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Chapter 18: Q. 12 (page 413)

For each of the following situations, explain which of the policy issues discussed in this chapter relates to the stance the institution has taken.

a. The IMF extends a long-term loan to a nation's government to help it maintain publicly supported production of goods and services that the government otherwise would have turned over to private companies.

b. The World Bank makes a loan to companies in an impoverished nation in which government officials typically demand bribes equal to 50percent of companies' profits before allowing them to engage in any new investment projects.

c. The IMF offers to make a loan to banks in a country in which the government's rulers commonly require banks to extend credit to finance high-risk investment projects headed by the rulers' friends and relatives.

Short Answer

Expert verified

(a) The assembly of products and services incorporates a greater impact on the nation's economic process because it's not entirely delegated to personal companies.

(b) The Globe Bank made a poor choice because it encourages bribery among government organization.

(c) The IMF should make loans to projects that help the country's GDP and thus economic process.

Step by step solution

01

Introduction.

Gross domestic product (GDP) may be a standard measure of the worth added created in a very country during a given period by the assembly of products and services.

02

Reason for the IMF extends a long-term loan to a nation's government (part a).

This decision by the IMF to help the govt in maintaining publicly supported production of products and services includes a more practical impact on the nation's economic process because it's not entirely handed over to non-public companies.

03

Reason for the Bank makes a loan to companies during which officialdom demand bribes (part b).

The World Bank made a poor choice because it encourages officialdom to bribe. money or a favor given or promised in order to influence the judgement or behavior of somebody in an exceedingly position of trust cops accused of accepting bribes

04

Causes of the IMF offers to form a loan during which the government's rulers commonly require banks (part c).

The IMF should make loans to projects that help the country's GDP and, as a result, economic process.

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Most popular questions from this chapter

Answer the following questions concerning proposals to reform long-term development lending programs currently offered by the IMF and World Bank.

a. Why might the World Bank face moral hazard problems if it were to offer to provide funds to governments that promise to allocate the funds to major institutional reforms aimed at enhancing economic growth?

b. How does the IMF face an adverse selection problem if it is considering making loans to governments in which the ruling parties have already shown predispositions to try to "buy" votes by creating expensive public programs in advance of elections? How might following an announced rule in which the IMF cuts off future loans to governments that engage in such activities reduce this problem and promote increased economic growth in nations that do receive IMF loans?

The annual rate of growth of real GDP in a developing nation is 0.3percent. Initially, the country's population was stable from year to year. Recently, however, a significant increase in the nation's birthrate has raised the annual rate of population growth to 0.5percent.

a. What was the rate of growth of per capita real GDP before the increase in population growth?

b. If the rate of growth of real GDP remains unchanged, what is the new rate of growth of per capita real GDP following the increase in the birthrate?

For each of the following situations, explain which of the policy issues discussed in this chapter relates to the stance the institution has taken.

a. The World Bank offers to make a loan to a company in an impoverished nation at a lower interest rate than the company had been about to agree to pay to borrow the same amount from a group of private banks.

b. The World Bank makes a loan to a company in a developing nation that has not yet received formal approval to operate there, even though the government approval process typically takes 15months.

c. The IMF extends a loan to a developing nation's government, with no preconditions, to enable the government to make already overdue payments on a loan it had previously received from the World Bank.

Suppose that a foreign resident is contemplating buying 5 per cent of the shares of a company based in a developing nation but is experiencing difficulty determining whether the firm is riskier than others in that country. What type of investment is this foreign resident considering, and what type of asymmetric information problem is he or she experiencing?

Suppose that every 500 billion of dead capital reduces the average rate of growth in worldwide per capita real GDP by 0.1 percentage point. If there is 10 trillion in dead capital in the world, by how many percentage points does the existence of dead capital reduce average worldwide growth of per capita real GDP?
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