Question 1

As of 2010, how large is the debt of developing countries to the rest of the world?

Accepted Answer

A)  $350 million 
B)  $350 billion 
C)  $5 trillion 
D)  $35 trillion 
E)  $3.5 trillion 
A)  $350 million 
B)  $350 billion 
C)  $5 trillion 
D)  $35 trillion 
E)  $3.5 trillion

Question 2

Please consider Table 22-2 below.     Assuming constant Annual Average Growth Rate in the future, calculate the output per capita for the United States and South Korea for the year 2040.

Accepted Answer

Since 2040 - 2000 = 2000 - 196

Question 3

In 1991, Argentina established a radical institutional reform after experiencing a decade marked by financial instability. This program was called the new Convertibility Law. What did this law do?

Accepted Answer

A)  made Argentina's currency fully convertible into Eurocurrency at a fixed rate 
B)  required that the monetary base be backed completely by U.S. dollars 
C)  placed limits on exports of commodities 
D)  made Argentina's currency fully convertible into U.S. dollars at a fixed rate and required that the monetary base be backed completely by gold or foreign currency. 
E)  restricted risky international trade activity. 
A)  made Argentina's currency fully convertible into Eurocurrency at a fixed rate 
B)  required that the monetary base be backed completely by U.S. dollars 
C)  placed limits on exports of commodities 
D)  made Argentina's currency fully convertible into U.S. dollars at a fixed rate and required that the monetary base be backed completely by gold or foreign currency. 
E)  restricted risky international trade activity.

Question 4

In the instances where a loan has been issued under certain terms and has to be repaid, what happens when the borrower does not uphold these stipulations?

Accepted Answer

A)  call 
B)  option 
C)  payment 
D)  default 
E)  fraud 
A)  call 
B)  option 
C)  payment 
D)  default 
E)  fraud

Question 5

A considerable advantage that richer countries have over poorer ones is exemplified by the fact that:

Accepted Answer

A)  richer countries do not have to denominate their foreign debts in their own currencies. 
B)  richer countries have the ability to denominate their foreign debts in foreign currencies. 
C)  when demand falls for a poorer country's goods, this leads to a significant wealth transfer from foreigners to the poorer country, a kind of international insurance payment. 
D)  richer countries have the ability to denominate their foreign debts in their own currencies. 
E)  richer countries can extract trade advantages by using military power. 
A)  richer countries do not have to denominate their foreign debts in their own currencies. 
B)  richer countries have the ability to denominate their foreign debts in foreign currencies. 
C)  when demand falls for a poorer country's goods, this leads to a significant wealth transfer from foreigners to the poorer country, a kind of international insurance payment. 
D)  richer countries have the ability to denominate their foreign debts in their own currencies. 
E)  richer countries can extract trade advantages by using military power.

Question 6

Explain the following simple algebra of moral hazard. Suppose a real estate deal, which requires 100 million as investment today will yield 120 million with probability of 10 percent and will lose 20 million with probability of 90 percent. Suppose that the interest rate is 5 percent per annum.
(a) Without government intervention, would anyone invest in this deal?
(b) Suppose that now the deal is backed by full government guarantee. What will be the outcome? Does your answer depend on the attitude of the investor toward risk?
(c) Suppose that now government guarantying only 80 percent of the initial investment. What will be the outcome? Does your answer depend on the attitude of the investor toward risk?

Accepted Answer

Answer to question 1 (a), (b), (c).
(a)

Question 7

The main factors that discourage investment in capital and skills in developing countries are:

Accepted Answer

A)  political instability, insecure property rights. 
B)  political instability, insecure property rights, misguided economic policies. 
C)  political instability, misguided economic policies. 
D)  political instability. 
E)  insecure property rights, misguided economic policies. 
A)  political instability, insecure property rights. 
B)  political instability, insecure property rights, misguided economic policies. 
C)  political instability, misguided economic policies. 
D)  political instability. 
E)  insecure property rights, misguided economic policies.

Question 8

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

Accepted Answer

The convertibility law is the law that m

Question 9

Explain how Brazil was able to reduce the rate of inflation from 2,669 percent in 1994 to less than 10 percent in 1997?

Accepted Answer

By introducing a new currency and initia

Question 10

How was South Korea able to become one of the East Asian Economic Miracles?

Accepted Answer

South Korea was able to become one of th

Question 11

Which Latin American country defaulted on loans in 2005 and paid off their creditors at only 1/3 value?

Accepted Answer

A)  Argentina 
B)  Brazil 
C)  Chile 
D)  Colombia 
E)  Mexico 
A)  Argentina 
B)  Brazil 
C)  Chile 
D)  Colombia 
E)  Mexico

Question 12

What event started the Asian financial crisis in 1997?

