Complete Test Bank Debt And Development Ch.15

Chapter 15

Debt and Development

Multiple Choice Questions

1. Loans to poor developing country governments from which of the following have often resulted in default and political intervention?
   1. Rich country governments
   2. Multilateral development banks
   3. Developing country private banks
   4. Developed country private banks
   5. The International Monetary Fund
2. Under which ruler had the practice of lending become common practice?
   1. Hammurabi of Babylon
   2. Alexander the Great of Macedonia
   3. Queen Nefertiti of Egypt
   4. Genghis Khan of Mongolia
   5. Humayun of India
3. Why are the Medicis an object lesson for contemporary bankers?
   1. Through early globalization, they realized the benefit of diversified risk.
   2. By entering into politics, they put their financial empire at risk.
   3. By recognizing the movement towards sovereign states, they were able to create sovereign wealth.
   4. By providing dangerous loans to princes, they were put at risk when they defaulted.
   5. They experienced the first known sub-prime mortgage housing crisis.
4. International lending is said to go through which two phases?
   1. Inflation and stagnation
   2. Real growth and bubbles
   3. High and low
   4. Growth and decline
   5. Stability and mania
5. Which of the following is NOT a major change in global politics and economics associated with the end of the Second World War (some of which had roots in earlier decades)?
   1. Decolonization
   2. The Depression
   3. International industrialization
   4. The rise of major corporations
   5. The advent of nuclear weapons
6. The mania in the 1970s that led to a sharp increase in low-interest loans, followed by a peak in interest rates led to which of the following?
   1. An economic boom
   2. The debt crisis
   3. New banking regulations
   4. A surge in communism
   5. A boost for the newly-emerging technology industry
7. How are nuclear weapons linked to global economics?
   1. The ability to have a nuclear program was an indication of economic status.
   2. The US nuclear umbrella is used as a means of tied aid and economic advantage.
   3. Nuclear weapons are a good example of dual use technology.
   4. They are the extension of power in global institutions.
   5. As nuclear weapons made conflict untenable, economics became a means of subjugation.
8. What was the earliest post-war example of what would later be called structural adjustment programs?
   1. Forcing the French to denationalize their key industries
   2. Conditional loans made to the Soviet Union
   3. Making the British Pound convertible to the dollar
   4. Canadian integration with the American economy
   5. The formation of the European Coal and Steel Community
9. What was the “Heavily Indebted Poor Countries Initiative” designed to do?
   1. Cancel unconditionally some of the debts of the poorest countries
   2. Cancel some of the debts of the poorest countries if they implemented structural adjustment programs
   3. Encourage debt repayment by drastically reducing interest rates on loans to extremely poor countries
   4. Provide economic relief to the poorest countries
   5. Draw attention to unjust lending practices
10. Who took out the majority of loans in the 1970s?
    1. Governments in the Global South
    2. Governments in the Global North
    3. International Financial Institutions
    4. Private companies and banks in the Global South
    5. Private companies and banks in the Global North
11. What was the impact of quantitative easing?
    1. Europe and the US created new money electronically
    2. There was too much money for banks to use
    3. It triggered a new lending mania to developing countries
    4. All of the above
    5. None of the above
12. The financial crisis of the 1970s led to the introduction of which new economic model?
    1. Socialism
    2. Neocolonialism
    3. Conservatism
    4. Neoliberalism
    5. Capitalism
13. Neoliberalism is linked to which political philosophies?
    1. Left-wing libertarian
    2. Right-wing libertarian
    3. Left-wing capitalist
    4. Right-wing capitalist
    5. Focused on the “core” versus the “periphery”
14. What was an effect of neoliberalism in the 1980s?
    1. Implementation of trade barriers
    2. Rapid industrialization
    3. Increasing inequality
    4. Decreased lending and borrowing
    5. Increased debt repayment
15. The sharp increase in foreign holdings of US dollars at the start of the twenty-first century was caused by which of the following?
    1. Financial crisis in East Asia
    2. War in Iraq
    3. American financial crisis
    4. Both A and B
    5. All of the above
16. Traditionally, how have most countries developed?
    1. By liberalizing their markets
    2. By protecting their domestic industries
    3. By protecting their currencies
    4. By implementing comparative advantage policies
    5. By implementing commodity control schemes
17. Who introduced the concept of odious debt?
    1. Anthony Sampson
    2. Charles Kindleberger
    3. Alexander Sack
    4. John Perkins
    5. Harry Truman
18. Lending rules are now often inspired by which of the following?
    1. International laws
    2. Personal loan regulations
    3. The international banking regulations
    4. Consumer protection regulations
    5. Domestic lending regulations
19. Illegitimate debt reflects which of the following?
    1. Ongoing economic instability
    2. Misconduct by the borrower
    3. Overly inflated interest rates
    4. Lender–borrower disconnect
    5. Loans improperly made by the lender
20. Which of the following is true about the Jubilee 2000 campaign?
    1. It made the issue of debt cancellation easier to understand.
    2. It organized local debt campaigns.
    3. It received a great deal of support.
    4. All of the above
    5. None of the above
21. What caused the 2008 financial crisis?
    1. Excessive market regulations
    2. Trading in illegitimate debt
    3. Failure to transition from infant industry protection
    4. Incomes rising faster than house prices
    5. Declining availability of natural resources
22. Which of the following is true about US investment bank loans to Greece?
    1. They violated European Union rules.
    2. There were a global-level form of loan pushing and subprime lending.
    3. They undermined the Euro.
    4. All of the above
    5. None of the above
23. What is capitalism essentially based on?

