ECON 355

 

First Exam

 

 

 

Feb. 11, 1991

 

Instructor: Prof. D. DeVoretz

Dept. of Economics

Simon Fraser University

 

 

Instructions: Do any two questions. No aids and place all materials and coats in back or front of room. You have one hour. Raise your hand for questions or to leave room. Remember that academic dishonesty will be dealt with severely.

 

 

  1. Briefly explain the demographic transition theory and place your country in this model with all your available data. Next, explain what forces operate to move a country through all four stages.

 

 

  1. Compare and contrast the labor surplus model to the Neo-Classical growth model. Which model explains the performance of your country to date? Support your selection with facts. Finally explain (with facts) why the model you did not choose does not work for your country.

 

 

  1. Pick at least three major economic and two no-economic indicators of development that apply to your country. Given this information assess the level of development of your chosen country vis a vis other countries or stages of development i.e. low. low-middle, upper-middle etc. now criticize the usefulness of the measures chosen and argue why a composite index should be used.

 

 

 

 

Outline for Answers: points below each section of answer. It must be a complete answer for marks. Give every one 1 point for their name.

 

  1. Demography transition theory
    1. A diagram with axis labels with GDP per head at the bottom and CBR and CDR on the y-axis. As follows: (10 pts.)

 

    1. Identify second stage: i.e. CBR high at 35 and CDR at 20 or less. This increase family size variable; Average family size to rise to 8 with 6 or more dependents. Now refer to both consumption data and savings data on family size and dependents. A complete answer must provide information from the lecture notes on rural-urban family size effect on food and non-food consumption. For savings the dependent variable must by S/Y and both dependent variables for rural and urban areas must be present with the elasticities. In addition, an analysis of a 1% change in family size must be made especially for savings to note impact on APS (13 pts.)

 

  1. Models to choose from:
    1. Capital one sector Solow type model: no one should pick this one. It should be used in the last part of the question. It only contains one sector and relies so much on capital accumulation with no understanding of relative prices for labor or final goods namely agriculture or industrial goods.

Must have diagram: this diagram must explain production function, savings rate and role of population. (8 pts.)

 

    1. Two sector surplus model. Must have all three diagrams from their book and explain movement of productivity curves; total, marginal and average in agricultural sector as labor is transferred to industrial sector. An analysis of the subsidence wage, average and marginal product relationship must appear in the intermediate diagram. Finally, the subsistence wage and size of surplus must be noted an analyzed in industrial sector. Shifts in the industrial demand for labor must also appear. Criticisms of the model must also appear. 1. Small size of the surplus due to small savings and fact that skilled leave rural area and reduce and not hold app constant in agriculture sector. This of course raises subsistence wage in industrial sector and further reduces surplus for re-investment (25 pts.) 2. Migration in 19th century Europe reduced population pressure on the rural sector and raised industrial output just like the two-sector model above. They should use the two-sector model to explain how this worked. Also, if there was surplus labor then millions could travel to land rich North and South American or Australia. This meant that unskilled people left Europe and not skilled and where given complementary capital i.e. land in the west and both stayers in Europe and movers gained with no externalities. (13 pts.)

Now re-do this same argument for their country and show how too many people are moving to the cities relative to job opportunities. They must have fact on rate of urbanization, urban unemployment. They should also have facts on types of movers outside of their country especially to Canada if that is relevant to talk about the brain or skill drain. (10 pts.)

 

  1. Must name their country and produce a table with GDP/head savings rate, growth rate in GDP or GDP/head and income distribution. Non-economic indicator could be demographic, i.e. CBR, CDR, population growth, calories/person, etc. Now once they have defined their terms they should have reference point for each indicator or stage of development such as upper middle or lower middle etc. (13 pts.)

Criticism should recognize that all money values are biased downwards due to subsistence economy and requirement to translate into a common i.e. dollar currency. Many non-economic measure do not illustrate distribution problems i.e. calories per person of physicians per person etc. Also, some non-economic indicators such as nurses or TVs per person are a consequence of development and not an indicator of future potential as savings would be. (10 pts.)