Economic Development. Problem Set 1

Transcription

1 Economic Development Problem Set 1 Sherif Khalifa DueTuesday,March,8th, (a) What is the usual indicator of living standards? (b) How is it calculated? (c) What are the problems with this indicator? 2. Consider a country whose national income is $750 Million and whose population is 12.5 million. Assume in this country that the rich are 20% of the population and own 85% of the nation s income. (a) The income per capita of the nation = (b) The income per capita of the rich = (c) The income per capita of the poor = (d) If the total income of the rich increases by 50%, the nation s income per capita = (e) The growth rate of the nation s income per capita = (f) Can we conclude that the living standards have improved in this country? 1

2 3. Assume the growth rate of income is 10% and the growth rate of population is 5.83%? (a) The doubling time of income = (b) The doubling time of population = (c) The doubling time of income per capita = 4. Consider the following information about a developing country: Income per capita $1037 Life expectancy 43 years Adult literacy 53% Gross enrollment 46% (a) Income index = (b) Life Expectancy index = (c) Education index = (d) Human Development index = 5. Consider the Harrod-Domar growth model. If capital output ratio is 3, and the saving ratio is 27%: Thegrowthrateofincome= 2

3 6. According to the Harrod-Domar growth model, if you want your country to grow at 5%, and the capital output ratio is 2: (a) The nation should save what percentage of the nation s income = (b) What are the problems of relying on the Harrod-Domar model to make this conclusion? 7. Consider the Lewis Theory of structural change. What are the assumptions that you consider unrealistic in this model? 8. Consider the following table with individuals in a country and their incomes: Individuals Income Deciles Quintiles Total (a) Calculate the deciles and quintiles. (b) The Kuznets ratio = (c) What is the interpretation of the Kuznets ratio? 3

4 9. Consider the following table with individuals in a country and their incomes. Fill in the following table: Individuals Income %ofincomerecipients %ofincome 1 $4 10% 2 $8 20% 3 $16 30% 4 $20 40% 5 $28 50% 6 $40 60% 7 $44 70% 8 $60 80% 9 $80 90% 10 $ % 100% Total $400 Draw the Lorenz curve for this country: 100% 90% 80% 70% % of income 60% 50% 40% 30% 20% 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of income recipients 4

5 10. Consider the following Lorenz curves for countries A and B: A B (a) Which country has a higher unequal income distribution? (b) Which country has a higher Gini coefficient? (c) What impact will higher income inequality have on the economy with a higher Gini coefficient? 11. Consider the following graph for the labor market in a developing country: Wage 650 Supply 300 Demand 500 Employment 5

6 (a) Total income = (b) Total wages = (c) Total profits = (d) The share of workers out of the nation s income = (e) The share of capitalists out of the nation s income = 12. Consider the following table of annual incomes of individuals in a country. Assume absolute poverty is $1 per day: Individual Income (a) The total poverty gap = (b) The average poverty gap = (c) The average income shortfall = 6

7 13. If a country has a birth rate of 25 per 1000 of the population, and a death rate of 15 per 1000 of the population, what is the population growth rate? 14. Consider the following graphical representation of the Malthusian model: Growth rates Income growth rate Population growth rate ,685 5,674 15,439 Income per capita Forecast the population growth rate, income growth rate, and income per capita for a country with the following initial income per capita, as in the table: Initial Final Final Final Income per capita Population Growth Income Growth Income per capita $16,000 $15,439 $7,891 5,674 $4,367 $1,685 $981 7

8 15. Consider the following graphical representation of the household theory of fertility. If the income of the household is $250, and the price of a child=$25, while the price of goods=$5: Goods Y 0 X Children If the equilibrium number of children and goods is always determined by dividing the income equally between them. (a) X = (b) Y = (c) The initial equilibrium number of children = (d) The initial equilibrium number of goods = (e) Start from the initial equilibrium. If the cost of raising children declines to $12.5 only, draw the new household s budget line and the new household s equilibrium? Goods Y 0 X Children (f) Start from the initial equilibrium again. If the income of the household doubles because men got better paying jobs, what is the new equilibrium number of children and goods? 8

9 Goods Y 0 X Children (g) Start from the initial equilibrium again. If the income of the household doubles because women are working and contributing to the income of the household, which increases the opportunity cost and the price of children to $50, and the price of goods=$5. What is the new equilibrium number of children and goods? Goods Y 0 X Children (h) Compare the number of children chosen by the household in the case when income increased due to an increase in men s salaries to the case when income increased due to women s participation in the labor force? 9

10 16. Consider the following graphical representation of the Harris-Todaro model: Agriculture Wage Manufacturing Wage With full employment and flexible wages: (a) Manufacturing wage = (b) Agriculture wage = (c) Manufacturing employment = (d) Agriculture employment = If labor unions raise the manufacturing wage to $70, and assuming full employment: (a) Manufacturing wage = (b) Agriculture wage = (c) Manufacturing employment = (d) Agriculture employment = If labor unions raise the manufacturing wage to $70, and not assuming full employment: (a) Manufacturing wage = (b) Agriculture wage = (c) Manufacturing employment = (d) Agriculture employment = (e) Total Unemployment = (f) Unemployment rate in urban areas = (g)unemploymentrateincountry= (h) Expected Wage in Manufacturing = 10

11 17. Consider the following graph in a model of multiple equilibria: Wage ,485 12,376 14,961 Employment Forecast the wage and the level of child and adult labor in a country with the following initial wages: Initial Final Final Final Wage Wage Adult Labor Child Labor $115 $123 $130 $154 $160 $187 $190 11

12 18. Consider the following graph for a 13 years old who is deciding whether to attend a secondary school or dropout from school after receiving a primary education. Earnings Secondary Primary retirement Age Describe the decision of this person and its determinants? 12