfailureandprovideanexample.
Answer: Thisisastateofaffairsinwhichagentsareunabletocoordinatetheirefforts,and
henceendupinanequilibriumthatleavesthemworseoffthantheywouldbeif
theywereabletocoordinate.Thereareseveralexamplesofferedinthetext,orthe
studentsmaycomeupwiththeirown.
3. ShowinadiagramanScurveanda45degreeline.Areallthreepointsofintersectionstable
equilibriumpoints?Explain.
Answer: Explainedinthetext.Figure4.1

4. Explainhowthegovernmentcanhelptheeconomyavoidacoordinationfailure.
Answer: Discussedinthechapter.
5. Isacoordinationfailureatypeofmarketfailure?Explain.
Answer: Yes,becauseanequilibriumcanbereachedthatisnotthetruesocialequilibrium.
6. ExplainthebasicideabehindtheBigPushmodel?
Answer: BrieflyexplaintheideabehindFigure4.2.
7. HowcantheOringtheoryhelpexplaintheexistenceofalowlevelequilibriumthatan
economymayfinditselfin?
Answer: ExplainedonPage18283:ImplicationsofOringtheory.

(Multiple Choice
1.D2.A3.D4.C5.D6.A7.B