Name: ___________

Name: _________________ &n= bsp; = ; PPA 730-4 Eco= nomics of Development

Quiz 1 &nbs= p; &= nbsp; &nbs= p; &= nbsp; &nbs= p; February 18, 2004

15 points (each question is worth the number of points= in parentheses). Each sub questi= on (the a / = b / c / d parts) are worth equal shares of the points in parentheses.

1= ) Compare and contrast. (3 points)

= a. = The view of development implicit in the World Bank classification system by GNI= per capita with the view of development implicit in the UNDP classification sys= tem by HDI.

= b. Underdeveloped with undeveloped countries.

= c. = Increasing returns to scale with constant returns to scale.

= d. Spillovers with negative externalities.

= e. = Purchasing power parity conversion with exchange rate conversion.

2= ) Harrod-Domar growth model. (2 points)

= a. = The Harrod-Domar growth model implies that we need to adjust what variable in t= he national economy to achieve a targeted growth rate for GNP?

= b. Contrast the implications of your answer to (a) with the characteristics of the “takeoff” stage of Rostow’s s= tages of growth theory. Do these th= eories agree or disagree about what is the key variable to increase growth rates?<= span style=3D'mso-spacerun:yes'> Explain.

= c. = Explain how use of these models can justify international financial institutions filling a “financing gap”.&nbs= p;

3= ) Big Push model. (1 point)

= a. = Using the big push model, describe from the point of view of the individual firm owner why her expected profit level of adopting modern production methods m= ay be conditional on the adoption decisions made by other firm owners. You may refer to the notation on t= he graph in (b) in your answer.

= b. Illustrate on this graph a line representing a total wage bill W₂ where coordination will not be sufficient to allow modernization to take place in= all N sectors.

4= ) Solow model. (2 points)

= a. = Was Solow developing a model of “unconditional convergence” across countries when he developed the Solow growth model? Explain.

= b. Describe the main findings of Solow’s empirical an= alysis of US economic growth.

= c. = Describe how the findings discussed in (b) are or are not consistent with a theory of “unconditional convergence”.

5= ) Inequality. (2 points)

= a. = Draw a Lorenz curve that represents a highly unequal distribution of income.

= b. Describe how to derive a Gini coefficient from the Lorenz curve you drew in (b).

6= ) Commitment problems. (1 point)

= a. = What is “the commitment problem” in the larger sense (not specific to the merchant guild, but as a category of studying incentives and decision making in economics)?

= b. Describe the specific nature of the commitment problem in the case of the merchant g= uild and how the institution of the merchant guild addressed the commitment prob= lem.

7= ) Technological progress. (1 point)

= a. = What is meant by neutral technological progress, and how does it contrast to oth= er types of technological progress. You can answer this in words or using graphs.

8= ) Stylized facts. (1 point)

= a. = One of the stylized facts about characteristics common to developing countries referred to their demographic structure. Describe this characteristic= .

= b. Another of the stylized facts discussed patterns in shares of national income from primary, secondary and tertiary sources.&n= bsp; Describe this characteristic.

9= ) Poverty Measures. (2 points)

Table of income by individual (total income in table is $= 15.00)

Person numb= er	Income per = person per day
1	$0.20
2	$0.40
3	$0.50
4	$0.80
5	$0.90
6	$1.20
7	$1.50
8	$2.00
9	$2.50
10	$5.00

a= ) If the absolute poverty line is $1 per person per day, what is the headcount of absolute poverty and the headcount index for the individuals in the table?<= span style=3D'mso-spacerun:yes'>

b= ) If the poverty line is $1 per person per day, what is the total poverty gap and what is the average poverty gap per individual below the poverty line?

c= ) Illustrate why a total poverty gap measure does not satisfy the transfer principle by = showing what happens when $0.20 is moved from household 2 to household 3. Describe and illustrate an alterna= tive measure that does obey the transfer principle and is sensitive to such a movement of income. (be sure to define the transfer principle in your answe= r)

d= ) What percent of total income is received by the highest quintile? The lowest quintile?