Question 1

Over the period 1960-2000, France grew ________ than the United States economy.

Accepted Answer

A)  2 % slower 
B)  2% faster 
C)  more than 2% slower 
D)  less than 2% faster 
E)  more than 2% faster 
A)  2 % slower 
B)  2% faster 
C)  more than 2% slower 
D)  less than 2% faster 
E)  more than 2% faster D

Question 2

"Trade liberalization should precede capital account liberalization." Discuss.

Accepted Answer

The answer is probably true. The issue is related to the theory of second best and the proper sequence of reform measures. Of course, students may argue against such step-by-step measures.

Question 3

Until recently, per-capita income increased in East Asian countries such as Hong Kong, Singapore, South Korea, and Taiwan by ________-fold every generation

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
E)  1 
A)  2 
B)  3 
C)  4 
D)  5 
E)  1 D

Question 4

"Developing countries should delay opening the capital account until the domestic financial system is strong enough to withstand the sometimes violent ebb and flow of world capital." Discuss.

Accepted Answer

Probably true. The issue is re

Question 5

"Sharp contractions in a country's output and employment invariably result from a crisis in which the country suddenly loses access to all foreign sources of funds." Explain how the current account identity necessitates these contractions.

Accepted Answer

S - I = CA (Current Account Identity)
Im

Question 6

The following are all the forms of debt finance.

Accepted Answer

A)  bond, bank, and official finance 
B)  bond and bank finance 
C)  bond, bank, and portfolio finance 
D)  foreign direct and portfolio investment 
E)  direct investment, stock, and dividends 
A)  bond, bank, and official finance 
B)  bond and bank finance 
C)  bond, bank, and portfolio finance 
D)  foreign direct and portfolio investment 
E)  direct investment, stock, and dividends

Question 7

What are the three main lessons on crisis learned from early developing countries in Latin America?

Accepted Answer

A)  choosing the right exchange rate regime, the importance of contagion and the importance of the banking system 
B)  choosing the right real rate, the importance of following exchange rates, and keeping prices high to make the most profit 
C)  pegging exchange rates with Euros, keeping labor cost and wages low 
D)  maintaining money supply, avoiding tariffs, and increasing output 
E)  maintaining money supply, avoiding inflation, and increasing production 
A)  choosing the right exchange rate regime, the importance of contagion and the importance of the banking system 
B)  choosing the right real rate, the importance of following exchange rates, and keeping prices high to make the most profit 
C)  pegging exchange rates with Euros, keeping labor cost and wages low 
D)  maintaining money supply, avoiding tariffs, and increasing output 
E)  maintaining money supply, avoiding inflation, and increasing production

Question 8

Explain the reasons for the economic "miracle" of the East Asian countries between 1960 and 1997. Is it only because of the common Asian practice of industrial policy and business-government cooperation?

Accepted Answer

Students should emphasize high

Question 9

As of 2013, how large is the debt of developing countries to the rest of the world?

Accepted Answer

A)  $350 million 
B)  $350 billion 
C)  $7 trillion 
D)  $35 trillion 
E)  $3.5 trillion 
A)  $350 million 
B)  $350 billion 
C)  $7 trillion 
D)  $35 trillion 
E)  $3.5 trillion

Question 10

Does it appear that currency boards make fixed exchange rates credible?

Accepted Answer

No, because is prohibited by law from ac

Question 11

What does it mean for a loan to be in default?

Accepted Answer

A)  when the borrower of the a loan fails to repay on schedule according to a loan contract, without the agreement of the lender 
B)  when the borrower of a loan fails to repay on schedule according to a loan contract, with the agreement of the lender 
C)  when the lender of a loan fails to supply the full amount of a loan to the borrower 
D)  when the lender of a loan supplies the full amount of a loan to a borrower without any promise of being repaid 
E)  when the lender of a loan fails to offer the promised sum 
A)  when the borrower of the a loan fails to repay on schedule according to a loan contract, without the agreement of the lender 
B)  when the borrower of a loan fails to repay on schedule according to a loan contract, with the agreement of the lender 
C)  when the lender of a loan fails to supply the full amount of a loan to the borrower 
D)  when the lender of a loan supplies the full amount of a loan to a borrower without any promise of being repaid 
E)  when the lender of a loan fails to offer the promised sum

Question 12

The world's economies can be divided into four main categories according to their annual per-capita income levels. Which one of the following is NOT one of the categories?

Accepted Answer

A)  low-income 
B)  upper middle-income 
C)  high-income 
D)  lower middle-income 
E)  middle-income 
A)  low-income 
B)  upper middle-income 
C)  high-income 
D)  lower middle-income 
E)  middle-income

Question 13

Explain why Argentina, one of the world's richest countries at the start of the twentieth century, has become progressively poorer relative to the industrial countries. [An alternative question: What explains Argentina's regress from riches to rags?
]

Accepted Answer

As usual, the answer is comple

Question 14

Seigniorage refers to

Accepted Answer

A)  real resources a government earns when it prints money to use for spending on goods and services. 
B)  nominal resources a government earns when it prints money to use for spending on goods and services. 
C)  real resources a government earns when it prints money. 
D)  nominal resources a government earns when it prints money. 
E)  real resources a government earns when it issues bonds to use for spending on goods and services. 
A)  real resources a government earns when it prints money to use for spending on goods and services. 
B)  nominal resources a government earns when it prints money to use for spending on goods and services. 
C)  real resources a government earns when it prints money. 
D)  nominal resources a government earns when it prints money. 
E)  real resources a government earns when it issues bonds to use for spending on goods and services.

