1 Chapter 30 Tutorial Growth and the Less-Developed Countries ©2000 South-Western College Publishing

2 1. An LDC is defined as a country a. without large stocks of advanced capital. b. without well-educated labor. c. with a low GDP per capita. d. that is described by all of the above. D. LDCs are economies based on agriculture such as most countries of Africa, Asia, and Latin America. They have a low level of capital, a low level of education, and low standard of living.

3 2. According to the definition given in the text, which of the following is not an LDC? a. India. b. Egypt. c. China. d. Ireland. D. Interestingly, Israel, Portugal, and Greece are listed as LDCs measured primarily by annual GDP per capita.

4 3. Which of the following is true when comparing GDPs per capita between nations? a. The GDP per capita is subject to greater measurement errors for LDCs compared to IACs. b. The GDP per capita does not measure income distribution. c. The GDP is subject to fluctuations from changes in exchange rates. d. All of the above. D. United Arab Emirates, for example, has a high GDP per capita, but is not a IAC because of a lack of widespread industrial development.

5 4. LDCs are characterized by a. high life expectancy. b. high adult literacy. c. low daily calorie supply. d. all of the above. e. none of the above. C.

6 Economic growth and development Natural resources endowment Human resources development Capital investment Technological progress Political environment

7 5. According to the classification in the text, which of the following is an LDC? a. United Arab Emirates b. Israel. c. Hong Kong. d. Greece. A. United Arab Emirates has a high GDP per capita but there is a lack of widespread industrial development.

8 6. When the government fixes the exchange rate above market exchange rates, a. international trade falls. b. the infrastructure improves. c. real GDP per capita rises. d. the vicious circle of poverty is broken. A. When the exchange rate of a country increases it becomes more expensive for foreigners to buy goods and services from that country.

9 7. Which of the following statements is true? a. An LDC is a country with a low GDP per capita, low levels of capital, and uneducated workers. b. The vicious circle of poverty exists because GDP must rise before people can save and invest. c. LDCs are characterized by rapid population growth and low levels of investment in human capital. d. All of the above are true. D. All of the above statements are true.

10 8. An outward shift of the production possibilities curve represents a. economic growth. b. a decline in economic development. c. a decrease in human capital. d. a decrease in resources. A.

11 Consumer Goods (quantity per year) Capital Goods (quantity per year) CaCa KbKb KaKa PPC 2 PPC 1 The Effect of External Financing on LDCs B

12 9. Which of the following problems do LDCs face? a. Low per capita income and high GDP growth rate. b. Low population growth and low per capita income. c. Rapid population growth and low human capital. d. Low per capita income and high saving rate. C. Investment in human capital generally results in increases in GDP per capita.

Which of the following best defines the vicious circle of poverty? a. The GDP per capita must rise before people can save and invest. b. People cannot save while capital accumulates. c. Increased GDP per capita relates to lower population growth. d. Poverty, saving, and investment are related like a circle. A. The vicious circle of poverty is the trap in which countries are poor because they cannot afford to invest and save, but they cannot save and invest because they are poor.

Which of the following is infrastructure? a. International Harvester tractor plant. b. Waste and water system provided by government. c. USAir airplane. d. Service of postal workers. B. Infrastructure refers to capital goods usually provided by the government, including highways, bridges, and airports.

Economic growth and development in LDCs are low because many of them lack a. capital investment. b. technological progress. c. a favorable political environment. d. all of the above. e. none of the above. D. Economic growth and development involve a complex process that is determined by several interrelated forces.

Which of the following makes short-term conditional low-interest loans to developing countries? a. Agency for International Development (AID). b. World Bank. c. International Monetary Fund (IMF). d. New International Economic Order (NIEO). D. AID is the agency of the U.S. State Department that is in charge of U.S. aid to foreign countries. The World Bank makes long-term low-interest loans to LDCs. NIEO is a series of proposals made by LDCs to improve their economic growth.

Which of the following argues that IACs should help LDCs by imposing lower trade barriers on poor countries than on rich countries? a. The Agency for International Development (AID) b. The World Bank. c. International Monetary Fund (IMF). d. New International Economic Order (NIEO). D. The NIEO has made a series of proposals to help improve LDCs economic growth. Lower trade barriers is one of these proposals.

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