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Part I: Economic Development
10.04.2025: Introduction to Economic Development
How is economic development usually defined? - Remember Is economic development the same as economic growth? - Remember/Understand State and discuss three key differences between "development" and "growth". Discuss why we may prefer to use "development" and not "growth", or vice versa? - Understand/Evaluate What is the difference between economic growth and economic development? Does sustainable development mean zero environmental pollution? Please discuss. - Understand/Evaluate Purchasing Power Parity (PPP) is often used instead of official exchange rates in making inter-country comparisons of per capita income. Why is it believed that official exchange rates give misleading results? - explain, Understand Describe one main criticism of the World Bank's use of PPP in poverty calculations (for example, as described in Reddy and Pogge (2002).) - Remember/Understand The International Comparisons Project, which used purchasing power parity rates rather than market exchange rates, has found that the real standard of living in many less developed countries (LDCs) is even lower than indicated by their dollar per-capita income. Which of the following is not typically an element in the structural change that accompanies development? a. increase in the share of agriculture in GDP (gross domestic product) b. increase in manufacturing as a share of GDP c. increase in urbanization d. All of the above changes accompany development - recognize/identify, Remember Non-traded goods do not enter measured GDP because a. they are intermediate goods b. they are not traded in the market c. there is no value-added in the production of such goods d. their value is not captured by the exchange rate method of conversion to a common unit - recognize/identify, Remember The concept of opportunity cost is based upon the principle of a. need b. consumption c. scarcity d. profit - recognize/identify, Remember Which of the following is an INCORRECT statement about a budget constraint a. Points on a budget constraint represent combinations of the goods that exactly use up income b. Points within the budget constraint represent combinations of the goods that do up all the income. c. If points A and B lie on the budget constraint, we can deduce that people will be indifferent between the two d. If the price of one good decreases, all else the same, the budget constraint will swivel or rotate outward - recognize/identify, Remember When the manufacturer of power looms expands, there are forward linkage effects due to a. lost employment in the hand-loom sector b. increased incomes of workers that manufacture looms c. increased output of woven cloth made by the power looms d. increased demand for electric motors - recognize/identify, Remember The concept of choice would become irrelevant if a. we were dealing with a very simple, one-person economy b. poverty were eliminated c. scarcity was eliminated d. capital was eliminated - recognize/identify, Remember Which of the following would not be considered as an example of industrialization a. Increase in literacy b. Replacement of human with mechanical skills c. Improved economic organization d. Improved extraction and working of raw materials - recognize/identify, Remember The production possibility frontier can be considered a measure of a. Real G.N.P. b. Nominal G.N.P. c. Potential G.N.P. d. None of the above - recognize/identify, Remember If a country experiences a rapid increase in per-capita income due to discovery of new oil reserves, then it is experiencing: a. growth but not necessarily development. b. development but not growth. c. both growth and development. d. neither growth nor development. - recognize/identify, Remember According to Kuznets, the identifying characteristic of "modern economic growth" is a. expansion of heavy industry. b. a rapid decline in population growth rates. c. high rates of saving and investment. d. application of science to problems of economic production. - recognize/identify, Remember In constant 1968 lira, real GNP in Turkey increased from L206.1 billion in 1980 to L214.7 billion in 1981. Investment in 1980 totaled L43 billion. What was the value of the ICOR? a. 5 b. 0.176. c. L8.6 billion. d. It cannot be determined from these data. - recognize/identify, Remember Which of the following statements is consistent with Hirschman'ss theory of unbalanced growth? a. A country should focus on industry, because agriculture is not a dynamic sector. b. To initiate the industrialization process a country requires a "big push." c. When certain industries are developed first, linkage effects will induce the development of new industries. d. All of the above. - recognize/identify, Remember The primary focus of development strategy during the 1950's was on a. Reduction in unemployment, b. Increase in G.N.P., c. Increase in foreign trade, d. Increase in literacy - recognize/identify, Remember The extraction of iron ore has increased on account of increased demand for steel. The above is an example of a. Forward linkages, b. Backward linkages, c. Backward and forward linkages, d. None of the above - recognize/identify, Remember According to W.W.Rostow, which of the following does not belong to the "precondition for take off": a. Increased agricultural productivity, b. Political stability, c. Development of social overhead capital, d. Growth of the durable consumer goods industry - recognize/identify, Remember If a situation exists where it is not profitable for any single producer to expand production because of market limitation, then the best strategy for the country to adopt would be a. Balanced growth strategy, b. Unbalanced growth strategy, c. Employment growth strategy, d. None of the above - recognize/identify, Remember An unbalanced growth strategy may be desirable if a. Indivisibilities are important, b. Expansion costs are important, c. Both of the above, d. None of the above - recognize/identify, Remember Which of the following is not a weakness of the import substitution strategy of growth a. Reduces production of modern sector, b. Leads to an inappropriate domestic K/L ratio, c. Leads to a balance of payments problem, d. Reduces exports of agricultural goods - recognize/identify, Remember 14.04.2025: Poverty and Inequality
