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Successful foreign aid programs

A. enhance a DVC's resourcesand therefore shift its production possibilities curve to theleft.

B. enhance a DVC's resourcesand therefore shift its production possibilities curve to the right.

move the DVC from a high-investment-low-consumption positionto a low-investment-high-consumptionposition on its stable production possibilities curve.

cause a DVC's exchange ratetodepreciate.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 22-05 Describe how industrial nations attempt to aid low-income countries.

Test Bank: I Topic: The Role of Advanced Nations

The international agency that lends money to DVCs for economic development projectsis the

A. WorldBank.

International Monetary Fund (IMF).

World Trade Organization (WTO).

World Credit Union.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 22-05 Describe how industrial nationsattempt to aid low-income countries.

Test Bank: I Topic: The Role of Advanced Nations

The World Bank

A. is also known as theInternational Monetary Fund(IMF).

B. lends money to developing nationsfor basic infrastructure projects such as dams,irrigation, health and sanitation,communications, and transportation.

is an affiliateof the World Trade Organization (WTO).

provides subsidies to privatefirms so they can improvetheir wages and working conditions.

The World Bank

A. provides militaryassistance to those nations interested in improvingnational defense.

B. makes and guarantees loans for basic development projects such as the construction of dams, roads, and schools.

provides gold for DVCs that want to go on the gold standard.

provides short-term loans toDVCs that areincurring balance of payments deficits.

The primary function of the International Finance Corporation (IFC) is to

provide U.S. surplus foodto low-income countries.

provide short-term loans to poor countriesto finance international tradedeficits.

make infrastructure loans, that is,loans for highways, schools,communication facilities, and so forth.

D. makeloans to private enterprises in the DVCs.

In recent years, the industrially advanced nationsas a group have provided foreign aid amountingto about what percentage of their aggregate outputs?

A. 0.25 percent

0.7 percent

1 percent

2 percent

Government-provided foreignaid to developing countries

has averaged about 1 percent of theIACs' GDP each year.

has increased sharply and steadilysince 1995.

has dwarfed the size of foreign direct investment to the DVCs in recent years.

D. declined in the late1990s but increased from 2000 to 2008.

In the 1990s,

A. direct private investment to the DVCs increased, and government-provided foreign aid decreased.

both direct private investment and government-provided foreign aidtothe DVCs increased.

both direct private investment and government-provided foreign aidtothe DVCs decreased.

direct private investment to the DVCs decreased, andgovernment-provided foreignaid increased.

Development assistance as a percentageof GDP is greatest for which of thefollowing industrialized nations (as of 2015)?

the United States


C. Sweden

D. Netherlands

In recent years, U.S. foreign aid has been

A. less than one-quarter of 1 percent of its output.

about 1 percent of its output.

about 3 percent of its output.

about 5 percent of its output.

Foreign aid to the DVCs has been criticized

because it may generate economic dependence on the IACs.

because it encouragesthe centralization of governmentpower over theeconomy.

because government corruption in the DVCs causes aid to be misused.

D. for all of these reasons.

An increasing share of the private capital flows to DVCs in recent years has been in the form of

interest-free governmentloans.

educational and training assistance.

C. direct foreign investment.

D. bank loans.

An example of direct foreigninvestment is

A. a U.S. bank granting a loanto a Guatemalan firm.

B. General Motors building an auto production facilityin China.

a U.S. governmentforeign aid grant to Bangladesh.

the purchase of debt issuedbythe Panamanian government.

Which of the following is a true statement?

Direct foreign investment to DVCs is increasingly providedby commercial banks.

Direct foreign investment to DVCs has dwindledto near zero in recent years.

Approximately 5 percent of the GDP of IACs goes to foreignaid.

D. Foreign aidfrom the IACs to the DVCs has greatly expanded in the past several years.

Which of the following is not a DVCpolicy likely to increase DVC economicgrowth?

encouraging direct foreign investment

opening economics to world trade

establishing independent central banks

D. encouraging emigration of highly skilled workers

Which of the following DVC policies is not likely to increase DVC economic growth?

privatizing state industries

controlling population growth

C. restricting direct foreign investment from abroad

D. building human capital

State industries are notoriously poor "incubators" for the development of profit-focused, entrepreneurial persons who may leave the firmto set up their own businesses. This statement is an argumentin favor of

A. freeimmigration and emigration.

B. privatizing state industries.

central planning.

free trade.

