Deck 5: Poverty, Inequality, and Development  

Question 1

Using a Lorenz curve diagram, explain how to calculate the Gini coefficient.

Answer 1

Examined in the text.

Question 2

Consider the following distribution of income in a 12-person economy, with the modern urban?wage ₌ 3, the traditional rural income ₌ 1, and the informal urban wage ₌ 2: (1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3). The poverty line ₌ 1.25. Suppose rural incomes are raised to 1.5 through expanded agricultural exports. What happens to relative inequality? Absolute poverty? Calculate the Ahluwalia-Chenery Welfare Index for terciles (3 fractiles) under GNP weights and equal weights. Why is the equal-weighted index higher?

Answer 2

Inequality decreases. Poverty is eliminated. ACWI ₌ 0.083 with GNP weights. ACWI ₌ 0.167 with equal weights.

Question 3

Explain the difference between size and functional measures of income distribution.

Answer 3

Size refers to family or personal income and function refers to factor shares.

Question 4

Just what is it that makes a technology "appropriate" for a developing country?

Question 5

The following income distribution data are for Brazil.

a.Carefully graph the Lorenz curve, labeling the axes.

Question 6

What are factor price distortions, and what are their major causes in developing countries?

Question 7

What is the Grameen Bank and what is its contribution to tackling rural poverty?

Question 8

"The 1980s were a lost decade for the absolutely poor." Evaluate this statement.

Question 9

Consider the following distribution of income in a 12-person economy, with the modern urban ?wage ₌ 10, the traditional rural income ₌ 2, and the informal urban wage ₌ 4: (2, 2, 2, 2, 4, 4, 4, 4, 10, 10, 10, 10).
a.Suppose rural incomes are raised to 3, other things equal. Show the change using the Lorenz curve. How would this type of growth be characterized? (It is suggested that you use the Fields growth decomposition in answering. This shows traditional sector enrichment growth.) b.Calculate the Ahluwalia-Chenery Welfare Index for terciles (3 fractiles) under GNP weights and equal weights. Which index is higher and why?

Question 10

Discuss the reasons why developing countries so often use a technology with an excessively high capital labor ratio.

Question 11

Generally speaking, higher-income countries tend to have less income inequality than low-income countries, however this does not always hold true. What could cause a low-income country to have low-income inequality?

Question 12

Distinguish between economic growth by modern sector enlargement, modern sector enrichment, and traditional sector enrichment. For each of the three cases, show what happens to absolute poverty and to relative inequality, using a precise measure of each.

Question 13

What is a Lorenz curve? Draw one, labeling the axes.

Question 14

Discuss the benefits of using a "poverty weighted" index of GNP growth as a measure of social welfare as opposed to using the growth in GNP to measure change in social welfare.

Question 15

About how many people are living in extreme poverty in the world? Which regions have the greatest percentages of people living in extreme poverty?

Question 16

Explain why a Lorenz curve can never lie to the left or above the 45 degree line.

Question 17

What are the characteristics of the poor (be specific)?

Question 18

Why are about 200 million girls and women said to be "missing" in developing countries?

Question 19

Discuss some policies or strategies that would give firms an incentive to substitute labor for capital within modern production techniques.

Question 20

Increasing GNP is a necessary but not a sufficient condition for improving living standards in less developed countries. True or false, explain.

Question 21

The absolute poverty line

A)decreases as real income grows.
B)shows the average income of the lowest income group.
C)can be measured with the Lorenz curve.
D) None of the above.

Question 22

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.

Question 23

Higher-income countries tend to have lower levels of absolute poverty because they

A)have more employment opportunities.
B)have more public assistance.
C)have greater entrepreneurship opportunities.
D) All of the above.

Question 24

Poverty is better studied with size distribution measures than with those based on factor distribution because

A)labor income may be highly concentrated in well-paid modern sector workers.
B)some poor farmers may receive a sizable share of income in rent.
C)income from nonmarket activities, such as foraging, may be important.
D) All of the above.

Question 25

Kuznets' inverted-U hypothesis

A)implies that things must get worse before they get better.
B)suggests that inequality will worsen and then improve as a country grows.
C)suggests that inequality will improve and then worsen as a country grows.
D) points out six characteristics of modern economic growth.

