On-Line Course on Advanced Poverty Analysis Poverty Dynamics

On-line Course on Advanced Poverty Analysis Summer 2013

Module 6 (International Poverty Comparisons): Quiz with Answers

1. International comparisons of poverty are needed for all of the following reasons except: A To judge whether the World Bank is effective in its goal of achieving a world free of poverty. B To identify where in the world the poorest people live. C To determine each country’s contribution to the International Monetary Fund. D To measure progress toward the attainment of the Millennium Development goals.

Correct answer: C IMF contributions are unrelated to poverty. Incorrect answers: This statement is correct, but so are most of these statements. However, contributions to the IMF are unrelated to poverty.

2. Which of the following is not part of the normal process of determining the poverty rate in a country? A It is necessary to impute the rental value of a household’s durable goods when measuring expenditure. B A poverty line needs to be determined. C Census data are required to determine the proportion of people who are poor. D It is assumed that members of a household have the same level of welfare.

Correct answer: C Measures of poverty are based on detailed household survey data and not generally on census data. Incorrect answers: This statement is correct. In fact the only incorrect statement is the assertion that census data are required to determine poverty rates; this job is usually done with household survey data.

3. According to the World Bank, the “dollar-a-day” poverty rate approximately halved between 1980 and 2001, and most of the reduction was due to rapid reductions in poverty in China and India. True False Uncertain

Correct answer: True This is right. The large size of China and India mean that what happens to poverty in those two countries largely drives what happens to poverty rates worldwide. Incorrect answer: No, the statement here is correct. 4. A US dollar buys fewer goods and services in the United States than a dollar’s worth of dong buys in Vietnam because A Inflation is higher in the United States. B Non-tradable services are cheaper in Vietnam, but the dong-dollar exchange rate is mainly based on the prices of tradable goods. C Living standards are rising more slowly in Vietnam. D Vietnam deliberately keeps the dong cheap.

Correct answer: B Yes, this is an issue of purchasing power parity. While the prices of tradable goods are broadly comparable from country to country, this is not the case for non-tradable goods and services, which are typically relatively much cheaper in less-developed countries. Incorrect answers: A US dollar buys about the same amount of tradable goods in Vietnam as in the US, but it buys far more non- tradable goods and services in Vietnam. This is why purchasing power parity exchanges rates need to be computed, to take these relative price differentials into account.

5. The use of PPP exchange rates to translate the dollar-a-day standard into local currencies is noisy and imperfect because: A Some PPP exchange rates are imputed econometrically rather than computed directly. B PPP exchange rates are not based on the consumption baskets of poor households. C PPP exchange rates vary over time. D All of the other statements are correct.

Correct answer: D All of the statements are correct. Incorrect answers: This statement is correct, but so are the others!

6. Survey data suffer from non-response bias and under-reporting bias. Typically these lead to: A An overstatement of the headcount poverty rate and an understatement of the degree of inequality. B An overstatement of the headcount poverty rate and an overstatement of the degree of inequality. C An understatement of the headcount poverty rate and an understatement of the degree of inequality. D An understatement of the headcount poverty rate and an overstatement of the degree of inequality.

Correct answer: A Although not guaranteed, it is typically the case that rich people are less likely to respond to surveys, so inequality is understated; and spending in under-reported, which would overstate poverty. Incorrect answers: It is typically the case that rich people are less likely to respond to surveys, so inequality is understated; and spending in under-reported, which would overstate poverty. 7. Which of the following steps is not part of the World Bank’s methodology for computing the dollar-a-day world poverty rate? A Pick a poverty line that allows households to buy enough food and other basic needs. B Use an average PPP exchange rate to translate the poverty line into domestic currency terms. C Use a domestic consumer price index to find the appropriate poverty line, in domestic currency, for the years in which household surveys were undertaken. D Measure the number of poor in a country by determining, based on fitting Lorenz curves, how many fall below the poverty line.

Correct answer: A The World Bank does not directly measuring poverty (for its international comparisons) using the cost of basic needs approach, although it does justify its “dollar-a-day” standard loosely on this idea. Incorrect answers: This is in fact part of the World Bank’s methodology.

8. Which of the following is not a criticism that Reddy and his co-authors have levied at the World Bank’s approach to measuring world poverty? A Measured PPP exchange rates vary over time. B The two-dollar-a-day standard is too low. C The data on poverty reduction on India is subject to considerable uncertainty. D The use of a CPI does not necessarily reflect the evolution of prices of the goods and services consumed by the poor.

Correct answer: C Reddy, and the World Bank, agree that the Indian data are subject to considerable uncertainty. Incorrect answers: This is indeed one of the criticisms levied by Reddy et al. at the World Bank’s approach to measuring world poverty; he agrees with the World Bank that Indian poverty is not measured with great accuracy.

9. The World Bank’s approach to measuring world poverty requires less information from individual household surveys than would be required if one were to apply a cost of basic needs approach. True False Uncertain

Correct answer: True The World Bank’s approach is parsimonious with information; it needs quintile data on expenditure (or income) per capita, and PPP exchange rates. Incorrect answers: No, the World Bank’s approach requires less information than would be needed in order to measure poverty using the cost of basic needs approach.