Economic growth in the DVCs might increase ifIACs

A. reducetheir tariffs and import quotas.

encourage more immigration of highly skilled DVCworkers.

outlaw direct private investment abroad by IAC corporations.

discourage capital flight to theDVCs.

Large agricultural subsidies for food and fiber in IACs hurt the economies of the DVCs by

causing higher prices for imported foodproducts.

lowering saving rates in theDVCs.

encouraging "brain drains" from theDVCs.

D. reducing world agricultural prices and thus export income of the DVCs.

In recent years, the governments of the IACs have

A. forgiven a portion of the debtowed by some low-income DVCs.

substantially reduced foreign aid to the DVCs.

substantially reduced their contributions to the World Bank.

discouraged skilled DVC workers from emigrating totheIACs.

(Last Word) Loans offered through microcredit programs

are usually spent on food.

suffer from low repayment rates.

C. have very high repaymentrates.

D. havelifted borrowers out of poverty at a faster pace than nonrecipients of loans.

(Last Word) Providing poor families with grants if they sendtheir children to school and get proper medical care is known as


in-kind transfers.

unconditional cash transfers.

D. conditional cash transfers.

(Last Word) Early experiments with unconditional cash transfershave revealed that

most of these cash transfers are repaid within a very short time.

although the money is usuallyspent on education and capital, cultural obstaclesgenerally prevent this spending from translating intolong-term earnings gains.

C. a majority of recipients use the money for trainingand equipment that results in a higher long-term income.

D. most recipients spendthe money on current consumption and realize no long-term gain in earning power.

(Last Word) Early experience with conditional cash transfershas revealed that

most of these cash transfers available go unused becauseparents don’t want tofulfill the requirements.

there is no significant improvement in nutrition and health compared tononrecipients.

C. they encourage school enrollment, but poor-quality schools limit the ability to lift people out of poverty.

D. theresulting improvements in educationand health give the recipients a significant earnings advantage over nonrecipients.

True / False Questions

The vast majority of the labor forces of thelow-income DVCs are engagedin agriculture.


Most of the DVCs of theworldare located in Western Europe.


DVCs tend to have permanent shortages of farm labor.


Most nations of the world are now IACs, not middle- and low-income DVCs.


The most importantgrowth obstacle common to all DVCs is the lack of desire to increasetheir standards of living.


Saving is low in many DVCs primarily because income is very equally distributed.


The differences in the per capitaincomes of the IACs and the DVCs have diminished sharply since theSecond World War because of U.S. aid programs.


If the real outputs per capita ofa rich nation and a poor nation grow at thesame percentage rate, the absoluteincome gap between the two nations will shrink.


Capital flight refers to the fact that many DVCs must usetheir export earnings to pay intereston their outstanding external debts.


Because familiescan afford to have more children, population growth is greater in the IACs than in theDVCs.


The capricious universe view is the idea that the IACs are exploiting theDVCs.


An advantage of direct foreign investment (comparedtoforeign loans) is that management skill and technological knowledge often accompany such capitalflows.


Reduction of tariff barriers against DVC imports would benefit both the DVCs andthe IACs.


Multiple Choice Questions

The poorest 20 percent of the world's population receive what percentage of world income?

A. less than 2 percent

about 4 percent

around 8 percent

close to 10 percent

More than 75 percentof the world's income is earned by what percentage of the world's population?

5 percent

10 percent

C. 20percent

D. 40percent

What measure of economic development is used most often to classify nations as industrially advanced or as developing?

A. per capita income

life expectancy at birth

per capita energy consumption

daily per capita calorie supply

The levels of nationalincome per capita among developing countries (DVCs) are

A. all within a narrow range.

B. widely varied.

all growing rapidly.

about half of those of industrially advanced countries(IACs).

Brazil, Mexico, and Thailandare referred to as

A. industrially advanced countries.

B. upper-middle-income developing countries.

low-income developing countries.

command economies.

Developing countries (DVCs) can be subdividedinto the following groups except

A. low-income economies.

B. high-income economies.

lower-middle-income economies.

upper-middle-income economies.

The industrially advanced countries(IACs) had an averageper capita income in 2014 of around

$50,000 per person.

$27,000 per person.

