What choices do you have, both in your daily life and your long-term outlook, that are more limited in developing countries?
What will be an ideal response?
Students may at first see this question in terms of consumption, but the chapter's material should encourage them to think in terms of their career options as well. They can focus on the idea of traditional society, with its limited social mobility.
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Are federal budget deficits related to trade deficits?
A) Yes. Higher deficit spending goes up resulting in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods. B) Yes, but only if the quality of U.S. goods and services is deteriorating. C) Yes. If U.S. consumers buy too many imported goods, they do not have funds to save, and a budget deficit results. D) No. The budget deficit is entirely a domestic matter, while the trade deficit only affects U.S. citizens who travel abroad.
A rise in the price level produces ________ the potential GDP line
A) a movement downward along B) a leftward shift of C) a rightward shift of D) a movement upward along E) neither a shift of the potential GDP line nor a movement along
If income increases by $100 and saving increases by $25, the slope of the consumption function equals _____
a. 1/4 b. 1/5 c. 1/2 d. 3/4 e. 3/5
If the government ran a major budget deficit, and there was no noticeable effect on the level of GDP, this could be taken as evidence of
a. Laffer curve effect. b. structural deficit. c. crowding-out. d. monetary policy ineffectiveness.