Econ Final

•Improving opportunities for the poor

(education, health, agricultural infrastructure)

•The concept of income/consumption/wealth distribution

*•If income does not grow, an increase in inequality increases the chances that more people fall into poverty

•How does population growth affect economic development?

-Capital accumulation and the population pessimists -Productivity and the population optimists -Market failures and population revisionists

•Poverty around the world

-Characteristics of the poor

•Theory of comparative advantage: what is it and what are its implications

-Comparative vs. absolute advantage -Free trade vs. autarky (economic independence or self-sufficiency) -International terms of trade

•Education as an investment

-Computing rates of return to schooling -Problems with estimated rates of return (Identification and RCTs) -Underinvestment and misallocation and inefficient use of resources -Reducing the costs of going to school

•When the poor are beyond the reach of the market

-Conditional Cash Transfer programs (CCTs) -Social safety nets

•Foreign Direct Investment (FDI)

-Definition; patterns; benefits and drawbacks -FDI and growth (what type of FDI works best?) -Policies toward FDI

•What determines population growth?

-Different forces behind changes in birth rates (income and opportunity cost)

•Barriers to public and private investment

-Ease of doing business; -regulation; -rent-seeking and corruption

•Government saving

-Effects on domestic saving: Ricardian equivalence

•Benefits from trade

-Gains from exchange; gains from specialization -Winners and losers

•Why do we care about inequality?

-Growth alone is not enough to guarantee people escape poverty -Inherent reasons -Poverty line

Investment equals savings

-I=S

•Household saving and consumption

-Life-cycle model: demographic composition and varying savings rate by age

Savings as a proportion of output:

-S=sY

•Measures of inequality

-Size distribution ratios -Lorenz curve -Gini coefficient

•Foreign saving

-Trends and patterns in developing countries -Investment in an open economy: I-S_d=M-X

•World trends and patterns

-Volumes; products; country characteristics.

Production function Formula

-Y=f(K,L)

Capital accumulation equation:

-∆K=I-dK

Population growth:

-∆L=nL

Rates of return on schooling depend on what happens with

. both school and the labor market after students graduate.

The world population growth rate between year 1 CE and 1800 was roughly:

.1%

According to Maddison, between the years 1 and 1000 BCE, World GDP per capita grew at an annual average of

0

If a country's aggregate GDP is growing at 3% a year and its population is growing at 2% a year, then its yearly GDP per capita is growing at approximately

1%

What is the international Poverty line set at

1.90

In the Harrod-Domar model, if a country's GDP is constant at the same time that its saving rate is 30%, and its depreciation rate is 10%, what must its incremental capital-output ratio (ICOR) be?

3 .3/.1 = 3

If the death rate is 5 per thousand and the birth rate is 7 per thousand, the natural growth rate of population is:

7-5 = 2 2/1000 = .2% increase

The deep sources of growth we studied are

: (1) political and macroeconomic stability, (2) investment in health and education, (3) effective governance and institutions, (4) favorable environment for private enterprise (same as a business-friendly environment), (5) trade and openness, and (6) favorable geography.

) Possible reason(s) why schooling outcomes are worse in developing countries than in developed ones include: A. Underinvestment. B. Misallocation. C. Inefficient use of resources. D. All of the above

A. Underinvestment. B. Misallocation. C. Inefficient use of resources.

poverty gap

An index that measures how far below the poverty line the poor are in a given count

Populations optimists defend that population growth can give rise to economic growth. Mention 2 channels they emphasize.

Any 2 of these 3: (1) Population growth can bring about economies of scale in production and consumption; (2) Population pressures may induce technological changes; and (3) Larger populations contain more entrepreneurs and therefore can lead to more technological breakthroughs.

Conditional Convergence

Conditional convergence is the idea that each country will converge toward their own steady state. That is, if two countries are similar in factors other than income (eg. population growth rates, saving rates, depreciation rates and technology growth rates), then the poorer of the two will grow faster and converge towards the richer. Conditional convergence is supported by the data.

•Trends and patterns in education

Enrollment and completion rates across world regions

What type of Foreign Direct Investment is more conducive to growth?

FDI focused on firms producing exports for competitive global markets.

The Human Development Index takes into account indicators that reflect:

Health, income, and education

What factor accounts for most of the cross-country dispersion in the Human Development Index?

Income

Where does inequality tend to be higher

Latin America

If a country's GDP per capita is growing at an average rate of 2%, how many years does it approximately take for it to double?

Rule of 70 70/2 = 35 years

What is the demographic transition?

Stage 1 Birth rate high Death rate high Natural increase stable or slow increase Stage 2 Birth Rate High Death rate Falls rapidly Natural increase very rapid increase Stage 3 Birth Rate Falling Death rate Falls slower than birth rate Natural increase Stage 4 Birth Rate Low Death rate Low Natural increase Falling and then Stable Stage 5 Birth Rate Rising Death rate Low Natural increase Stable

head-count index (ratio),

The Head count ratio (HCR) is the proportion of a population that exists, or lives, below the poverty line.

What is the Human Development Index (HDI) and what is it supposed to measure? What components form the HDI? Note: You don't need to produce the exact formula.

The Human Development Index is a an index that purports to measure the level of economic development in different countries. The HDI has three components: income, as measured by GDP per capita, health, as measured by life expectancy, and education, as measured by an average of expected years of schooling and average years of schooling.

The proximate causes of economic growth are

The proximate causes of economic growth are capital accumulation, labor (or human capital) growth and total factor productivity growth (TFP).

If two countries exhibit different size distributions what can we say for sure about the income distribution between those two countries?

Their Lorenz Curve are different

If two countries exhibit different Lorenz curves, what can we say about the income distribution between those two countries?

Their size distributions are different.

Which is a plausible reason why a country's GNP may be larger than its GDP?

There are a lot of this country's nationals working abroad.

Unconditional convergence

Unconditional convergence is the idea that poorer countries grow faster than richer countries, regardless of any other factors and therefore, eventually they catch-up to them (converge).

Around the world today, the poor, are, on average

Young and Rural

In developing countries, compared to developed ones

birth rates are much higher

Economic growth in relatively poorer countries is mostly driven by

capital accumulation

Economic development

economic development is a broader concept that intends to capture improvements in living standards or human welfare. This involves taking into account improvements in health, education, personal and political freedoms, among others, in addition to economic growth.

Economic ggrowth

increase in income or GDP per Capita

Population revisionists emphasize the role of on the relationship between population growth and economic growth.

market failures.

If net migration is positive

population growth rates are higher than the natural increase.

In low-income countries, the social rate of return generally is highest for:

primary education.

Conditional cash transfer programs are used to

provide incentives for poor families to send children to school.

What country characteristic is associated with trade?

size

Poverty line

the estimated minimum level of income needed to secure the necessities of life.

•The Solow growth model -Neoclassical production function

•Diminishing returns to scale •Capital and labor are substitutes -Central roles of savings/investment and productivity growth

Strategies to reduce poverty

•The World Bank recommends: 1.Promote market-oriented (labor-demanding) economic growth: •Macroeconomic stability •Openness to trade and investment •Public investment in infrastructure •Improved credit markets 2.Direct basic health/education services to poor 3.Develop social safety nets