ECON 355
Final Exam
April 11, 1990
Instructor: Prof. D. DeVoretz
Dept. of Economics
Simon Fraser University
Instructions: Do all three questions.
The first question is worth 50 marks and the second and third questions are
worth 25 marks a piece. No aids and place all materials and coats in back or
front of room. You have three hours. Raise your hand for questions or to leave
room. Remember that academic dishonesty will be dealt with severely.
(50 pts.)
- Outline the balance of
payments situation of your country for the beginning and end of the
1980’s. Include balance of trade and payments and size of foreign debt.
Next, there have been standard arguments to improve the balance of
payments of LDC’s. These include: the IMF package, export diversification,
defaulting or rescheduling debt via various buyback schemes. Explain all
these commercial policy options in detail and the forces which make them
ineffective such as the J-shaped curve, industrial tariffs in the
developed countries and demand and supply factors. If your country does
not have a debt problem then, use Mexico. However, still state what your
country is so that we may verify if it does or does not have a debt
problem.
Finally, comments on the necessary and sufficient economic
conditions to use trade and foreign debt financing as a mechanism for
development.
(25
pts.)
- The “Green Revolution” has
produced some major productivity gains in cereal production in Mexico,
India, Pakistan and other LDC’s. There have been several stages to this
revolution – with varying degrees of problems and obstacles to overcome.
Pick one crop and country and explain the problems with each stage of the
“Green Revolution”. Be sure to include the effects of land tenurial
arrangements and scale economies in the production of these high yielding
varieties. Finally, discuss why these various “Green Revolutions” have not
substantially raised the standard of living in your country (if
applicable) or Mexico.
(25
pts.)
- Education has been cited as a
necessary but, not sufficient ingredient to development. Outline the
economic and non-economic arguments that indicate that education is a
positive force in mitigating many of the problems discussed in this course
including population growth, urbanization, agricultural development as
well as through direct productivity increases (use illustrations from
lecture if you have none from your country). Next, outline the paradox
where it is profitable for an individual to educate him/herself but, it
may be harmful for your country. In short, what if anything should be done
about the continuing “brain drain” and what is the optimal educational
policy for a typical LDC like the Philippines?
Outline
for Answers: points below each section of answer. It must be a complete answer
for marks.
- They should have balance of
trade and balance of payments for beginning and end of 1980’s and some
knowledge of foreign debt size. (5 pts.)
- IMF package – tighten money
supply, stop subsidies, free markets, and halt gov’t deficits. They must
include five-equation model. (10 pts.)
- Export diversification –
into mfg or goods with high income and price elasticity (5 pts.)
- Buyback and debt equity
swaps (5 pts.) must include statement about the limits of buyback and
swap.
- J-shaped curve: why
continuous devaluation and why curve is relatively flat for LDC’s and not
DC’s. Explanation of Marshall Lerner conditions in their own word. (5
pts.)
- Effective vs. nominal,
either formula or example and explain why effective is inversely
proportional to value added and size of nominal tariff on imported raw
material. (5 pts.)
- Diagram of low price and
income elasticity leads to decline in total export revenues with
devaluation and rise in import bill with devaluation. (5 pts.)
- Use foreign investment to
produce exportables with high income and price elasticity of demand with
no overvalued currency and reinvestment of profits via labor surplus
model. (10 pts.)
- “Green Revolution”
- First stage: using
technical cross-breeding of plant to produce a plant that is disease
resistant and is good for double cropping or more than one crop a year.
Need to buy purchased inputs: seed, fertilizers and tube wells. (10 pts.)
- Second stage: marketing and
credit problems – acceptance of new variety, credit for inputs and a
distribution system. (5 pts.)
- Third stage: displacement
of agricultural labor and commercialization of rural labor force. Land
grab and increased rural-urban migration. (5 pts.)
- Population growth, failure
to export foodstuffs and income redistribution to landowners and
creditors. (5 pts.)
- Education
- Population growth: needed
for contraception and increased urbanization and female labor force
participation reduces late and early age-specific fertility rate. (5
pts.)
- Urbanization: education
leads to outflow of highly skilled to urban areas and dampens
agricultural growth. Use Philippines rate of return for rural-urban
movement for educated vs. unskilled. (5 pts.)
- Use age-earnings profiles
to demonstrate that education is good for the individual at home or by
migration. Shift the earnings profile down and add costs (taxpayers
subsides) to show that the gain is smaller relative to costs. Otto they
must have the age-earnings profiles to get credit. Policy, developed
countries should be taxed to pay for immigrant education subsidy and LDC’s
should concentrate on educating up to secondary schooling. (15 pts.)