ECON 355
Midterm Exam
Feb. 22, 2000
Instructor: Prof. D. DeVoretz
Dept. of Economics
Simon Fraser University
Instructions:
Only materials allowed: 1 fact sheet of your country.
120 minutes exactly. We will not accept papers beyond 120 minutes
Part A: Short Answer - 10 points each: Do any 7.
1. With the aid of a demographic transition diagram.
a. Explain each term, Crude Birth Rate, Crude Death Rate, and Infant Mortality Rate, used in the diagram;
b. Place your country in the diagram and calculate its population growth
c. Using the crude birth, death and infant mortality rates, explain movement from region I to IV.
d. What policies can hasten movement from regions II to IV?
2. Explain the following concepts in detail noting every item within each concept covered in lecture:
a. Current account.
b. Capital account.
c. Net movement in reserves.
d. What are the values for a, b and c for your country?
e. If your country is in deficit (surplus) in a, b or c, recommend at least two policies to offset this deficit (surplus).
3. Urbanization is a severe problem in most poor countries;
a. Explain why migration may be harmful for the economy but good for the individual.
b. What is the absolute size of your largest city and degree of urbanization in your country?
c. What is the migration rate into your country's largest city?
d. Name three policies that can reduce the rate of urbanization in your country.
4. Kuznets argued that history was an indicator of a country's ability to grow.
a. What were the indicators that Kuznets used to track a country's movement to development?
b. How does your country match the values reported by Kuznets for these key indicators?
c. If your country has a population growth rate of 2.5%, what savings rate does it need to achieve a 2.5% growth rate in GDP per head with a 7 for the capital output ratio?
d. What policies can you put in place to lower the calculated savings rate in 4.c?
5. Explain with the aid of a 2 good, 2-country diagram the size of the efficiency gains from trade after opening your country to free trade.
a. What quantity of exports must you trade for the imports?
b. Is this a good deal?
c. Illustrate over time a change in the terms of trade, which favor your country and reduce the required amount of exports per unit of imports.
d. Illustrate the opposite case
6. Indicators;
a. Define the term Human Development Index.
b. Calculate the HDI for your country.
c. Explain the meaning of the value calculated in b.
d. If Canada has a 20% lower GDP per head than the USA why does it score higher on HDI?
e. What criticisms apply to HDI?
7. Name and define from the movie "Year of Living Dangerously"
a. One demographic indicator.
b. One economic indicator.
c. One other indicator.
d. Why do some argue that peaceful democratic government is a necessary but not sufficient condition for development?
8.
a. Define the Prebisch-Singer Thesis.
b. Does it apply to your country?
c. What evidence to you have to support a?
d. How do you avoid the pitfalls implied by the Prebisch-Singer thesis?
Part B: 20 points:
The book presents five general theories: Stages, Structural Change, Dependence, Neo-classical and New Growth.
Pick a model which best explains your country's development or lack of development. Describe the chosen model in detail and select the key ingredients the model identifies for growth.
With the aid of numbers collected for your country, how has your country fared in achieving the necessary conditions the model portrays for growth?
What policies would expedite the achievement of the development factors?
ANSWER KEY:
Part A: Short Answer - 10 points each
1. With the aid of a demographic transition diagram, place your country in the diagram.
a. Explain each term, Crude Birth Rate, Crude Death Rate, Infant Mortality Rate, used in the diagram;
CBR= # of deaths per 1,000
CDR=# of deaths per 1,000
IMR= # of deaths under age 1 per 1,000
b. Place your country in the diagram and calculate its population growth
CBR-CDR =Population growth rate
c. Using the crude birth, death and infant mortality rates, explain movement from region I to IV
Region 1, CBR=CDR, Region 2, IMR falls and CBR>CDR, region 3 CBR falls but CBR.> CDR region 4 CBR and CDR are low and equal.
d. What policies can hasten movement from regions II to IV? Birth control, women's participation in labor force, greater income, higher wages for females and greater literacy and education.
2. Explain the following concepts in detail noting every item within each concept covered in lecture:
a. Current account. See Todaro
b. Capital account. See Todaro
c. Net movement in reserves. See Todaro, Net movement = Current Account + (or -) capital account
d. What are the values for a, b and c for your country?
e. If your country is in deficit in a, b or c, recommend at least two policies to offset this deficit.
f. Devaluation, expansion of exports, import substitution, encourage remittances from nationals abroad, borrow IMF
g. If your country is in surplus, (or deficit) give the reasons why.