a) Democracy

b) Democratic access to debt

c) Loans for productive investment

d) Solidarity

e) Babylonian banking systems

1. Where did banking originate?

a) In China

b) In the Netherlands

c) Among nomads from Asia

d) In Babylonia

e) In South Africa

1. What did bankruptcy laws replace in the nineteenth century?

a) Slavery as payment

b) The failure of payments due to weather conditions

c) the Hammurabi Code

d) Prison for debt

e) Risks of rich people who lend money

1. How did bankruptcy laws change in the twentieth century?

a) They included home loss as an option

b) They became more liberal

c) They reinstituted prison for debt

d) They augmented the creditors’ risk levels

e) They encouraged people to take higher risks

1. What are interest payments?

a) The difference between deposits and loans

b) A percentage of the crops proportional to the loan each year

c) A percentage of the loan each year after it has been cancelled

d) A percentage of the outstanding loan each year

e) Excessive usury

1. What is usury?

a) Excessive interest rates

b) Interest rates

c) Prison

d) A debtor working for a creditor

e) the principal loans

1. What does the Qur’an say about lending?

a) It prohibits lending without interest but allows investing

b) It prohibits investing but allows lending at interest

c) It prohibits lending at interest but allows investing

d) It prohibits lending at interest and investing

e) It allows lending at interest and investing

1. Why did some European countries invade Mexico the nineteenth century?

a) Because they did not want to pay Mexico for their debts

b) Because Ferdinand Maximilian became an Emperor

c) Mexico defaulted

d) Mexico annexed Central America

e) They were in war against each other

True or False Questions

The “principal” is the total amount of money borrowed that must be repaid.

In the mid-1970s some poor countries had to repay less than they had borrowed.

Credit-based banking first developed in the Mediterranean through the Italian city states such as Florence.

Banks make higher-risk foreign loans during what Kindleberger’s refers to as “the period of mania.”

The Cold War led to extensive lending to prop up and tie client dictators to Western powers.

In the 1920s, American bankers where more like high pressure salesmen than traditional aloof bankers.

Real interest rates peaked in 1976.

Zaire under Mobutu was considered a kleptocracy.

Debt cancellation has led to dramatic decrease in developing country debt.

From the 1930s to the 1970s, development was primarily state-led in both capitalist and socialist countries.

In the 1930s, borrowers underwent SAPs but without it being identified as such.

Neoliberal policy strongly favours privatization.

According to the OECD in 2015, the gap between rich and poor continues continued to widen.

The Bretton Woods institutions are generally supportive of debt forgiveness.

Foreign holdings of US dollars sharply decreased in the first few years of the twenty-first century.

Traditionally, countries have developed by opening up their markets.

According to Cheryl Payer, foreign loans commonly lead to successful development.

The debt trap is when the borrower sinks deeper into debt in order to survive.

Debt incurred by the Philippines for the building of the Bataan nuclear power station was forgiven on the grounds that the loan had been illegitimate.

Odious debt refers to debt that is accumulated in the interest of a regime rather than a nation.

House prices rising faster than incomes was unique to the US housing market.

In 2015, the Greek parliament declared that its debt was reasonable and repayable.

Sub-prime mortgages in the US were a form of illegitimate debt.

Foreign governments lend loans to developing countries because many of these loans are profitable for both parties and are repaid.

Growth is never linked to a rapid expansion of bank credit.

Loan pushing is when banks and lending agencies desperately borrow money that they can pay back easily.

In a growth period, lending can be profitable and promote productive investment.

In the late 19th and early 20th centuries, loans were exclusively in the form of bonds.

During World War I, the United States government became a substantial lender to the countries fighting against Germany.

Since the US borrowed money from Britain in 1945, the United States required Britain to move quickly to free trade and to make the pound convertible to the dollar.

The decade of the 1970s saw a sharp increase in loan pushing due to a surplus of capital.

Over the decade, developing-country debt decreased sevenfold, to $494 billion in 1980.

In 1982, Mexico could not pay the interest on its $60-billion debt and defaulted, ending a long period of a massive debt crisis.

A “net transfer on debt” is new loans plus interest payments and principal repayments on old debts.

Short Answer Questions

1. Name the two major issues that are relevant to all discussions of lending and borrowing.
2. Explain Kindleberger’s theory of economic cycles and international lending.
3. Explain loan pushing and its relationship to economic crisis.
4. Outline the four ways the global economy and politics changed after World War II.
5. Name some of the factors that led to the 1980s debt crisis.
6. Briefly describe the importance of the Heavily Indebted Poor Countries Initiative.
7. Describe the difference for international borrowers in the 1930s and those in the 1980s.
8. Briefly explain the sharp increase in foreign holdings of US bonds in the early years of the twenty-first century.
9. Explain some of the reasons foreign borrowing rarely facilitates development.
10. Define “odious debt” and provide an example.
11. How is consumer protection related to illegitimate debt?
12. How has Norway operationalized the concept of odious debt?
13. How can it be argued that much of the debt incurred by Zaire under Mobutu was illegitimate?
14. How did international lenders respond to Greece during the 2008 financial crisis?
15. What was the Jubilee Campaign?
16. How is irresponsible lending related to the 2008 financial crisis in the US?
17. What is “quantitative easing”? What role has it played in the 2008 financial crisis?
18. Why do borrowing and lending take place?
19. Describe the origin of banking.
20. What can you tell about the restrictions imposed by the Hammurabi Code in relation to debt?
21. What innovation were brought by the so-called bankruptcy laws?
22. What is interest and how is it viewed?

Essay Questions

1. In what way can the shifting of the debt crisis to the Global South make that debt illegitimate?
2. Is foreign borrowing a sensible policy for states in the Global South to promote development?
3. What is the difference between the debt crisis in the 1930s and the 1980s?
4. What lessons can be learned from default?
5. What were the consequences of loan pushing during the 1970s?