Questions for Final Exam.
1. How are health and education related?
a. Greater health capital may improve the returns in investments in edu. b. Greater edu. capital may improve the returns to investments in health. 2. How are the health problems of developing countries different from those of developed countries?
a. In developing countries, there is problems such as nonsanitary water, limited access to food/water, diseases left untreated, etc that cocreate the continuous health problems that make it hard to increase the standard of living. War can also have to do with all of this.
3. How is financial depth measured? Describe the policies that can promote financial deepening.
a. Financial Deepening – increase the ratio of M2 or M3 relative to GDP. b. Refers to the increased provision of financial services w/ a wider choice of services geared to the development of all levels of society.
c. Plays an important role in reducing risk & vulnerability for disadvantaged groups & increasing the ability of individuals & household to access basic services like health & edu. (more impact on poverty). If you want to learn more check out What is hunds rule?
d. Overall, measured by ratio of GDP, ratio of GDS(avings). *
4. What steps do LDCs need to take to reform their financial systems? a. Financial Deepening: policy & roles for the state *
b. Financial Stability:
i. Reduce episode of hyperinflation, capital flight, panics, etc through better management of MS, inflation, exchange rates & balance/pmts. c. Credit access for the poor
i. Use of informal credit mkts
ii. Creation of credit w/o collateral requirements
iii. Micro finance
iv. Development finance: institutions to channel funds from int’l
Don't forget about the age old question of How do us employers demand for low wage labor fuel immigration?
grants/gov’t for development purposes infrastructure, health, edu, LT loans, subsidizing student loans, etc.
5. What do micro finance institutions do? What role can they play in reducing poverty?
a. Increases access of credit to poor, informal finance, supply of credit saving vehicles & other basic financial services made available to poor/vulnerable people who might otherwise have no access to them or could borrow on highly unfavorable terms. *
b. Small loan size & high admin costs make these unattractive for traditional formal sector banks Don't forget about the age old question of List the different types of microscopy.
c. High default risk
6. What are some of the distinct features of the Grameen bank? Discuss with respect to peer group selection, interest rates, repayment, social role.
a. Microfinance organization & community development bank
b. Makes small loans (microcredit or Grameen credit) to poor w/o requiring collateral.
c. Interest rate is lower than gov’t rates We also discuss several other topics like What the meaning of tanf?
d. Takes advantage of opportunities for peer pressure by allowing increases in borrowing limits only if all members repay.
7. Discuss the main differences in fiscal policy in DC and LDCs. (Tax rates, types of taxes, spending issues etc)
a. Role of central banks: lack of independence of central bank, leads to higher inflation & holding of gov’t securities by private banks etc. *
8. Why is inflation a tax?
a. When the gov’t pays for goods/services w/ newly printed money, it increases MS, which raises the price lvl & the increase in price lvl diminishes the real value of preexisting money held by public.
b. Inflation works like a tax on people who hold money
9. What is the balance of payments? Why must the balance of payments generally add up to zero?
a. BOP is a record of all pmts or monetary transactions btwn a particular country & other nation during a specific time period.
b. Current account
c. Capital account
d. Financial account
e. Positive balance = surplus
f. Negative balance = deficit (has to borrow money from abroad/use reserve to pay for current account purchases)
10. Explain how interest rates, exchange rates, inflation, and income change in response to a balance of payments deficit or surplus both in the case of flexible and fixed exchange rates. We also discuss several other topics like Unified country refers to what?
a. Flexible Exchange rates: BOP deficit causes a depreciation of domestic currency which results in more exports, attractive prices of capital & hence return BOP balance side effect is higher inflation
b. Fixed Exchange rate: Countries w/ fixed exchange rates must maintain reserves w/ which to peg the currency (MS = domestic M + foreign reserves)
c. BOP deficit causes a country to lose reserves which implies lower MS at home. Lower MS leads to higher i rates & deflation. Higher i rates encourages capital inflows & deflation encourages exports. Both act to correct BOP deficit.
11. Describe the chronology of events leading up to the LDC debt crisis. What were its main causes and what solutions have been proposed to deal with the problem? a. Main causes:
i. OPEC oil price increase
ii. Increased borrowing
iii. Excess of imports
iv. Lagging exports
v. Debt servicing obligations
vi. Debt service pmts
vii. Debt serving difficulty
viii. Oil shocks
i. The IMF stabilization program
12. When does the IMF play a role in lending money to a country? What conditions does it often impose on borrowers? Why? We also discuss several other topics like Information means what?
a. Plays a role of restricting & financing developing country debt during debt crisis.
b. Financing from the IMF is ‘conditional” in the sense that recipient countries must meet a set of requirements based on the purpose of the loan.
13. Define and discuss the advantages and disadvantages of foreign aid, foreign debt and foreign investment.
a. Advantages for Foreign Aid: helps ease poverty, provides medicines, helps diseases, aids agriculture, encourages development, natural resources, political motivation
b. Disadvantages: $ could be used in USA, $ doesn’t go to ppl instead to officials.
c. Advantages of Foreign Debt: funds available for gov’t use, can be used LT development goals; used to close foreign exchange gap in trade earnings & guarantee availability of foreign goods in absence of sufficient exports earnings
d. Disadvantages: must be repaid in dollars (exchange risk & export earnings are used to repay); tax payers are responsible in case of gov’t failure to utilize money efficiently; corruption in public use of funds.
e. Advantages of Foreign Direct Investment: New technology; risk taken by private investors not tax payers; source of foreign exchange rev & taxes. f. Disadvantages: Large corp may influence public policy to the detriment of national interests; possibility of transfer pricing reduces tax revenues; technology transferred may not be appropriate.
14. What are remittances? What are some of the benefits and disadvantages of remittances for developing countries?
a. A life line for many poor countries like Haiti or Somalia where remittances make up more money than they could earn all year.
b. It’s a sum of money sent by mail as a gift to family & friends back home. Act of sending money as pmt.
c. Disadvantages: Sending the money through system which takes a % out and leaves familys with little money left.
15. What is ‘brain drain’?
a. The emigration of highly educated & skilled professionals & technicians from the developing countries to the developed world.
SUMMARY QUESTION: This answer should be based on what you have studied through the whole course – not just material covered after the second test.
1. Briefly describe the main factors that are responsible for a country’s growth in income. Discuss in terms of the theories and policies which we have studied. i. Capital/ infrastructure
ii. Population / labor
iv. Policies/ laws
vi. Natural/ human resources vii. Income/ savings