C. $38,000 per person.

D. $61,000 per person.

The average per capita income in 2014 for low-income developing nations was about

A. $630. B. $2,100.

C. $1,240.

D. $4,600.

Which of the following nations is not considered an industrially advanced country?

A. Russia




The United States in 2014 had about

1.8 percent of the world's population and generated about 10 percentof the world's output.

2.4 percent of the world's population and generatedabout 20 percent of theworld's output.

C. 4.4 percent of the world's population and generated about 22 percent of the world's output.

D. 10percent of the world's population andgenerated about 30 percentof the world's output.

In 2014, Wal-Mart’s annual revenues were greater than thenational incomes of

the United States.


C. all but 26 nations.

D. all nations except for the 5 largest ones.

Low-income developing countries generally havethe following characteristics except

A. low population growth rates.

low levels of industrialization.

dependency on exports of agricultural products or raw materials.

minimal amounts of capital resources.

If the per capita incomes of DVCs (developing countries) grew at the same annual rate as those ofIACs (industrially advanced countries), then the absolute income gap between rich and poor nations over the years would

A. narrow.

B. widen.

stay the same.


An IAC (industrially advanced country) had a per capita income of $28,200,while a DVC (developing country) had a per capita income of $1,200 in a given year. If both countries experience a per-capita-income growth of 2 percent, then their respective per-capita-income levels one year later will become

A. $33,840 and$1,440. B. $28,764and $1,224. C. $33,840 and $1,224.D. $28,764and $1,440.

At the beginning of the year,one developing country(DVC) has a real income per capita of $800.Ina developed country (IAC), the real income per capita is $30,000. Both countriesexperience a 4 percent growth rate for the year.At the end of theyear, the absolute income gap betweenthese two countries will have increased from $29,200 to

A. $30,368. B. $31,200.C. $30,120. D. $32,032.

Which of the following countrieshad the highest per capita income (on a purchasing power parity basis) in 2014?

A. China

B. United States



Per capita income in theUnited States in 2014 was about

$25,300 per person.

$36,300 per person.

C. $55,200 per person.

D. $68,800 per person.

Per capita income in theUnited States in 2014 was how many times greater than that in China?

3 times

12 times

C. 7.5 times

D. 17times

Most developing countries (DVCs) exhibit a low level of


population growth.

C. life expectancy.

D. infant mortality.

Which of the following countrieshad the highest per capita energy consumption in 2013?




D. UnitedStates

The two paths toeconomic development, which are the sameforboth developing countries andindustrially advanced economies, are

A. use existing resources moreefficiently and expandthe available resources.

expand the government sector and preserve allavailable resources.

enhance regulation and taxation, and redistribute income to reduceincome disparity.

expand the money supplyand eliminate budget deficits.

Expanding the supplies of raw materials, capital equipment, effective labor, andtechnological knowledge will

A. shift outwardtheproduction possibilities curve for a nation.

increase the demand for and decrease the supply of productive resources.

make a nation less productive because of the need to coordinatetheincreased quantityof resources.

lead to increased population growth that will decrease the per capitagrowth in a nation.

Which of the following factorscontributes most to thehigh per capita incomes in developed nations?

A. high rates of population growth

B. high rates of economic growth

low rates of investment

low rates of saving

One of theessential paths toeconomic growth is

increasing population growth.

expanding the role of government.

C. using existing resources moreefficiently.

D. expanding tax creditsfor business investment.

One major path that leads to growth in both developing nations (DVCs) as well industrially advanced nations (IACs) is that productive resources must be

owned and managedby the public sector.

distributed more equitably across businesssectors.

reallocated to export industries.

D. used more efficiently.

Which of the following factorscontributes to the weak economicgrowth in DVCs?

an increase in labor productivity in DVCs

a decrease in international debts of DVCs

an increase in the rateofsaving in a DVC

D. a decrease in the prices of DVC natural resources

Which of the following is not a characteristic of human resources in the poorest DVCs?

Populations are large.

Unemployment and underemployment are widespread.

C. Population growth is low.

D. Labor productivity is low.

One common measure of the "standard of living" in a nation is

A. per capita real income.

unemployment rate.

real GDP.

population size.

Assume that the real output of a developing nation increasesfrom $120 billion to $140 billion, while its population expands from 100to 110 million.Asa result, real income per capita has increased by about

$56 per person.

$64 per person.

