Chapter 1
Short Answer
1. Provide a definition of development economics. Justify your choice carefully.
Answer: See the section in Chapter 1 entitled, “The Nature of Development Economics,”
on Pages 9–10 for some ideas about how you might answer this question. You
should in some way say that development economics is more than just growth in
GDP.
2.
In what way is development economics greater in scope than traditional economics?
Answer: Development economics must encompass the study of institutional, political, and
social as well as economic mechanisms for modernizing an economy while
eliminating absolute poverty and transforming states of mind as well as physical
conditions. More details found in the chapter.
3.
What do you think are the most serious obstacles to further progress in the developing
world?
Answer: The main point here is to ensure that you are thinking carefully about the issues
raised in the text. You may also wish to draw from the critical questions on Pages
10–12.
4.
Why are women often referred to as playing a central role in economic development?
Answer: An answer should include how women can influence whether or not the next
generation will be impoverished through their role of childrearing based on the
resources they bring to this task and the values they pass to their children. Another
key point that should be mentioned is that empirically, women tend to allocate a
higher percentage of the income under their own control to the family and
children than men.

Multiple Choice
1.C
2.D
4.D
5.C
6.D
Chapter 2

Sample Questions
Short Answer
7.D
8.B
9.C
10.A
1. Explain how low levels of living can turn into a vicious cycle in developing countries.
Answer: See the section on low levels of living in the chapter.
2.
Carefully explain some of the similar problems faced by otherwise diverse countries in
Africa, Asia, and Latin America.
Answer: This calls for you to summarize some of the main points listed in page 40.
3.
What are some of the main ways in which the economies of developing countries differ from
one another?
Answer: See the discussion in page 56 – 71; Diversity within commonality.
4. Explain why purchasing power parity measures of income levels tend to show a smaller
difference between poor and rich countries.
Answer: PPP measures show the number of units of developing country currency required
to purchase a basket of goods and services in the developing country market that
costs one dollar in the U.S. Prices for most services tend to be much cheaper in
developing countries than in the U.S.
5.What are the three main indicators that make up the Human Development Index?
Answer: Life expectancy, educational attainment, GDP per capita measured in PPP terms.
6. What are the three major components of economic growth?
Answer: Capital accumulation, labor force growth, and technological progress.
7. Explain the lingering effects of colonialism and how it is still playing a role in hindering
economic development in the developing world.
Answer: Answers should be based on the points covered in the section on the colonial
impact as well as in lecture.
12. The 2003 Human Development Report reported that the HDI of Botswana was 0.614 (and its
rank was 125) and that of the Philippines was 0.751 (and its rank was 85). Botswana’s per
capita income (in PPP dollars) was 7,820 and that of the Philippines was 3,840. Comment
and explain.
Answer: Students should discuss the difference between economic growth (per capita
income) and economic development by discussing the components of the HDI.
 Multiple Choice
1.B 2.D 3.C 4.A 5.C 6.A 7.D 8.D 9.D 10.D 11.C 12.D 13.C
Chapter 3

Sample Questions
Short Answer
1.
Describe one important criticism of Rostow’s stages of economic growth theory.
Answer: The stages are only necessary and not sufficient conditions, savings is too
aggregate a measure, the theory does not take into account the constraints of the
international economic order, and there are counter examples such as Argentina.
2.
Assume a closed economy, perfectly elastic labor supply, and linear technology. Suppose the
incremental capital-output ratio (ICOR) is 3, the depreciation rate is 3%, and the gross
savings rate is 10%. Use the Harrod-Domar growth equation to determine the rate of growth.
What would the gross savings rate have to be to achieve 5% growth? Assuming a perfectly
elastic labor supply, state one criticism of this model from an exogenous growth theory
viewpoint and another criticism of this model from an endogenous growth theory viewpoint.
Answer: . Answer: growth rate of 0.003, that is 0.3%, and 0.24, or 24% savings rate.
Exogenous: does not allow factor substitution; endogenous: does not address
sources of productivity growth, or the savings decision.
3.
What are the key assumptions of the Lewis model that give rise to its conclusions? How
would the theory’s conclusions differ if these assumptions do not hold?
Answer: The answer should include the existence of surplus labor in the rural sector that
guarantees an infinitely elastic labor supply in industry until the surplus is
exhausted and a propensity
to save by industrialists equal to one. The lack of rural surplus labor (and infinite
labor supply) would imply that when industrialists reinvest their profits there is no
guarantee that their surplus increases. A low marginal propensity to save by
industrialists puts a break on the labor transfer process.
4.
During the past decade, India has invested about 22% of its GDP while China’s investment
rate has been double that of India’s. India’s annual growth rate has been about 6% while that
of China has been about 9%. What conclusions can you draw?
Answer: Students are asked to relate investment rates to the rate of economic growth
through the Harrod-Domar model. The students should calculate the ICOR for the
two countries and note that India’s ICOR (about 3.67) is lower than China’s
(about 5).
5.
Use the handout on Neoclassical growth model to show that without technological progress
an economy will always converge to its steady state where per capita output and income
remains constant.
 Multiple Choice
1.D 2.A 3.B 4.D 5.B 6.C 7.A 8.A 9.A 10.B 11.C 12.B 13.B 14.D 15.C 16.D
17.D 18.B 19D
Chapter 4

Sample Questions
Short Answer
1. What three factors distinguish models of endogenous growth from their neoclassical
counterparts?
Answer: There are increasing returns to capital investment (as opposed to decreasing),
there are increasing returns to scale (as opposed to constant), and externality
effects are included.
2. Explain what is meant by the term coordination failure and provide an example.
Answer: This is a state of affairs in which agents are unable to coordinate their efforts, and
hence end up in an equilibrium that leaves them worse off than they would be if
they were able to coordinate. There are several examples offered in the text, or the
students may come up with their own.
3. Show in a diagram an S-curve and a 45-degree line. Are all three points of intersection stable
equilibrium points? Explain.
Answer: Explained in the text. Figure 4.1
4. Explain how the government can help the economy avoid a coordination failure.
Answer: Discussed in the chapter.
5. Is a coordination failure a type of market failure? Explain.
Answer: Yes, because an equilibrium can be reached that is not the true social equilibrium.
6. Explain the basic idea behind the Big Push model?
Answer: Briefly explain the idea behind Figure 4.2.
7. How can the O-ring theory help explain the existence of a low-level equilibrium that an
economy may find itself in?
Answer: Explained on Page 182-83: Implications of O-ring theory.
Multiple Choice
1.D 2.A 3.D 4.C 5.D 6.A 7.B