SDG1 has the goal of eradicating extreme poverty by 2030. Is this (still) a realistic goal? - Evaluate Will the sustainable development goal of eradicating extreme poverty by 2030 likely be achieved? Briefly explain your answer. What is income poverty, and what is a poverty line? How is income inequality typically measured? Name two widely used poverty indices and explain what exactly they measure. What type of data are used for the international poverty statistics? Please explain how these data are collected and what is measured. How is multidimensional poverty measured (think of the multidimensional poverty index)? What do you know about the relationship between economic growth and inequality? - Analyze?Remember? Is economic growth good or bad for poverty reduction? What type of economic growth matters most for poverty reduction? Please explain. - Evaluate How has extreme poverty developed over the last few decades? Was the millennium development goal of halving the proportion of people in extreme poverty between 1990 and 2015 achieved? - Remember? How did extreme poverty develop over the last several years and decades? What are the most common ways of measuring poverty? Define and explain at least 3 of such methods. What are the strengths and weaknesses of each measure? - Analyze What is a poverty trap? In your opinion, do poverty traps exist? Why or why not? What are the major explanations of a macroeconomic poverty trap? How does the Solow Model show that poverty traps can exist? (Hint non-linear savings rate explanation). - How does the "nutrition and working capacity" hypothesis explain existence of a microeconomic poverty trap? Are there other (other than the "nutrition and working capacity") explanations of poverty trap at an individual or household level? Describe a few of them. How can poverty traps be explained by the Solow Model? Pick any one of the first twelve (out of the 17) SDGs. Discuss your pick in detail in terms of its
specific targets, measurements, and indicators. Describe one main criticism of the World Bank's use of PPP in poverty calculations (for example, as described in Reddy and Pogge (2002).) - Analyze Three people live in the kingdom of Lilliput. All four inhabitants work in the traditional sector, earning 100 each. Draw the Lorenz curve for this economy in the following graph and calculate the Gini-coefficient - Apply Now there a modern sector emerges and one of the inhabitants migrates to this high-wage modern sector, earning 500 there while all others remain at 100 in the traditional sector. Draw the new Lorenz curve. What can you say about inequality in this economy? - Apply How is your answer to part (b) related to the Kuznet's curve hypothesis? Economic growth is necessary and sufficient to eradicate most of absolute poverty. Income level or GDP is criticized as an indicator of development mainly because it takes no account of the distribution of income. - recognize/identify, Remember, recall
A certain amount of goods and services is necessary for a minimum standard of living. This is called a. basic needs b. absolute poverty c. an international standard of living d. the concept of development With perfect income equality the Gini coefficient in a country would be a. infinity b. 1 c. 5 d. 0 Rawls argued that the income distribution should be determined a. by a free vote of all groups on a society b. by whatever the poor decide is an acceptable minimum level c. by what all society agrees to behind a 'veil of ignorance' d. as entirely equal income shares for all groups All but one of the following are methods to represent overall income inequality: a. variance b. Gini coefficient c. ratio of the top income decile to the lowest income decile d. Lorenz curve e. GDP per capita Examine the following diagram: The Gini coefficient is a. A/(A+B) b. B/(B+A) c. A/B d. (A+B)/A According to Simon Kuznets, the relationship between GNP per capita and inequality in the distribution of income can be expressed as a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d. first increasing and then decreasing If Lorenz curves cross, we say there is less inequality in the case where a. the poorer get a larger percentage of income b. the poorer get a smaller percentage of income c. the richer are less rich d. we cannot say If the development process is characterized by what we have called "modern sector enlargement", the relationship between GNP per capita and inequality in the distribution of income can be expressed as a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d. first increasing and then decreasing If the development process is characterized by what we have called "modern sector enlargement", the relationship between GNP per capita and poverty in the distribution of income can be expressed as a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d. first increasing and then decreasing Whereas the headcount measure tells us the number of poor and the poverty gap measure tells us about the average depth of poverty among the poor, the Foster-Greer-Thorbecke measure (also called P-alpha) tells us about the number, the average depth of poverty and a. average income b. inequality in the population c. inequality among the poor d. variance of average income If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is 2.5, the headcount measure tells us what percentage of the population is in poverty a. 40 b. 3 c. 2 d. 60 If the distribution of income in country C is (1, 2, 2, 3, 5) and the poverty line is 2.5, the average income shortfall measure tells us the average depth of poverty among the poor is a. 5/6 b. 5/2 c. 2 d. 0 If the distribution