7. ( ) Traditional Chinese agriculture was characterized by high land intensity high labor intensity high capital intensity a high export ratio

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1 Modern China Economics Midterm Examination 2012/4/20 I. Multiple Choice Questions. Choose the most appropriate answer to each question. All questions refer to China unless mentioned otherwise. Answer all questions. Two points each. 1. ( ) China today leads the world in GDP per-capita income exports imports 2. ( ) China achieved rapid economic growth in the last 30 years mainly through trade expansions trade protection government expenditure increase consumption increase 3. ( ) The reason that China could take a gradual approach to reforms whereas the Eastern Europe had to adopt a Big Bang approach is mainly because China is too big for any drastic changes China s savings rate is high enough to finance its own investment China s institutions still function when market forces are introduced into the system China s industrial production was already at a high level in the beginning of reforms 4. ( ) When the commune system was replaced a household responsibility system in the early 1980s, grain production in China increased dramatically. This was mainly due to a change in labor-to-land ratio the intensive application of fertilizers the opportunity to export incentives of farmers 5. ( ) Local government in China plays a more significant role in economic development than any other developing countries in history because China is an authoritarian regime local government controls labor migration local government controls the land local government controls business entry 6. ( ) Under the strict household registration (hukou) system in China internal migration was almost nonexistent rural migrants in the cities are often discriminated rural residents enjoy better social benefits than urban residents urbanization rate stayed almost unchanged in the last 30 years 7. ( ) Traditional Chinese agriculture was characterized by high land intensity high labor intensity high capital intensity a high export ratio 8. ( ) Chinese population increased significantly after 1400 mainly because of improvement in urban living conditions advancement in medical technology increase in agriculture productivity absence of wars 1

2 9. ( ) Private commerce in traditional China was suppressed by Confucian culture very vibrant and supported by good institutions limited to state-managed trade under-developed because of agriculture-based society 10. ( ) In , the Chinese government set what sector as the priority of economic development? agriculture heavy industry light industry service 11. ( ) Great Leap Forward ( ) caused a disaster (many people died) mainly because of a large outflow of labor from the agriculture sector to the industry sector lack of modern technologies inability to provide medical services corruption 12. ( ) In , the Chinese economy was characterized by the following except a high investment ratio centralized decision making taxing the agriculture to subsidize the industry slow growth in manufacturing employment 13. ( ) The purpose of creating special economic zones in the early stage of reform is to favor special interest groups minimize the impact on the domestic economy experiment with new institutions absorb the surplus labor 14. ( ) Economic reform in China began with agriculture sector state owned enterprises export sector heavy industry 15. ( ) In the early stage of reforms, state owned enterprise were allowed to sell the above-plan output to the market and they actually did so. In this case, the planned production worked like a subsidy a tax a price ceiling a price floor 16. ( ) The production reform (i.e., reform to increase output) went more smoothly than the price reform (i.e., allowing market price to take over) mainly because production reform did not involve state owned enterprises production reform took place only in special economic zones production reform took place only in coastal provinces which are relatively rich production reform created almost no losers 17. ( ) In the years leading up to Tiananmen Square Incident (1989), inflation was rampant in China because of corruption unsuccessful price reform demand increase as a result of higher income money supply increase 18. ( ) In the second stage of economic reform ( ), the most outstanding feature of Chinese economy was rapid growth of state owned enterprises rapid growth of township and village enterprises (TVEs) rapid growth of urban collectives rapid growth of foreign-invested enterprises 19. ( ) After China entered WTO in 2001, many things happened except both 2

3 imports and exports expanded rapidly overall trade balance was often in deficit foreign investments expanded rapidly economic growth continued at a high speed 20. ( ) The fact that today s Chinese farmers have a right to till a piece of land but do not own it adversely affects the incentive to work on the land the incentive to invest on the land the incentive to keep the land productive indefinitely (a sustainable way of using the land) the establishment of a market for land 21. ( ) In , health care in the rural area was provided by the central government provided by the local (provincial) government provided through the collectives by farmers own contributions not provided at all 22. ( ) In , urban work units provided everything to their employees except housing schooling medical services job mobility 23. ( ) Although today rural migrants working in the cities are allowed to participate in the government organized pension programs, many of them choose not to participate mainly because the fees are high the benefits are low the benefits are not portable the benefits cannot be expected as most local governments are deep in fiscal deficits 24. ( ) Urbanization rate in China increased in the last 30 years mainly through expansion of small towns and cities expansion of super-large cities aging in the rural area higher birth rate in the urban area 25. ( ) Some argue that China s rapid economic growth in the last 30 years was a reflection of demographic bonus. Demographic bonus refers to one-child policy a low dependency ratio a rapid increase of labor force a high labor participation rate 26. ( ) Which statement about China s employment situation in the last 30 years is not correct Urban employment increased while rural employment decreased. Employment in the secondary and tertiary sectors increased at the expense of the primary sector. In the urban area, private firms now employ more workers than state owned enterprises. The government sector, including government-run service units and enterprises, still accounts for over 20% of urban employment today. 27. ( ) Today in rural China, off-farm income accounts for a substantial proportion of farmers income is still very limited because of government restrictions is limited to incomes from township and village enterprises is limited to earnings of migrant workers 3

4 28. ( ) The biggest barrier to labor mobility in China today is household registration (hukou) system lack of free labor unions minimum wage regulation inadequate social security provision 29. ( ) Compared to the employment conditions in the past, what is missing in today s urban employment? job mobility job security pension programs flexible pay scale 30. ( ) Compared to medical insurance programs in the urban area, rural cooperative health insurance programs have a more comprehensive coverage have a higher reimbursement rate have a higher participation rate receive more government subsidies 31. ( ) Since the mid-1950s until the early 1980s, agricultural production in rural China was organized at the commune brigade team household level 32. ( ) In , the priority of agricultural production was placed on grains cash crops vegetable oil livestock 33. ( ) Before 1984, grains were purchased by the state and marketed by the state. This means that every farmer had to produce some grains the purchase price was the same as the selling price there was no free market for grains only the designated farms were responsible for grain production 34. ( ) Since 1984, production of corn has increased by a much larger proportion than rice and wheat (major staple crops). This can be explained by an increase in corn productivity an increase in demand for meats an increase in import of rice and wheat a decrease in government subsidy to grain production 35. ( ) What are the major agriculture exports of China today rice cotton fish and aquatic products soybeans 4

5 II. Essay Questions. Answer three of the following four questions. 10 points each. 1. Explain the two-track approach to urban reforms in the 1980s. What is the advantage of this approach? What is the disadvantage? 2. Explain the rural-urban divide in China during the command economy times ( ) in terms of organization of production and social welfare. 3. What have been the major changes to China s urban labor market since the mid-1990s when state-owned enterprises were allowed to lay off workers? 4. What is the difference between a price support and an income support to agriculture production? Why did China switch from price support to income support in recent years? 5