ECON 2880 Test #3 Study Guide & Learning Objectives for Chapters 10,11,12,13,14,15) After reading the all chapters listed in the text, you ought to understand and be able to explain: Chapter 10: Saving and Resource Mobilization 1. The empirical record of saving and investment in developing countries. 2. The relationship among tax revenues, public sector consumption expenditure, and government saving. 3. The observed patterns of household saving behavior and the theories of household saving. 4. The relative importance of foreign private saving. 5. The relationship between growth and savings 6. The different impacts of corporate saving, government saving, and foreign saving Chapter 11: Investment, Productivity and Growth 1. The major types of investment for growth and what influences their efficiency. 2. The factors involved in project appraisals. 3. The elements that encourage private investment. 4. The implications of foreign investment for a nation’s economy. 5. he divergent views and policies related to foreign direct investment. Chapter 12: Fiscal Policy and Government Finance For Development 1. Thy government expenditures are needed even in a market economy. 2. The main categories of government spending in developing countries. 3. Why there often is little scope for augmenting government saving through cuts in recurrent expenditure. 4. The main types of taxation used in developing countries. 5. The prospects for boosting government saving by increasing tax rates, introducing new types of tax, improving tax administration, and fundamental tax reform. 6. How the level and structure of taxation may affect private saving and investment. 7. Why governments have little success in redistributing incomes through the tax system. 8. How government expenditures can be used to improve equity. 9. How various taxes create efficiency losses and why neutrality is a favored principal of taxation in developing countries. Chapter 13: Financial Policy for Economic Development 1. The functions and characteristics of the financial systems in developing countries. 2. The definition of money and liquid assets. 3. The diversity of inflation experience in developing countries and the pros and cons of using inflation as a device to mobilize forced savings. 4. How inflation affects real interest rates and how real interest rates, in turn, affect savings and the demand for liquid assets. 5. The characteristics, causes, and consequences of deep finance versus shallow finance. 6. The character of informal credit markets in developing countries. 7. How management of monetary policy depends on the exchange-rate regime. 8. The causes and consequences of excessive money supply growth. 9. The main tools of monetary policy in developing countries. 10. The causes and consequences of financial panics. Chapter 14: Foreign Aid for Development 1. The stylized facts on foreign aid: its definition, its decomposition, the major donors and major recipients. 2. The controversies surrounding foreign aid including its motivations. 3. The three views on aid’s impact on growth and development. 4. The issue of conditionality and the future of foreign aid. Chapter 15: Foreign Debt and Financial Crisis 1. The kinds of policies that should be pursued by developing countries to make the most of foreign capital. 2. The external and internal factors that precipitated the external debt crisis of the 1970s and 1980s. 3. The Lessons from the manner in which the debt crisis was handled. 4. The external and internal factors that precipitated the financial crises in emerging markets and transition economies in the 1990s. 5. The lessons of experience from the emerging market financial crises. --------------------------Summary of Focus Concepts and applications (Test #4) • The concept of Permanent-income hypothesis and its implication for saving rate • Keynesian absolute-income hypothesis and its implications for saving rate • The equation about the relationship between Investment (I) Taxes (T), Government Expenditures (G), Imports (M) and Exports (X) and Saving rates (Sd, Sf,) • The component of foreign savings that grew most rapidly in the 1980s &90s • Trends in official development finance between 1990 and 2003 • The quantitative percent change in government savings (Sg) and total domestic Saving (Sd). • The concept and meaning of foreign savings (Sf) • The relationship between domestic savings and inflow of foreign aid and its effect on total savings of a country. • The idea of economy wide MPK(Marginal Productivity of Capital) and its application to investment projections. • The definition of net present value (NPV) and its implications for evaluating investments. • The concept of “shadow prices” and its implication for exchange rate and wage rate • Factors that have influence on Private investment and factors that do not. • The relative level of transaction costs (administrative costs, procedures, etc) for an average African country and an average Industrial country. • The nature and purpose and effect of Multinational Corporations (MNCs) • The relative FDI (Foreign Domestic Investment) flow to Africa in manufacturing and natural resources, • The meaning and differences of excise and sales taxes • The idea of a neutral tax, regressive tax and Value Added tax systems • The concept of public goods • The conditions under which corporate income tax (CIT) may not fall on the rich. • The differences between recurrent and capital expenditure • The relationship between inflation rate, nominal interest rate and time saving deposits. • The meaning and differences between deep and shallow finance • The effect of a large exports under a fixed exchange rate • The widely used monetary policy instrument in high income countries • Be able to list the functions of financial system • The meaning and difference between broad money (M2) and Liquid maoney(M3) • Determinants or factors that influence broad money (M2) • The differences between foreign aid, and commercial loan • Factors that affect debt sustainability •