Question 15

Explain why an exchange rate-based stabilization plan may result in a real appreciation?

Accepted Answer

Real appreciation may result for any of

Question 16

What is Argentina's Convertibility Law of April 1991?
 Explain.

Accepted Answer

The convertibility law is the law that m

Question 17

What weakness in the economic structures of Asian countries contributed to the severe financial crisis that Asian economies experienced in 1997?

Accepted Answer

A)  Productivity: It increased rapidly and the countries were victims of their own success. 
B)  Banking regulation: Banks were excessively regulated, which reduced profits. 
C)  Legal Framework: The system dealt unsuccessfully with companies in financial trouble. 
D)  Natural Resources: Countries' lack of natural resources and failure to explore developing industries accumulated and led to the crisis. 
E)  High Taxes: High rates of taxation resulted in a reliance on imports. 
A)  Productivity: It increased rapidly and the countries were victims of their own success. 
B)  Banking regulation: Banks were excessively regulated, which reduced profits. 
C)  Legal Framework: The system dealt unsuccessfully with companies in financial trouble. 
D)  Natural Resources: Countries' lack of natural resources and failure to explore developing industries accumulated and led to the crisis. 
E)  High Taxes: High rates of taxation resulted in a reliance on imports.

Question 18

How would you define a currency board?

Accepted Answer

A)  the process by which non-pegged interest rates are allowed to fluctuate 
B)  the stockpiling of international reserves by developing countries 
C)  using the dollar to carry out all domestic transactions, making the domestic currency a currency in name alone 
D)  a constraint placed on monetary policy 
E)  The monetary base is backed entirely by foreign currency and the central bank holds no domestic assets. 
A)  the process by which non-pegged interest rates are allowed to fluctuate 
B)  the stockpiling of international reserves by developing countries 
C)  using the dollar to carry out all domestic transactions, making the domestic currency a currency in name alone 
D)  a constraint placed on monetary policy 
E)  The monetary base is backed entirely by foreign currency and the central bank holds no domestic assets.

Question 19

Based on the 1997 Crisis and your own experience, what are the main weaknesses of the East Asian economies?

Accepted Answer

The textbook raised mainly three issues.

Question 20

East Asia's crisis was relatively long lived because

Accepted Answer

A)  East Asia's financial institutions had encouraged borrowing all together. 
B)  East Asia's financial institutions had encouraged heavy borrowing in local currency. 
C)  East Asia's financial institutions had extended low-interest loans. 
D)  East Asia's financial institutions had extended high-interest loans. 
E)  East Asia's financial institutions had encouraged heavy borrowing in dollars. 
A)  East Asia's financial institutions had encouraged borrowing all together. 
B)  East Asia's financial institutions had encouraged heavy borrowing in local currency. 
C)  East Asia's financial institutions had extended low-interest loans. 
D)  East Asia's financial institutions had extended high-interest loans. 
E)  East Asia's financial institutions had encouraged heavy borrowing in dollars.

Exam 22: Developing Countries: Growth, Crisis, and Reform

Over the period 1960-2000, France grew ________ than the United States economy.

"Trade liberalization should precede capital account liberalization." Discuss.

Until recently, per-capita income increased in East Asian countries such as Hong Kong, Singapore, South Korea, and Taiwan by ________-fold every generation

"Developing countries should delay opening the capital account until the domestic financial system is strong enough to withstand the sometimes violent ebb and flow of world capital." Discuss.

"Sharp contractions in a country's output and employment invariably result from a crisis in which the country suddenly loses access to all foreign sources of funds." Explain how the current account identity necessitates these contractions.

The following are all the forms of debt finance.

What are the three main lessons on crisis learned from early developing countries in Latin America?

Explain the reasons for the economic "miracle" of the East Asian countries between 1960 and 1997. Is it only because of the common Asian practice of industrial policy and business-government cooperation?

As of 2013, how large is the debt of developing countries to the rest of the world?

Does it appear that currency boards make fixed exchange rates credible?

What does it mean for a loan to be in default?

The world's economies can be divided into four main categories according to their annual per-capita income levels. Which one of the following is NOT one of the categories?

Explain why Argentina, one of the world's richest countries at the start of the twentieth century, has become progressively poorer relative to the industrial countries. [An alternative question: What explains Argentina's regress from riches to rags? ]

Seigniorage refers to

Explain why an exchange rate-based stabilization plan may result in a real appreciation?

What is Argentina's Convertibility Law of April 1991? Explain.

What weakness in the economic structures of Asian countries contributed to the severe financial crisis that Asian economies experienced in 1997?

How would you define a currency board?

Based on the 1997 Crisis and your own experience, what are the main weaknesses of the East Asian economies?

East Asia's crisis was relatively long lived because

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

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