of income in country C is (1, 2, 2, 3, 5), and in country D it is (1, 1, 2, 3, 5), and the poverty line in both countries is 2.5, by the headcount measure which country has more poverty? a. C b. D c. poverty is the same in C and D d. we cannot tell from the information given If the distribution of income in country C is (1, 2, 2, 3, 5), and in country D it is (1, 1, 2, 3, 5), and the poverty line in both countries is 2.5, by the average income shortfall measure which country has more poverty? a. C b. D c. poverty is the same in C and D d. we cannot tell from the information given If the distribution of income in country C is (1, 2, 2, 3, 5), and in country D it is (1, 1, 2, 3, 5), and the poverty line in both countries is 2.5, by the Lorenz curve which country has more inequality? a. C b. D c. inequality is the same in C and D d. we cannot tell from the information given. Malthus argued that the poor would always remain poor because a. population growth tends to outrun growth of food production b. they do not save enough c. there are not enough resources to educate them d. all of the above Underemployment is a situation where a. people who are willing to work are unable to find jobs b. many people in the labor force hold two or more jobs c. people are working full-time and hard, yet have a low marginal product d. people work in a free labor market with a very low wage Which is a measure of absolute poverty? a. Headcount. b. average income shortfall. c. Sen index. d. all of the above. The Lorenz criterion a. allows us to rank all countries by the degree of inequality. b. allows us to rank all countries by the degree of poverty. c. is a measure of the wealth of a country. d. is an incomplete measure of inequality. Consider the following distribution of incomes in country x and country y: country x(2,3,4) country y(6,9,12) a. inequality is higher in x than in y. b. inequality is higher in y than in x. c. inequality is the same in x and y. d. the information given is not sufficient to compare inequality in x and y. Consider the following distribution of incomes in country x and country y: country x(2,3,4) country y(6,9,12) a. absolute poverty is higher in x than in y. b. absolute poverty is higher in y than in x. c. absolute poverty is the same in x and y. d. the information given is not sufficient to compare absolute poverty in x and y. Consider an economy with low per capita income. Assume i) whenever per capita income rises above subsistence level, population grows and ii) whenever it falls below subsistence level, population shrinks. Given, i) and ii), a. a poverty trap exists. b. a critical minimum effort increasing per capita income by 1.5% per annum is necessary for development to take place. c. the economy is ready for Rostow's take-off stage. d. none of the above. Rising per-capita GNP may fail to increase incomes for most citizens because: a. Gains from growth may be used for expensive glory projects that provide few concrete benefits to the people. b. gains from growth may be heavily reinvested, so consumption gains are postponed c. Those who are already relatively well-off may get all or most of the benefits d. all of the above The idea which suggests that poverty is self-perpetuating because poor nations are unable to save and invest enough to accumulate the capital stock that would help them grow is a. the dependency theory. b. the vicious-circle-of-poverty hypothesis. c. neo-colonialism. d. the under-consumptionist hypothesis. If the vicious-cycle-of-poverty hypothesis were true at all levels of per capita income, then a. all economies would develop at the same rate. b. no nation could ever achieve economic development. c. no nation would ever fail to reach the highest level of economic development. d. poverty would not be self-perpetuating. A supply side vicious circle of poverty suggests that poor nations remain poor because
a. saving remains low b. investment remains low c. there is a lack of effective government d. all of the above e.* a and b above The absolute poverty line: a. should be adjusted from time to time as real income grows b. shows the average income of the lowest 10 percent of the population c. varies with the Gini coefficient d. none of the above. The Gini coefficient provides a measure of: a. the level of poverty b. the level of relative inequality c. disguised unemployment d. the rate of growth To draw a Lorenz curve showing the distribution of income by household, one should first rank all households according to a. household size. b. age of head of household. c. wage level. d. income per capita. One study found that the Gini coefficient for Egypt .403. was virtually the same as that for Australia.404. From this information one can conclude that Egypt and Australia a. had virtually the same number of households in absolute poverty. b. had virtually the same percentage of households in absolute poverty. c. had virtually the same Human Development Index level. d. none of the above. According to the inverted U hypothesis of Kuznets, as economies develop a. average household incomes first fall and later rise. b. industry's share of GNP first rises and later falls. c. income inequality first rises and later falls. d. the population growth rate first rises and later falls. Suppose there are 5 workers in an economy and initially all the workers work in the traditional sector at a wage equal to 1 (call this initial period, period 0). In each subsequent period, one worker migrates from the traditional sector to the modern sector where wages are equal to 4. Assuming that the number of workers remains constant, then period 5 all the workers are in the modern sector. In period 5 the gini coefficient of inequality is a. 1, b. 0.5, c. 0, d. None of the above As migration takes place the gini coefficient of inequality a. At first rises, then falls, b. At first falls, then rises, c. Falls continuously, d. Rises continuously As migration takes place the income share of the poorest 50% a. At first rises, then falls, b. At first falls, then rises, c. Falls continuously, d. Rises continuously As migration takes place the per capita income of the workers a. At first rises, then falls, b. At first falls, then rises, c. Falls continuously, d. Rises continuously The income share of the poorest 20% is likely to be at a minimum in which period a. Period 2, b. Period 3, c. Period 4, d. Period 5 Suppose we hypothesize that wages are set at a subsistence level. Then what observation will strengthen our hypothesis a. There is no involuntary unemployment, b. Wages do not fall as labor productivity changes, c. Wages fall in the slack agricultural seasons, d. None of the above In a perfectly competitive economy, if the demand curve for labor is infinitely elastic then all of the national income will accrue to a. Workers, b. Capitalists, c. Landlords, d. None of the above 17.04.2025: History of Economic Development