3. Urbanization is a severe problem in most poor countries;
a. Explain why migration may be harmful for the economy but good for the individual.
b. If too many migrate and no jobs then just create urban underemployment or slums. Still individual may be better off than if stayed on farm.
c. What is the absolute size of your largest city and degree of urbanization in your country?
d. City=? Urbanization= % living off rural area.
e. What is the migration rate into your country's largest city?
f. Rate of growth of largest city- population growth of country is approximately migration rate.
g. Name three policies that can reduce the rate of urbanization in your country. Growth in rural area, decline in rural cbr, no urban subsidies, (price controls on food or min wage).
4. Kuznets argued that history was an indicator of a country's ability to grow.
a. What were the indicators that Kuznets used to track a country's movement to development?
rate of savings, rate of population growth, growth in GDP per head, rate of immigration, number of decades growth at greater than 2.5% in GDP per year (50).
b. How does your country match the values reported by Kuznets for these key indicators?
c. Fill in values for indicators in 4.a-
d. If your country has a population growth rate of 2.5%, what savings rate does it need to achieve a 2.5% growth rate in GDP per head with a 7 for the capital output ratio?
e. Savings rate= (2.5%+2.5%)x(7)=35%
f. What policies can you put in place to lower the calculated savings rate in 4.c?
g. Lower k/o ratio with technology, lower pop growth rate.
5. Explain with the aid of a 2 good, 2-country diagram the size of the efficiency gains from trade after opening your country to free trade.
Use diagram provided in class
a. What quantity of exports must you trade for the imports? Production of exports-domestic consumption of exportable= quantity of exports that must be traded.
b. Is this a good deal? If absolute exports < absolute imports it is a good deal.
c. Illustrate over time a change in the terms of trade which favor your country and reduce the required amount of exports per unit of imports. Rotate the terms of trade in 5a such that equilibrium position is further out and required exports declines.
d. Illustrate the opposite case
6. Indicators;
a. Define the term Human Development Index. Ranks all countries from 0 to 1 (highest) of 3 goals. Adult literacy. GDP per head, life expectancy at birth
b. Calculate the HDI for your country.
c. Explain the meaning of the value calculated in b.
d. Low (18-35) medium (50-80) high 80 +
e. Or 1-ranking equals distance that your country must travel to reach highest level.
f. If Canada has a 25% lower GDP per head than the USA why does it score higher on HDI?
g. Canada has better performance on literacy, life expectancy and their total weight exceeds the weight of the GDP per head capita.
h. What criticisms apply to HDI?
i. Insufficient cross-country data, sensitive to weights on indicators (especially GDP per head) no distribution measure,
7. Name and define from the movie "Year of Living Dangerously"
a. One demographic indicator. Early death of child
b. One economic indicator. Poor shelter and lack of adequate food
c. One other indicator. Lack of civil control and peace and order
d. Why do some argue that peaceful democratic government is a necessary but not sufficient condition for development? Without laws property rights are unknown and investment will not take place.
8.
a. Define the Prebisch-Singer Thesis. Agricultural and food exports have cyclical prices whilst mfg exports have price floors.
b. Does it apply to your country, if it exports raw materials or foodstuffs?
c. What evidence to you have to support a? Ag and raw material price (barter terms of trade) have fallen.
d. How do you avoid the pitfalls implied by the Prebisch-Singer thesis? Move to manufacturing exports or agricultural exports with high income elasticity of demand.
Part B: 20 points:
The book presents five general theories: Stages, Structural Change, Dependence, Neo-classical and New Growth.
Pick a model which best explains your country's development or lack of development.
Country Philippines: Structural Change model" Lewis two sector.
Describe the chosen model in detail
Diagrams on p/ 85 Todaro
and select the key ingredients the model identifies for growth. Rising ag productivity as labor transfers to urban areas with little growth in unemployment but substantial growth in mfg output.
With the aid of numbers collected for your country, how has your country fared in achieving the necessary conditions the model portrays for growth?
Decade percentage growth in urbanization=11% growth in urban employment 12 %
What policies would expedite the achievement of the development factors?
Remove urban-based subsidies (price ceiling for rice, minimum wage) friendly to capital retention in country.