Assignment
Question 9:
a) Using the Mexican data given above, what is the growth rate of total national income if the highest-income quintile's income increases by 10%, and all other quintiles' incomes remain constant?
b) Using the Mexican data given above, what is the growth rate of total national income if the lowest-income quintile's income increases by 10%, and all other quintiles' incomes remain constant?
c) Referring to your answers to parts (a) and (b), briefly explain why the growth rate of national income is not a very useful measure of social welfare.
d) Calculate the change in social welfare when policy makers use poverty weights given below in both cases of (a) and (b). In other words, calculate Ahluwalia-Chenery welfare index (ACWI) for both cases
Policy makers give following weights to the income of different quintiles when they calculate social welfare:
|
Quintile
|
Poverty weights
|
|
Lowest 20%
|
0.5
|
|
Second quintile
|
0.2
|
|
Third quintile
|
0.1
|
|
Fourth quintile
|
0.1
|
|
Highest 20%
|
0.1
|
Question 2: Compare and contrast the arguments made by the Rostow's Stages Theory and the Dependency Theory, regarding domestic and international strategies for development.
Question 3: W.A. Lewis' dual economy model dominated the thinking of development economists in the 1950's and 1960's. Describe the key assumptions of the Lewis model and the mechanism by which economic growth was generated within his dual economy framework.
Question 4: Describe the key assumptions of Solow Growth Model and explain the main implications of the model for development policymaking.
Question 5: Explain the basic idea behind the Big Push model. A diagram is not required.
Question 6: What are the strengths and weaknesses of randomized controlled experiments in guiding development policymaking?
Question 7: What is Kuznets' inverted-U hypothesis? Explain Piketty's criticism of Kuznets' analysis. What are the two mechanisms by which inequality might negatively affect economic growth?
Question 8: The following income distribution data are for Mexico.
|
Quintile
|
Percent Share
|
|
Lowest 20%
|
2.4%
|
|
Second quintile
|
5.7%
|
|
Third quintile
|
10.7%
|
|
Fourth quintile
|
18.6%
|
|
Highest 20%
|
62.6%
|
Mexico's total national income: $1 billion per day
Mexico's population: 160 million people
a) Graph the Lorenz curve from the Mexican data given above, carefully labeling the axes. On the axes, label all values that correspond to the five points that make up the Lorenz curve.
b) Show how to find the Gini coefficient, graphically (do not actually calculate it numerically).
c) Suppose that each household makes the average income for its quintile (that is, assume that there is no inequality within quintiles). Using a poverty line of $1 per day per capita, what is the headcount ratio? What is the total poverty gap?
d) Suppose one percent of total national income were transferred from the second income quintile of households to the lowest-income quintile of households. Assume no other changes in the economy. What is the quantitative effect on the headcount ratio and total poverty gap?