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.)

 

  1. 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.)

 

  1. 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.)

 

  1. 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.

 

  1. 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.)
    1. IMF package – tighten money supply, stop subsidies, free markets, and halt gov’t deficits. They must include five-equation model. (10 pts.)
    2. Export diversification – into mfg or goods with high income and price elasticity (5 pts.)
    3. Buyback and debt equity swaps (5 pts.) must include statement about the limits of buyback and swap.
    4. 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.)
    5. 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.)
    6. 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.)
    7. 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.)

 

  1. “Green Revolution”
    1. 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.)
    2. Second stage: marketing and credit problems – acceptance of new variety, credit for inputs and a distribution system. (5 pts.)
    3. Third stage: displacement of agricultural labor and commercialization of rural labor force. Land grab and increased rural-urban migration. (5 pts.)
    4. Population growth, failure to export foodstuffs and income redistribution to landowners and creditors. (5 pts.)

 

  1. Education
    1. Population growth: needed for contraception and increased urbanization and female labor force participation reduces late and early age-specific fertility rate. (5 pts.)
    2. 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.)
    3. 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.)