120 Draft Mid Term WEDENESDAY 16 May 2007

120 draft mid term WEDENESDAY 16 May 2007

5.10-6.35 (85 minutes)

SECTION A 60%

1.- Define and discuss the following terms in the context of this course.

Economic Development (World Bank approach and Sen’s “Capabilities”) Coordination failure Gini coefficient Absolute poverty Kuznets’s inverted U-Hypothesis

2.- Discuss and compare the production function in the Harrod Domar Model with the one in the Solow Model.

3.- The following income distribution data are for Brazil.

Quintile Percent Share Lowest 20% 2.4% Second quintile 5.7% Third quintile 10.7% Fourth quintile 18.6% Highest 20% 62.6%

Brazil’s total national income: $ 1 billion per day Brazil’s population: 150 million people a. Graph the Lorenz curve from the Brazilian data given above, carefully labeling the axes. On the axes, label all values that correspond to the five points that make up the Lorenz curve. b. Show how to find the Gini coefficient, graphically (do not actually calculate it numerically). c. Suppose that each household makes the average income for its quintile (that is, assume that there is no inequality within quintiles). Using a poverty line of $1 per day per capita, what is the headcount (i.e. the measured number of poor people)? What is the average income shortfall (AIS)? 4.- Consider the following data for Yugoslavia and Indonesia in 2006:

Country Population Haircuts Tennis PriceH PriceTB** Balls Yugoslavia 2000 1000 20,000 50ND 100ND Indonesia 8000 600 90,000 20IR 100IR

Exchange Rate: 1 ND per 50IR (i.e., 0.02 ND per IR) **Note that due to government regulations, tennis balls are sold only in crates of 100 in both these countries, and hence the prices listed are per box of 100 balls. a. Calculate each country’s GDP per capita, expressed in 2006 IR, using the Exchange Rate Method. b. Now, calculate each country’s GDP per capita in ND for 2006 using the PPP method

SECTION B (40%)

ANSWER ANY TWO QUESTIONS IN SECTION B

1. Why is per capita income so much higher in North America than in South America? 2. Critically evaluate the models and policy recommendations of the dependency school. 3. Critically evaluate the neoclassical critique of post war development thinking. 4. Critically evaluate some of the major policy recommendations that have been advanced to deal with poverty in third world countries. 5. What are the causes of high rates of population growth? Which policies should be advanced to deal with this problem? 6. What are the causes of rural urban migration? What can be done to reduce these flows?

HINT – BASE YOUR STUDY ON THE MATERIAL IN THE FIRST 7 CHAPTERS OF THE TEXTBOOK. CREDIT WILL BE GIVEN FOR REFERENCES TO THE NON-TEXTBOOK LITERATURE