Comparative Advantage

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AEC 0 International Agriculture and World Food Needs

FINAL - December 0, 00

Answer each question carefully and thoughtfully. Have a wonderful holiday!

Multiple Choice points each

_____1. Import substitution policies were designed to

a. allow colonial powers to further exploit the natural resource base of many developing countries

b. rely on imported manufactured goods to stimulate economic growth

c. substitute raw agricultural goods with processed foods

d. replace imports with (protected) domestic production to increase a country's self-sufficiency

_____. Import substitution policies resulted in

a. foreign exchange shortages and stagnant economic growth

b. the diversion of resources to meet the needs of the export market

c. undervalued exchange rates

d. increasing terms of trade

e. all of the above

_____. Reverse Linkages are

a. the conversion of BOP deficits to foreign exchange surpluses

b. trade liberalization policies between the North and the South

c. the integration of the financial and trade markets between the North and the South

d. the spread of infectious diseases, such as HIV, between the developed and the developing worlds

_____4. Reverse Linkages resulted in

a. a domino affect spreading the financial crises in Mexico and Asia to other parts of the world

b. the increase in HIV and Aids in developing countries

c. the NAFTA and Mercosur free trade accords

d. growing BOP surpluses

_____5. Terms of Trade refers to

a. the trade agreements between one or more countries

b. the cost of imports as exchange rates fluctuate

c. the purchasing power of export commodities (in terms of earning foreign exchange) to purchase imports

d. the insurance, transportation and tariff rates for any commodity

_____6. Declining Terms of Trade has resulted in

a. difficulty for developing countries to pay for increasingly costly imports with exports that continue to decline in value

b. lower insurance, transportation and tariff rates

c. higher prices for imports as exchange rates fell

d. fewer trade agreements between countries in Africa and southeast Asia

_____ 7. Structural Adjustment Reforms refer to

a. macroeconomic policies designed to stimulate private sector investment, capital markets and trade

b. rebuilding schools, hospitals, and housing after being destroyed by natural disasters

c. specific programs targeted to increasing food production and eliminating malnutrition

d. programs to improve the infrastructure of a country such as building roads and utilities

_____ 8. Structural Adjustment Reforms have resulted in

a. overvalued exchange rates

b. more parastatals and unions in the former Soviet-bloc

c. more centralized decision-making

d. many developing countries transitioning to market-oriented economies

e. all of the above

_____ . Contractionary monetary policy tends to

a. decrease interest rates

b. increase rates of inflation

c. weaken the value of the dollar

d. decrease exports and increases imports

e. all of the above

_____ 10. The International Monetary Fund

a. is the primary source of funding for the United Nations and The World Bank Group

b. is a consortium of European countries that focuses on the privatization of the Soviet-bloc

c. only serves developing countries with international finance problems

d. provides loans for countries experiencing foreign exchange deficiencies and balance of payments disequilibria

_____ 11. Major challenges the IMF faces include

a. the demand for debt capital has fallen as the number of countries eligible for IMF financing has fallen

b. real global interest rates have risen as the gap between the savings rate and the demand for investment capital has grown

c. the growing amount of private sector foreign investment has flooded capital markets

d. more foreign aid from NGOs

e. all of the above

_____ 1. The World Bank Group

a. works closely with host governments to identify, administer, and provide loans for reconstruction and development projects, and to simulate private sector investment

b. is comprised of the UN, IMF and the EFTA

c. assists small entrepreneurial businesses with investment capital

d. is owned by a consortium of developing countries

_____1. The Grameen Bank

a. focuses on women in Sub-Saharan Africa that raise food crops

b. focuses on men in South America as an alternative to drug cartel income

c. makes small low-interest loans in Bangladesh, primarily to rural women

d. makes small low-interest loans for environmental projects in third world countries

_____14. In terms of development, the 170s focused on

a. sustainable development, using wholistic or comprehensive approaches

b. bail-outs, particularly the Latin American financial crisis

c. macroeconomic reform and structural adjustment lending

d. volunteerism and an emphasis on human capital

e. all of the above

_____15. With regard to current world debt

a. Total world debt is falling due to falling interest rates

b. Public sources of aid constitute an increasing percentage of total aid to developing countries

c. Most developing countries have been able to reduce their debt load

d. More commercial and private debt is coming from private sources such as foreign direct investment, bonds and the stock market

e. all of the above

_____16. Both the Mexican peso crisis and the Asian financial crisis demonstrated that

a. strict adherence to IMF policy reform is essential for success

b. capital markets must operate independently

c. due to increased trade integration, financial instability in one part of the world can have significant impacts on trade deficits in another part of the world

d. high interest rates must accompany low rates of inflation

e. all of the above

_____17. Many developing countries adopted parastatal agencies and state-regulated pricing policies to

a. generate government revenue to assure debt repayment

b. create "temporary" market structures after colonial independence

c. establish prices for inputs and outputs given the lack of well-defined and functioning market demand and market supply after independence

d. counter the foreign influence that these countries had suffered

e. all of the above

_____18. Endogenous Growth Theory is an argument used for

a. how the conversion of agricultural commodities to manufactured goods stimulates an economy

b. understanding how countries gains from trade integration through increased specialization, efficiency, economies of scale, and returns to investment capital

c. why inferior genetic pools in the Third World will drag down the entire human population through increased population growth

d. explaining why all countries require financial assistance at one time or another

