1Your name: __________________________ Economics 151 Development Economics Sample Final Exam Questions General Instructions. The exam has three parts. Part I contains 36 short-answer questions to be answered on these sheets, worth a total of 47 points. Part II has 3 questions to be answered briefly in lined booklets for a total of 13 points. Part III contains 3 essay questions, of which you are to select and answer 2 questions, also in lined booklets, for a total of 40 points. To allocate your time in proportion to the point values of these three parts, you should leave at least 75 minutes for Part III (at least 35 minutes per essay). I. Short answer questions. Answer the following questions directly on these sheets. Circle clearly only one answer per question. Questions preceded by an asterisk are worth 1 point each, the remaining questions are worth 1½ points each. NOTE: THESE SAMPLE QUESTIONS COVER THE LATE CHAPTERS ONLY, BUT OUT EXAM WILL INCLUDE QUESTIONS ON EARLIER CHAPTERS. 1. Between 1990 and 1997, total foreign direct investment (FDI) flows into developing countries a. declined significantly b. remained about the same c. increased by about 50% d. more than quadrupled 2. Which statement about FDI in 1997 is not correct a. China was the largest single FDI recipient among developing countries b. Brazil and Mexico were large recipients of FDI c. Russia was not among the top ten FDI recipients d. Sub-Saharan African countries accounted for less than 10% of total FDI to developing countries 3. The contribution of multinational enterprises to employment creation in developing countries a. is small in absolute numbers, but a major share of new job creation in the average host country b. is large, accounting for more than 20% of all employment in many countries c. is significant for the manufacturing sectors of some countries d. is almost uniformly negligible 4. Total commercial bank lending to developing countries fell significantly in the mid- and late 1980s.2 T F 5. In the equation for the long-run equilibrium ratio of debt to GNP, D/Y = (v – s)/(gY – i) s stands for Savings/GNP and v stands for a. foreign savings as a share of total savings b. the velocity of money c. Investment/GNP d. none of the above 6. According to the equation for the level of sustainable debt as a share of exports, a country can maintain a positive level of debt indefinitely only if a. imports are less than exports b. imports are growing less rapidly than exports c. exports are growing less rapidly than imports d. the rate of growth of exports is higher than the interest rate 7. In the mid-1980s, some heavily indebted Latin American countries including Mexico exported more than they imported in order to pay off debt. T F 8. One difference between the highly indebted poor countries (HIPCs) of Africa and the Latin American countries hit hard by the debt crisis of the 1980s is that the HIPCs owed a higher proportion of their debt to private banks. T F 9. Among the countries hit hardest by the emerging market financial crisis of the late 1990s were Thailand, Malaysia, and a. South Korea b. Singapore c. Sri Lanka d. Pakistan 10. Which of the following best describes the text’s view of expectations and their role in creditor panics such as the one that lay behind the financial crises referred to in the previous question?3a. expectations play no role except where they are warranted by underlying facts b. the fear of borrower insolvency can generate problems in its own right, like a self-fulfilling prophecy c. the crises in question were almost entirely due to the groundless fears of creditors d. the text does not take up this issue 11. Major famines have become increasingly common in the developing world because world population growth has consistently outpaced the growth of the world’s food production capacity (based on technical knowledge and stocks of available inputs) during the past thirty years. T F 12. Slash-and-burn cultivation tends to be practiced where population is small relative to land. T F 13. Output per hectare of cultivated land tends to be higher in Taiwan and Japan than in the U.S. and Canada. T F 14. The textbook represents the isoquants of the mechanical package production function, where the inputs are labor and capital, as having a lower elasticity of substitution than those of the biological package production function, where the inputs are water and chemical fertilizer. T F 15. Evidence from many developing countries indicates that farmers do not increase production significantly in response to higher crop prices or lower input costs. T F 16. One of the few benefits of having an overvalued exchange rate is that it helps to protect farmers from cheap food imports, thereby spurring domestic agricultural production. T F 17. Economic theory shows that a country as a whole can always benefit from engaging in international trade if the ratio of world prices (e.g., of importables and4exportables) differs from the ratio of domestic prices that would hold in the absence of trade. T F 18. The real exchange rate (RER) falls (the domestic currency experiences a real appreciation) when the prices of nontradables rise more rapidly than do those of tradables. T F 19. As per capita income rises, manufacturing’s share of GDP tends to a. rise steadily b. rise first quickly, then slowly c. rise until reaching a plateau, where it is unaffected by further per capita income growth d. first rise, then level off, and finally decline slightly 20. When there are substantial economies of scale in an industry, manufacturing in a small, low-income country can be viable and efficient only if a. the industry serves export markets as well as the domestic market b. the government provides protection from competing imports c. the local industry is a monopoly d. all of the above 21. In their study of 18 industries in five developing countries, Yotopoulos and Nugent calculated that the leather industry had the highest total backward-linkage index. This means that a. leather production is more labor-intensive than the other industries studied b. the leather industry is the most efficient industry in these five countries c. an additional dollar of leather output generates a large demand for domestic inputs of all kinds, directly and indirectly d. leather production is more