Question 26

Which of the following policies may decrease the level of capital intensity in industry?

A)an increase in the cost of capital
B)a decrease in the minimum wage
C)an increase in the elasticity of substitution
D) All of the above

Question 27

With modern sector enlargement growth, inequality will

A)first rise and then fall.
B)first fall and then rise.
C)remain about the same.
D) All of the above.

Question 28

With modern sector enrichment growth, inequality will

A)first rise and then fall.
B)first fall and then rise.
C)remain about the same.
D) None of the above.

Question 29

The number of people in the world who are absolutely poor is closest to

A)a quarter-billion.
B)a half-billion.
C)one billion.
D) two billion.
E) four billion.

Question 30

About what percent of the world's poorest people are female?

A)30
B)50
C)70
D) 90

Question 31

Distribution of income according to percentiles, such as the highest 40 percent or lowest 20 percent ?is known as the _______________ distribution of income.

A)size
B)functional
C)GNP-weighted
D) equal-weighted

Question 32

According to Kuznets, in the process of development inequality in an economy will normally

A)first rise and then fall.
B)first fall and then rise.
C)remain about the same.
D) show no definite pattern.

Question 33

What conclusion can be reached from the following data on income shares?

A)absolute poverty is more widespread in Bangladesh
B)the size distribution of income is more unequal in Indonesia
C)Bangladesh had adopted a strategy of redistribution with growth
D) growth in Bangladesh is calculated using poverty weights rather than income weights

Question 34

About how many girls and women are said to be "missing" in LDCs?

A)2 million
B)20 million
C)200 million
D) 2 billion

Question 35

The Ahluwalia-Chenery Welfare Index

A)is a method used to measure changes in absolute poverty.
B)shows the value judgement implications of using the change in income per capita as a measure of the change in development.
C)is a method used to measure changes in inequality.
D) is a method used to measure the growth rate of GDP.

Question 36

Which of the following policies might increase labor intensity in industry?

A)a decline in the cost of credit
B)a decline in the minimum wage rate
C)a decline in the elasticity of substitution
D) All of the above

Question 37

Which of the following groups is (are) more likely to be poor?

A)Minorities
B)Indigenous people
C)Women
D) All of the above.

Question 38

The 2002 World Development Report provides the following information for Colombia and Thailand:

a.Explain carefully what each of the entries in the final four columns of this table measures. What concepts are being presented and what is their importance to economic development?

Question 39

One of the characteristics of the poor is that they are

A)more likely to be employed in the modern industrial sector.
B)more likely to come from small families.
C)more likely to be well educated.
D) more likely to live in a rural area.

Question 40

Developing countries who have adopted capital intensive technologies tend to have

A)relatively higher Gini coefficients.
B)relatively lower Gini coefficients.
C)Gini coefficients equal to one.
D) Gini coefficients equal to zero.

Question 41

Assuming that the Gini coefficient for Egypt is 0.403 and the Gini coefficient for Australia is 0.404, it is possible to conclude that both Egypt and Australia have

A)virtually the same number of households in absolute poverty.
B)virtually the same percentage of households in absolute poverty.
C)virtually the same level of the Human Development Index.
D) None of the above.

Question 42

The functional distribution of income refers to the distribution of income between

A)individuals or households.
B)rural individuals or households.
C)urban individuals or households.
D) the factors of production (land, labor and capital).

Question 43

The poverty gap is the

A)absolute number of people below the international poverty line.
B)percentage of the population below the international poverty line.
C)consumption (measured in dollars) necessary to bring everyone living below the poverty line up ?to the poverty line.
D) percentage of a country's total consumption necessary to bring everyone in the country living?below the poverty line, up to the poverty line.

Question 44

Brazil's growth rate during the 1960s was 6.0 percent when poverty weights were used to evaluate growth, compared with 8.2 percent when GNP weights were used to evaluate growth. One can conclude from these numbers that

A)average income growth was greater for poor households than for rich households.
B)average income growth was greater for rich households than for poor households.
C)more and more households were falling below the poverty line.
D) the size distribution of income was getting worse.