Please explain economic development over time from a long-term historical perspective. What were major events that spurred economic development? Economic development was not even across different world regions. Please explain geographic differences and mention potential reasons from a historical perspective. How do the structures of economies change with economic development? Explain how the African slave trades affected ethnic fractionalization and how this impact economic development in the long-run. What was the impact of a rugged terrain on the economic development of African nations affected by the slave trades? What are the five stages of development according to W. W. Rostow? Characterize each stage with few bullet points. According to W.W.Rostow, which of the following does not belong to the "precondition for take off": a. Increased agricultural productivity, b. Political stability, c. Development of social overhead capital, d. Growth of the durable consumer goods industry Rostow's Theory of Development: Read Rostow's article. How is the traditional society characterized? What are the preconditions for the off-take? What are the differences between the 'take-off' stage, the 'drive to maturity' stage and the final 'age of high mass consumption'? How does Rostow's theory differ from communist theories of development? Do you think we reached the 'final stage' of development in 1960 or would you like to add another stage? 24.04.2025: Possible Futures of Economic Development
Will economic growth as observed during the last few decades likely continue at the same rates into the next few decades? Please explain your answer. What is meant with "decoupling economic growth from the environment"? Is such decoupling actually happening, and does this help for global sustainable development? Please explain in a differentiated way. What is meant with the "rebound effect" of technological improvements? What is meant with post-growth economic development? What is meant with green growth? How does the choice of the discount rate in economic analysis matter for sustainable development? Please explain. Define sustainable development. How can we account for sustainability in economic growth models? What is environmental dependence? What is the difference between inclusive growth and green growth? Define sustainable development. Why sustainable natural resource management is important for development? Compare circular economy with linear economy. Discuss about various schools of circular economy thinking. What is the difference between inclusive growth and green growth? Please define bioeconomy. What is the WEF nexus approach? 28.04.2025: Models of Economic Development and Growth
What is meant with the term "economic growth theory"? Briefly explain the main idea of Arthur Lewis' dual-sector model of growth. What type of criticism is the Lewis model confronted with? What is meant with the "Prebisch-Singer hypothesis"? Many countries in Africa tried to follow an "import-substitution industrialization" strategy since the 1960s. What does this strategy imply? Was it successful? Why, or why not? Several economic theories of the 1950s and 1960s contributed to a bias against agriculture in policy-making. This bias actually hampered economic development. Please explain a few theories that contributed to this bias against agriculture. Productivity growth in agriculture often contributes more to poverty reduction than productivity growth in other sectors. Please explain why this is the case. What is meant with the "Washington Consensus"? Was this useful for economic development in the Global South? Please explain in a differentiated way. What are the assumptions of the Solow Model? - Exam Development Economics 04.08.2017.pdf Please explain the main sources of economic growth in the Solow model. What predictions does the Solow model make, and are these compatible with the actual growth experience in different countries? Why, or why not? How do endogenous growth models differ from Solow-type exogenous growth models? What is meant with Schumpeter's "gale of creative destruction"? Standard development theories of the 1950s and 1960s led to a policy bias against agriculture. Please briefly explain why this bias emerged, and whether or not this bias against agriculture was favorable for economic development. Explain concepts like "human capital", "physical capital", and "level of technology" as frequently appearing in development models (assumptions, measurement). Explain the assumptions of the neoclassical production function. Can you give an example of a neoclassical production function? What is TFP? How can TFP be calculated (formula)? Which data is necessary for this? Explain the underlying assumptions and functions of the Solow-Swan model (formally and in words). What are the main differences of the Harrod-Domar model to the Solow model (in model assumptions and results)? What is a steady state? Show graphically the steady state in the Solow model and how changes in saving rate and population growth affect the steady state. - Exam Development Economics 04.08.2017.pdf 