_____1. A strong currency tends to

a. reduce the trade deficit

b. make the BOT more positive

c. make the BOC more negative

d. may make the BOP more positive or more negative, depending on relative exchange rates and interest rates

e. all of the above

_____0. The World Bank claims the consensus on the future of development policy includes all of the following except

a. sustainable development has many objectives

b. development policies are interdependent

c. processes are as important as policies

d. democracy and capitalism should be the basis for all models of government

e. All of the above constitute the consensus that has developed

_____ 1. Many argue that growth in per capita income is an inadequate measure of development success since

a. exchange rates are constantly fluctuating

b. the effects of inflation cannot be accounted for

c. many non-market amenities are not accounted for in the cash economy and the incomes of rich and poor countries continues to diverge

d. all of the above

_____ . Why should poor countries grow faster than rich ones, ceteris paribus?

a. A smaller base gives a smaller percentage increase

b. Developing countries can copy new technology and production processes

c. Because developing countries are eligible for more aid programs than industrialized countries

d. all of the above

e. none of the above - history tells is that "small" economies will never catch up to "big" economies

_____ . The success of many East Asian countries has been attributed to many things. Which of the following is not an accepted element of successful development strategies?

a. high savings and investment rates

b. heavy investment in education, particularly science and engineering education

c. global integration including market and trade liberalization

d. heavy reliance on financial aid, rather than loans, from the IMF and World Bank

_____ 4. From the reading "Whither the North-South Gap", Broad and Landi argue that

a. the North-South gap is closing as many developing countries adhere to World Bank policies

b. with the exception of the BEMs, the North-South gap is actually increasing

c. net private financial flows to the BEMs continues to decline

d. the International Monetary Fund is more important than the World Bank

_____ 5. Many developing countries overvalue their exchange rates because

a. an artificially stronger domestic currency makes it "cheaper" to import goods and "easier" to repay foreign loans, if this overvalued exchange rate is accepted

b. continued expansionary monetary policies in many developing countries has artificially strengthened their currencies

c. overvaluing is an attempt to weaken exchange rates

d. of conditionalities placed upon them by the IMF

e. all of the above

_____6. What recent trends have we seen in sources of economic aid for developing countries?

a. A decrease in FDI to the BEMs, while FDI to other developing countries continues to grow

b. Higher commodity prices make it easier for many developing countries to repay their debts

c. Large increases in real foreign aid (as a % of GNP), due to the Mexican and Asian financial bail-outs

d. A decline in capital market flows, partially as a result of the worldwide recession

e. all of the above

_____ 7. Many developing countries consistently run a Balance of Payments deficit because

a. they typically run a balance on capital surplus that is smaller than their balance on trade deficit

b. they typically run a balance on trade surplus that is smaller than their balance on capital deficit

c. import substitution policies have reduced exports and restrictions on foreign investment have created a deficit in the capital account

d. many developing governments continually undervalue their own currencies

e. None of the above. Developing countries typically run BOP surpluses.

_____ 8. Dangers of capital inflows into a developing country include all of the following except

a. these inflows create difficulties for governments that already have weak monetary policy management skills

b. capital inflows make it difficult to control inflation in economies that are short of cash flow

c. capital inflows make it more difficult to control exchange rates when domestic currencies are already weak

d. none of the above. All of these are legitimate problems associated with capital inflows

_____ . Surveillance (in the context of international development) refers to

a. narcotics agents monitoring drug flows from the US to Columbia

b. the role of the IMF to monitor the world's economy and take appropriate action if needed

c. regulating private sector investment in sweat shop manufacturing facilities

d. monitoring corrupt dictatorships in foreign countries

_____ 0. Mayur and Daviss, in their paper "How NOT to Develop an Emerging Nation", argued that

a. despite their good intentions, the developed world should leave the developing world alone and let them find their own path to "development"

b. foreign aid does more harm than good and should be stopped immediately

c. developing countries need to focus on the development of their service sectors, and not just manufacturing sectors

d. large-scale technological projects are needed to industrialize the South

Essay Choose ONE (10 points)

1. What causes Balance of Payments Disequilibria? Why is this a problem for the Third World?

. Consider the HIPC Initiative and the Year of Jubilee. What do you think would happen if they were fully realized?

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