ECON314-001 – Economic Development I Midterm 1 Answered Updated 2025.

McGill University Department of Economics ECON314-001 – Economic Development I Midterm 1 Thursday February 8th, 2024 Duration: 70 minutes Student Name: (Family Name) (Given Name) Student ID #: VERSION #1 MASTER Instructions: i. Clearly print your student name and student ID number on this page where indicated (above), and on each page in top margin. ii. Answer all questions. There are 20 multiple choice questions, 4 “True/False/Uncertain” short answer questions. There are 70 points in this exam. iii. Multiple choice questions: Circle the best answer. Wrong answers will not be deducted from right answers. iv. Short answer problem: show all your work in the space provided and be clear and precise. If you need to make an assumption, make it, state it and work with it. v. Do not remove or add any pages. vi. You may use the blank back of sheet for your rough work. vii. Answers must be written in non-erasable pen, not pencil. viii. Exam aids: non-programmable calculators only. No other exam aids allowed. Cell phones or other electronic devices are not allowed. ix. Round fractions to 2 decimal points (if required) Do not write in this space PART I: /30 points PART II: /40 points Midterm Grade: /70 points 1) PART I – MULTIPLE CHOICE QUESTIONS: Circle only the best answer (only one answer) (1.5 marks each) 1) Max Roser in Our World in Data argued that a) Income inequality has increased over the last 200 years b) Rich countries tend to grow faster than poor countries c) Health outcomes tend to be better in rich countries than in poor countries d) The development gap has reduced markedly over the last 200 years e) Fertility rates are still high in developing countries. 2) The use of Purchasing Power Parity (PPP) exchange rates makes the comparison of income across countries: a) easier because market exchange rates reflect the true costs of exports and imports b) more difficult because tradable goods are more expensive in rich countries c) more reflective of the true costs of living because a dollar in their country can buy less than a resident in the developed world can buy with that same dollar. d) easier because the PPP method uses a basket of tradable goods as a comparison between countries e) none of the above 3) Which is of the following is not an assumption of the Solow model? a) Government expenditures and net exports are zero b) Savings is a constant proportion of output c) Technology is endogenous d) Output is produced with a constant returns to scale technology e) All of the above are assumptions of the Solow model 4) These countries provide an example that the economic process will not lead to historic decline. a) China, Turkey and Japan b) Rwanda, Indonesia and Thailand c) Argentina, Germany and Brazil d) Germany and Japan e) Japan, China and Spain 5) Policies emanating from the Harris-Todaro model imply that a) More should be done for urban infrastructure b) Wages in the urban sector should be flexible to facilitate migration c) Attractive income opportunities in the rural sector should be promoted d) Rural education systems should be improved e) There should be a law prohibiting migration to the urban sector 6) According to Endogenous Growth Theory, which of the following cannot be said about knowledge: a) It is a rival good b) It is an excludable good c) Property rights can prevent access to knowledge d) Is produced using labour allocated to research e) All the above can be said about knowledge in Endogenous Growth Theory 7) Most cross-country GDP/capita differences between developed and developing countries can be explained by differences in: a) Capital output ratio (K/Y) b) Human capital ratio (H/L) c) Total factor productivity d) Geography e) Religion 8) According to Douglass North, Institutions are the humanly devised constraints that structure human interaction and are made up of: a) Formal constraints b) Social norms c) Laws and regulations d) Informal constraints e) All the above 9) The unrealized predictions of the Lewis model have been blamed on the lack of institutions in developing countries because a) Settler mortality was too high in the rural sector and this lowers the rate of protection against expropriation. b) Instead of the private sector, the state spearheaded the urban industrial development and this led to possibilities of patronage and caused an inefficient manufacturing sector. c) Property rights were not sufficiently protected and this led to a flight of capital to the rural sector. d) China showed that individual property rights protection for investors was the key to controlling labor migration. e) None of the above. 10) The East Asian miracle is often used as an example of an application of the big-push theories because a) Asian governments taxed Asian corporations and introduced tariffs protection in order to favor capital flight across Asian countries. b) Asian governments introduce R&D subsidies to increase the Solow residuals and decrease the rural to urban migration flows. c) There was coordination between the labor sector and the import sector firms to increase the wages of workers and profits of domestic firms. d) There was a balanced growth attempt to favor the domestic and export sectors. e) There was coordination between the export and financial sectors, as governments created development banks to support export firms. 11) Consider the Neoclassical production function Y=(A,K,L) where Y is output, A is a Technology parameter, K is physical capital stock, and L is labour. The corresponding Growth Accounting Equation is: