ECON 355

Midterm Exam

Feb. 19, 2002

Instructor: Prof. D. DeVoretz Name: _________________

Dept. of Economics ID #: _________________

Simon Fraser University Group: _________________

Instructions:

Only materials allowed: 1 fact sheet of your country. 50 minutes exactly. We will not accept papers beyond 50 minutes.

Do all questions. Note points in parenthesis.

Question 1: Urbanization is a severe problem in most poor countries:

1. What percentage of your country (__________) is urbanized _______ %. (1 pt)

2. Why is individual motivation to move greater than society’s need for mobility? (3 pts)____________________________________________________________

3. What 3 models best explain the motive for rural and urban migration in poor countries? (3 pts)

1) ___________________________________________________________

2) ___________________________________________________________

3) ___________________________________________________________

4. Name three policies that can reduce the rate of urbanization in your country. (3pts.)

1) ___________________________________________________________

2) ___________________________________________________________

3) ___________________________________________________________

Question 2: Name and define from the movie “The Year of Living Dangerously”

1. One demographic indicator _____________________________________ (2 pts)

2. One economic indicator________________________________________ (2pts)

3. One other indicator ___________________________________________ (1pt)

Question 3: Kuznets argued that history revealed key processes in the development process,

1. How does your country match the values reported by Kuznets for his 3 key ingredients for development (3pts)

1) __________________________________________________________

2) __________________________________________________________

3) __________________________________________________________

2. 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? (3pts) __________

3. What is the required savings rate if population growth is zero? (2pts) ________

4. What is the required savings rate if technical change doubles the productivity of capital and all else remains unchanged? (2pts) __________

Question 4. Income per capita in India is only US$485 in 2000. There are two downward biases in this measure. Indicate what they are and in the space provided tell how you would correct for them.

Bias 1_______________________________________________________________

________________________________________________________________

___________________________________________________________(7.5pts)

Bias 2_______________________________________________________________

________________________________________________________________

___________________________________________________________(7.5pts)

Question 5: With the aid of this Todaro Migration Model diagram, answer the following questions (circle the number you choose):

a. Before the migration, the urban-rural real wage gap is given by: (5pts)

1)

2)

3)

4)

5) None of above

b. If rural workers were free to migrate, the urban-rural actual wage gap is given by (5pts):

1)

2)

3)

4)

5) None of above

c. The probability of securing one of the favorable urban jobs is expressed by the ratio of (5pts):

1)

2)

3)

4)

5) None of above

d. If the rural wage is $4 per day, urban modern sector employment can be obtained with 0.25 probability and pays $12 per day, and urban traditional sector daily income is $2 per day, the simple one-period Todaro migration model predicts that (5 pts):

1) There will be urban-rural migration

2) There will be rural-urban migration

3) There will be no migration

4) It cannot be determined without more information

Question 6: With the aid of this trade diagram, answer the following questions in the blanks:

For Third World:

a.	What is pre-trade position on production possibility schedule?	(2pts)
b.	How much exports and imports are traded in pre-trade position?	(2pts)
c.	What is post-trade equilibrium position?	(2pts)
d.	What is size of exports?	(4pts)
e.	What is size of imports?	(4pts)
f.	What is international price line for commodities?	(2pts)
g.	Did the price of the exportable rise or fall?	(4pts)

For Rest of World:

a.	What is pre-trade position on production possibility schedule?	(2pts)
b.	How much exports and imports are traded in pre-trade position?	(2pts)
c.	What is post-trade equilibrium position?	(2pts)
d.	What is size of exports?	(4pts)
e.	What is size of imports?	(4pts)
f.	What is international price line for commodities?	(2pts)
g.	Did the price of the exportable rise or fall?	(4pts)

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Answer Key:

Q1:

a. NA

b. Benefits > costs for individuals; negative externalities for society

c. Any 3 of the followings:

i. Human capital model

ii. Gravity model

iii. Demographic model

iv. Todaro model

v. Labor market adjustment

d. Any 3 of the followings:

i. Reduce urban biased development strategies

ii. Create employment in rural/bring jobs to rural

iii. Reduce urban wage subsidy

iv. Integrate rural development

v. Control unlimited educational expansion

Q2: NA

Q3:

a.

i. Population growth & (im)migration

ii. Saving rate

iii. Capital output ratio

b. 35%

c. 17.5%

d. 17.5%

Q4: Any 2 of the followings:

a. Exchange rate bias

b. Income distribution bias

c. Agricultural output missing/omit subsistence production

Q5:

a. 2)

b. 4)

c. 3)

d. 2)

Q6:

For third world:

a. A

b. Zero

c. B and C

d. BD

e. CD

f. BC (solid line)

g. Rise

For rest of world:

a. A

b. Zero

c. B and C

d. BD

e. DC

f. BC (solid line)

g. Rise