Macroeconomic Policy Around the World

Diversity of Countries and Economies

• Low income country = $1,025 or less

• Middle income country = $1,025‐$12,475

• High income country = $12,475+

growth consesus

economic growth is built on a foundation of productivity improvements resulting from greater human and physical capital and technology, all interacting in a market‐driven economy

East Asian tigers

• maintained high growth rates and rapid export‐led industrialization allowing them to converge with the technological leaders in high‐income countries

• South Korea, Thailand, Malaysia, Indonesia, Singapore, Hong Kong, Taiwan

Success of East Asian Tigers

• causes:

  • China and East Asian Tigers have been among the highest savers in the world, often saving 1/3 or more of GDP ‐> domestic investment to build physical capital

  • Policies that supported heavy investments in human capital, building up primary‐level education and then secondary‐level education

  • China and India allowed far greater freedom for market forces, encouraging firms to participate in world markets

D

What is the concern with sudden foreign capital inflows in small economies?
A) Boosts in consumer demand
B) Sustainable economic expansion
C) Currency stabilization
D) Economic instability due to fast inflows and outflows

A

Which of the following is a valid argument for reducing trade barriers?
A) Countries that engage in world trade achieve higher standards of living
B) Smaller economies can thrive without trade
C) Trade causes constant inflation
D) Trade always reduces domestic employment

D

What often causes inflation in middle- and low-income countries?
A) Wage increases
B) Falling exports
C) Currency appreciation
D) Government printing money to cover deficits

A

In many low- and middle-income countries, people who are not employed in formal jobs:
A) Often provide for themselves through farming or trade
B) Are often counted as unemployed
C) Receive unemployment benefits
D) Work in the public sector

D

Unemployment in European nations is typically higher than in the U.S. because of:
A) Higher inflation
B) Outsourcing
C) Currency volatility
D) Labor market restrictions and regulations

B

In high-income countries, cyclical unemployment is mainly caused by:
A) Labor regulations
B) Economic recessions
C) Overpopulation
D) Government debt

C

What is a key obstacle for foreign investment in low-income countries?
A) Trade surpluses
B) Strong institutions
C) Political instability and lack of legal structure
D) Too much consumer spending

C

Which of the following often prevents economically challenged countries from investing in human and physical capital?
A) Overregulation of labor markets
B) High inflation rates
C) Low savings due to immediate needs like food
D) Overproduction of capital goods

B

What was a major contributor to the East Asian Tigers' economic success?
A) Dependence on agriculture
B) Export-led industrialization and high saving rates
C) Restricting market forces
D) Avoiding global trade

A

One challenge for high-income countries in promoting long-term growth is:
A) Creating a highly educated and tech-driven workforce
B) Attracting basic foreign aid
C) Reducing budget deficits through currency printing
D) Limiting all international trade

B

A country with a per capita GDP of $800 would be categorized as a:
A) Middle-income country
B) Low-income country
C) High-income country
D) Upper-middle-income country

C

What is a common goal shared by most countries regardless of income level?
A) Rapid industrialization
B) Currency devaluation
C) Low unemployment, low inflation, and ability to trade
D) High agricultural output