C. $72 per person.

D. $88 per person.

Assume the total real output of a developing country increasesfrom $8 billionto $8.2 billion, while its population expands from 14to15 million people from one year to the next. Over the year, per capita income has

A. increased by $25 per person.

B. decreased by $25 per person.

increased by $533 perperson.

decreased by $533 perperson.

Over the next 15 years, roughly what percentage of the increase in world population will come from DVCs?

25 percent

50 percent

70 percent

D. 90percent

Which of the following countrieshad the highest population density (population per square km) in 2014?

A. UnitedStates

B. India



Which of the following countrieshad the highest population growth ratein2013–2014?

A. UnitedStates

B. Pakistan



Suppose that the average annual rate of population increase in Econlandin recent years was about 2 percent. Based on this rate of growth, thepopulation of Econland will doubleinabout

7 years.

11 years.

C. 35years.

D. 46years.

The fertility rates—thenumber of children per woman's lifetime—in most DVCs (developing countries) are

rising slowly.

rising quickly.

staying constant.

D. declining.

The population growth rate in IACs (industrially advanced countries) in 2000–2010 averaged 0.7 percent per year. This comparesto what percentage growth per year in low- incomeDVCs (developing countries)?

A. 1.1 percent

B. 2.1 percent

4.0 percent

0.4 percent

A developing nation may not experience an increase in the averagestandard of living even if it increasesits output of goods and services because of

A. landreform.

B. population growth.

underemployment and disguised unemployment.

capital-saving technology.

Birth- and population-control efforts in many DVCs (developing countries) face the following obstacles except

low literacy rates.

religious reasons.

a peasant agriculture view about children.

D. government authorities.

The traditional view regardingpopulation andgrowth in DVCs is that

the most importantfactor affecting population growth in DVCs is per capita consumption of energy.

unemployment and underemployment are themajor sources of population growth in DVCs.

C. reduced birth rates must come first in DVCs,andthen higher per capita incomes will follow.

D. higher per capita incomes must come first in DVCs, and then reduced birth rates will follow.

The demographic transition view of population and growthin DVCs is that

the most importantfactor affecting population growth in DVCs is demographicchanges among the elderly.

slower population growth is neither desirable nor productive for DVCs given the state of theeconomies in thesenations.

reduced birth rates must come first in DVCs, and then higher per capita incomes will follow.

D. higher per capita incomes must come first in DVCs, and then reduced birth rates will follow.

A study concludes that in DVCs, rising incomes must first be achievedandonly then will therebe slower population growth. What view of DVC population growth would this study be supporting?

traditional view

peasant agriculture view

the will-to-develop view

D. demographictransition view

Income gains in the poorest DVCs may increasepopulation growth initially, at least for a while, due to the following reasons except

declining death rates

increasing birth rates

reduced infant mortality

D. decreasinglife expectancy

Population expansion can impede economic development for the following reasons except

reduced savingand investment rates.

reduced productivity of labor.

C. a larger supply of labor.

D. its contribution tourban congestion andproblems.

Development economists suggest that a key strategyfor the poorest DVCs to break out of their poverty is to implement policies that boost their

A. population growth for a greater labor supply.

B. output and slow down their population growth.

birth rates to expandtheir available resources.

mortality rates to slow down their population growth.

Based on population and economic development trends,theworld population is expectedto in the last part of this century.


increase mildly

become stable and constant

D. decline

The population growth rate of the DVCs (developing countries) as a group in recentdecades has been

A. steady.

B. declining.

rising modestly.

rising rapidly.

Which characteristic is most typical of human resourcesin developing nations?

a small population base

low unemployment in urban areas

low unemployment in rural areas

D. high unemployment in urban areas

Which of the following is most characteristic of developing nations?

a small percentage of the labor forceinagriculture

a relatively equitable distribution of income

C. low levels of labor productivity

D. low rates of population growth

Surplus agricultural labor in a developing nation usually means that there is

A. a caste system.

B. widespread underemployment.

immobility of labor resources.

increased investment in agriculture.

The lack of an entrepreneurial class in developing nations tends to

A. keep workersfrom migrating to cities from rural areas.

B. reduce the level of capital investment.

force the need for landreform.

keep governments stable.

All developing countries suffer from a critical shortage of



C. capital goods.

D. government regulation.

An obstacle to economicgrowth in developing countries is

A. thelimited demand for natural resources.

B. the limited supplyof capital goods.

a decline in population growth.