Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECON 4053 Development Economics

Semester 1, 2022-2023

Please submit your answers to Ms. Tina Kong at T1-301-R5-H10 before or on Oct 31, Monday, Week 8.

Q1: (16 marks) Per capita GNI, or per capita GDP, is an important indicator for economic development level and living standard. And Per capita GNI/GDP in a developing country can be measured either using its domestic currency, U.S. dollar, or purchasing power parity (PPP).

a. (4 marks) When can we use the per capita GNI/GDP measured by domestic currency?

b. (12 marks) If you want to compare relative GDP/GNI across countries, which measurements can you use, and which measurement do you prefer? Why?

Q2: (26 marks) Assume that the aggregate output in a closed economy is given by the following Cobb-Douglas function:

Y_t = A_tK_t^0.5L_t^0.5

where the variable Y denotes GDP, K capital, and L labor force. The subscript of each variable denotes year.

The depreciation rate of capital in this economy, d, is 8%. Saving rate in the economy, s, is 20%. The annual growth rate of labor force, n, is 2%. Let’s assume that technology level A_t is constant at A=3.

Capital stock in year t+1 is determined by the following equation:

K_t+1 = (1-d)K_t + I_t = (1-d)K_t + sY_t.

Capital per worker in year t is k_t = K_t/L_t. GDP per worker in year t is y_t = y_t/L_t. Hence, the aggregate production function of this economy can be written as:

y_t = f(k_t) = A´k_t^0.5

a) (3 marks) Derive the following relationship between k_t+1 and k_t:

(1+n)k_t+1 = (1-d)k_t + sA´k_t^0.5.

b) (3 marks) On the steady state of this economy, k_t+1 = k_t. Find the steady state value of capital per worker.

c) (5 marks) In year 1990, k₁₉₉₀ = 4. Calculate y₁₉₉₀, k₁₉₉₁ and y₁₉₉₁. What are the growth rates of capital per work and GDP per worker in year 1991?

d) (5 marks) In year 2004, k₂₀₀₄ = 16. Calculate y₂₀₀₄, k₂₀₀₅ and y₂₀₀₅. What are the growth rates of capital per work and GDP per worker in year 2005?

e) (3 marks) In 1990 and 2004, this economy has the same saving and investment rates. Why are the growth rates of GDP per worker so different in these two years?

f) (4 marks) Summarize the difference between the Solow Neoclassical growth model and the AK model learned in the class.

g) (3 marks) With a constant technological level, GDP per worker in this economy will converge to its steady state in the long run and does not grow any more. Is this result consistent with our real economy now? Discuss.

Q3: (28 marks) The following table shows the real income information of Happy Island in the years 2005 and 2015, with only 10 citizens in both years.

a) (4 marks) Calculate the Kuznets ratio in 1990 and 2000, respectively.

b) (4 marks) Carefully graph the Lorenz curves for the years 2005 and 2015 in one graph. Label the axes clearly. 

c) (3 marks) How do we calculate the Gini coefficient of income for an economy? Does the Gini coefficient of income in Happy Island increase or decrease from 2005 to 2015?

d) (4 marks) Did the income equality increase or decrease in Happy Island from over the period 2005-2015?

Assume that the poverty line is $2,700.

e) (7 marks) Complete the following form for Happy Island.

f) (3 marks) Did the extent of absolute poverty increase or decrease in Happy Island over the period 2005-2015?

g) (3 marks) How do you evaluate the development of Happy Island over the period 2005-2015?

Q4: (15 marks) What are the core values of development? What are the basic indicators of development? Why is the traditional Human Development Index replaced by the New Human Development Index from 2010 on?

Q5. (15 marks) Does high population growth cause underdevelopment? Discuss.