Exam 3 Topics
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1
climate change is a
external cost of rapid economic growth
2
public good
ex: environmental protection
is nonrival (it is costless for others to share the benefits) and nonecludable ( non-payers cannot be excluded)
is nonrival (it is costless for others to share the benefits) and nonecludable ( non-payers cannot be excluded)
3
positive discount rates arise from
impatience and consumption smoothing over time
4
national wealth is a better mesaure of wellbeing than
GDP
5
central banks
controls the money supply
supervises the formal financial sector
must be independent between savers and investors
supervises the formal financial sector
must be independent between savers and investors
6
commerical banks
Accepts deposits and grants short-term credit (known as
financial intermediation between savers and investors)
financial intermediation between savers and investors)
7
central banks in LDC are
less independent of the ruling party and face greater pressure to finance government debt by creating money
8
roles of finance
ir reallocates risk amond economic agents
it reallocates capital amng economic agents
it reallocates capital amng economic agents
9
foreign direct investment
private capital flows began to replace foreign
aid in middle-income countries
aid in middle-income countries
10
Why would private banks, firms, or individuals invest in
developing countries?
developing countries?
high income growth rates, creating expanding markets for consumer goods, they have comparative advantages in producing goods for export to foreign markets
11
What is foreign direct investment?
long-term investment in which a non-resident entity exerts significant
control (at least 10-percent) over an enterprise in the host
country.
control (at least 10-percent) over an enterprise in the host
country.
12
For middle-income countries, the largest international capital
flow is
flow is
FDI
13
Pros of fdi
More stable than other forms of private foreign capital
Enable specializations in manufactured exports and improve access to the world markets
Can facilitate the transfer of technology(ideas) and skills (through training of managers and workers)
Enable specializations in manufactured exports and improve access to the world markets
Can facilitate the transfer of technology(ideas) and skills (through training of managers and workers)
14
Cons of fdi
fbi can drive out local businessess
large multinationals might overmatch government resources in negotiations over leasing natural resources
large multinationals might overmatch government resources in negotiations over leasing natural resources
15
How do commercial banks protect themselves against
default by borrowers?
default by borrowers?
By requiring collateral (title to property).
16
How do banks evaluate credit worthiness?
Investigate credit history.
17
providing micro-enterprise business
training to women
training to women
can raise sales and profits substantially
18
best practices in foreign aid
transparency
specilization
overhead costs
selectivity
specilization
overhead costs
selectivity
19
South Asia and Western Europe favor
income equlity
20
East Asia and North America favor the incentives for
effort associated with
effort associated with
inequality
21
Geography hypothesis
the places that were rich (or poor)
before colonization remain rich (or poor) after colonization, for
geographical factors have remained similar over time
before colonization remain rich (or poor) after colonization, for
geographical factors have remained similar over time
22
Institutional hypothesis
places where Europeans settled
and planted institutions conducive to growth overtake regions
with merely extractive institutions.
and planted institutions conducive to growth overtake regions
with merely extractive institutions.
23
Institutions are
onstraints imposed on human
behavior. They can be either formal or informal.
behavior. They can be either formal or informal.
24
Asymmetric information
he buyer or seller has information that the
other party does not have
ex: disclosure rules
other party does not have
ex: disclosure rules
25
Adverse Selection
reputable parties are driven out of the market by
disreputable parties
ex: Regulation of access or entry
disreputable parties
ex: Regulation of access or entry
26
Moral hazard
asymmetric information combined with unobservable
actions by one of the parties (buyers or sellers)
ex: signaling and relational contracting
actions by one of the parties (buyers or sellers)
ex: signaling and relational contracting
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