GDP per capita can miss parts of well-being such as health, education and environmental quality.
Correct Answer
True
True. GDP per capita is a useful starting point, but it does not fully capture quality of life, which also depends on health, education, safety, human rights and the environment.
Category: Comparing Economies
Question 2
Regional averages of GDP per capita accurately describe living standards in every country within a region.
Correct Answer
False
False. Countries within the same region often differ widely, so a regional average can hide very rich and very poor economies side by side.
Category: Comparing Economies
Question 3
Geographic features such as coastlines, rivers and being landlocked can shape a country's opportunities for trade.
Correct Answer
True
True. Geography is one of the factors that helps explain differences among economies, since access to the sea and navigable rivers makes trade easier while mountains, deserts or a landlocked position can make it harder.
Category: Comparing Economies
Question 4
The world's low-income countries together produce about half of global income.
Correct Answer
False
False. Low-income countries produce only a tiny share of world income, well under 1%, while high-income countries produce most of it.
Category: Comparing Economies
Question 5
Fast-growing East Asian economies built human capital by expanding primary education first and then secondary education.
Correct Answer
True
True. Their education policies started with primary schooling and then broadened secondary schooling, often stressing math and science skills that are useful in engineering and business.
Category: Growth Policy
Question 6
At a 2% annual growth rate, the rule of 72 predicts that incomes double in about 72 years.
Correct Answer
False
False. The rule of 72 divides 72 by the growth rate, so at 2% incomes double in about 72 / 2 = 36 years.
Category: Growth Arithmetic
Question 7
Development economics studies policies that improve economic and social well-being in low- and middle-income countries.
Correct Answer
True
True. Development economics draws on fiscal policy, education, health, trade, natural resources and politics, and many in the field focus on growth that is equitable and sustainable.
Category: Growth Policy
Question 8
Foreign aid and outside investment have been enough to fund all the capital accumulation that low-income countries need for growth.
Correct Answer
False
False. Low-income economies rely on aid and foreign investment, but these have not been enough to finance the capital accumulation needed for growth, and critics such as William Easterly argue aid often falls short of its goals.
Category: Growth Policy
Question 9
Automatic stabilizers tend to widen a government's budget deficit during a recession.
Correct Answer
True
True. In a recession, tax revenue falls and payments such as unemployment benefits rise without any new law, which supports demand but enlarges the deficit.
Category: Unemployment Worldwide
Question 10
Firms typically restore their full workforce as soon as a recession officially ends.
Correct Answer
False
False. Even after growth returns, firms may wait months or even a couple of years before they are confident enough to hire, so unemployment can stay high well into a recovery.
Category: Unemployment Worldwide
Question 11
Many workers in low-income countries are neither unemployed by U.S. standards nor employed in regular wage-paying jobs.
Correct Answer
True
True. Many people farm, fish or hunt for their own needs, barter, or string together short-term jobs paid in money, food or shelter, so they fit neither category.
Category: Unemployment Worldwide
Question 12
In Lewis's model, adding more farmworkers in a mature agricultural economy with fixed land greatly increases farm output.
Correct Answer
False
False. With land and water fixed, extra farmworkers add almost nothing to output, which is why they are called surplus workers.
Category: Unemployment Worldwide
Question 13
Persistent inflation leads businesses and households to spend effort protecting themselves from rising prices instead of improving productivity.
Correct Answer
True
True. Inflation brings no long-run benefit, and the time spent guarding against it is time not spent finding better ways to serve customers.
Category: Inflation Worldwide
Question 14
High-income economies have found that their central banks cannot control inflation over the medium and long term.
Correct Answer
False
False. The lesson high-income economies have learned is that monetary policy can keep inflation from becoming entrenched over the medium and long term.
Category: Inflation Worldwide
Question 15
When high inflation is not offset by indexing, lenders are repaid in money that buys less than the money they lent.
Correct Answer
True
True. Without indexing, rising prices shrink the purchasing power of loan repayments, and workers whose pay is not adjusted see their real wages fall.
Category: Inflation Worldwide
Question 16
A trade deficit means a country's exports of goods and services are greater than its imports.
Correct Answer
False
False. A trade deficit means imports are greater than exports; exports greater than imports is a trade surplus.
Category: Trade and Capital Flows
Question 17
Economists would expect high-income economies to tend to run trade surpluses and act as net lenders of capital to lower-income economies.
Correct Answer
True
True. In the expected pattern, capital flows from rich countries, where investors seek higher returns and diversification, to poorer countries that can use it to build physical capital.
Category: Trade and Capital Flows
Question 18
In the 1997-1998 East Asian crisis, banks that had borrowed in U.S. dollars and lent in local currencies were helped when local currencies lost much of their value.
Correct Answer
False
False. Those banks were badly hurt, because a collapse in the local currency made their dollar debts far more expensive to repay, and many went bankrupt.
Category: Trade and Capital Flows
Question 19
Holding large foreign exchange reserves is one way a central bank can reduce its country's exposure to sudden outflows of foreign capital.
Correct Answer
True
True. Large reserves, along with stronger bank regulation, help a country withstand a sudden stop in foreign lending.
Category: Trade and Capital Flows
Question 20
The infant industry argument calls for protecting new domestic industries from foreign competition permanently.
Correct Answer
False
False. The infant industry argument calls for temporary support until a new industry is established and can compete in the market, and economists consider it controversial.
Category: Trade and Capital Flows