Accepted Answer

A)  Indonesia's inability to pay its debts 
B)  devaluation of Indonesia's currency 
C)  Thailand's inability to pay its debts 
D)  devaluation of Thailand's currency 
E)  devaluation of Malaysia's currency 
A)  Indonesia's inability to pay its debts 
B)  devaluation of Indonesia's currency 
C)  Thailand's inability to pay its debts 
D)  devaluation of Thailand's currency 
E)  devaluation of Malaysia's currency

Question 13

The world's economies can be divided into four main categories according to their annual per-capita income levels: low-income, lower middle-income, upper middle-income and high-income economies. What category would Korea fall under?

Accepted Answer

A)  low-income 
B)  upper middle-income 
C)  high-income 
D)  lower middle-income 
E)  Korea falls between low income and lower middle-income. 
A)  low-income 
B)  upper middle-income 
C)  high-income 
D)  lower middle-income 
E)  Korea falls between low income and lower middle-income.

Question 14

A trend that has been reinforced by many developing countries is privatization. Privatization refers to:

Accepted Answer

A)  purchasing large companies and turning them into state-owned enterprises. 
B)  investing government money in large, privately-owned companies. 
C)  exchanging bonds for shares in state-owned enterprises. 
D)  selling large state-owned enterprises to private owners in the financial sector. 
E)  selling large state-owned enterprises to private owners in key areas such as electricity, telecommunications, or petroleum. 
A)  purchasing large companies and turning them into state-owned enterprises. 
B)  investing government money in large, privately-owned companies. 
C)  exchanging bonds for shares in state-owned enterprises. 
D)  selling large state-owned enterprises to private owners in the financial sector. 
E)  selling large state-owned enterprises to private owners in key areas such as electricity, telecommunications, or petroleum.

Question 15

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 16

Brazil's 1999 crisis was relatively short lived because

Accepted Answer

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

Question 17

Why may equity finance be preferred to debt finance for developing countries?

Accepted Answer

A)  A fall in domestic income automatically reduces the earnings of foreign shareholders without violating any loan agreement. 
B)  There are laws insuring against any default with equity finance. 
C)  The risk is shared between debtor and creditor with debt finance. 
D)  The tax structure leaves equity finance unconstrained. 
E)  Repayments are unaffected by falls in real income. 
A)  A fall in domestic income automatically reduces the earnings of foreign shareholders without violating any loan agreement. 
B)  There are laws insuring against any default with equity finance. 
C)  The risk is shared between debtor and creditor with debt finance. 
D)  The tax structure leaves equity finance unconstrained. 
E)  Repayments are unaffected by falls in real income.

Question 18

Countries in Africa have grown at rates far ________ those of the main industrial countries.

Accepted Answer

A)  below 
B)  above 
C)  the same 
D)  above at the beginning of the period and below at the end of the period 
E)  below at the beginning of the period and above at the end of the period 
A)  below 
B)  above 
C)  the same 
D)  above at the beginning of the period and below at the end of the period 
E)  below at the beginning of the period and above at the end of the period

Question 19

Compare currency board to conventional fixed exchange rate.

Accepted Answer

Currency board may not acquire domestic

Question 20

Explain why East Asian countries have done so well relative to South American countries.

Accepted Answer

Mainly, the reasons are: less

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

As of 2010, how large is the debt of developing countries to the rest of the world?

Please consider Table 22-2 below. Assuming constant Annual Average Growth Rate in the future, calculate the output per capita for the United States and South Korea for the year 2040.

In 1991, Argentina established a radical institutional reform after experiencing a decade marked by financial instability. This program was called the new Convertibility Law. What did this law do?

In the instances where a loan has been issued under certain terms and has to be repaid, what happens when the borrower does not uphold these stipulations?

A considerable advantage that richer countries have over poorer ones is exemplified by the fact that:

The main factors that discourage investment in capital and skills in developing countries are:

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

Explain how Brazil was able to reduce the rate of inflation from 2,669 percent in 1994 to less than 10 percent in 1997?

How was South Korea able to become one of the East Asian Economic Miracles?

Which Latin American country defaulted on loans in 2005 and paid off their creditors at only 1/3 value?

What event started the Asian financial crisis in 1997?

The world's economies can be divided into four main categories according to their annual per-capita income levels: low-income, lower middle-income, upper middle-income and high-income economies. What category would Korea fall under?

A trend that has been reinforced by many developing countries is privatization. Privatization refers to:

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?]

Brazil's 1999 crisis was relatively short lived because

Why may equity finance be preferred to debt finance for developing countries?

Countries in Africa have grown at rates far ________ those of the main industrial countries.

Compare currency board to conventional fixed exchange rate.

Explain why East Asian countries have done so well relative to South American countries.

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Filters