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Spring 2013 Econ 471 Prof. Bee-Yan Roberts Problem Set 1

1. The figures in the following problems are all actual numbers taken from reports prepared by various organizations like the World Bank

Average Annual GDP per capita Growth Rates

Growth Miracles| Growth Disasters|

Country| 1995-2005| Country| 1995-2005|

China| 8.0| Djibouti| -1.2|

Oman| 2.0| Eritrea| -1.0|

Singapore| 4.5| Ivory Coast| -1.3|

Hong Kong| 2.0| Uruguay| -0.6|

The table above documents the average annual GDP per capita growth of 4 countries that grew very rapidly and 4 that were growth disasters between 1995 and 2005.

A) In 1995, the GDP per capita of the Ivory Coast was $8500, greater than that of Oman which was $6355. Using the figures in the table above, calculate GDP per capita for these two countries in the year 2005.

B) In terms of sustained growth, China is the world’s fastest growing country. At this rapid growth rate, how long will it take China to double its income per capita? Contrast this result to the one for Hong Kong where the annual average growth rate over the same 10-year period is 2.0%

C) In 1995 the Singaporean government’s goal was to double its per-capita income by 2010. If Singapore keeps growing at the same annual average rate exhibited between 1995 and 2005, can this objective be achieved?

D) In 1998, China’s GDP per capita was $821, while that of Singapore’s was $20,982. If both countries grew steadily at their average annual rates indicated in the table above, how long would it take China to catch up to Singapore’s income per capita?

2. A) A study finds that there is a strong correlation between being overweight and suffering a heart attack. Does this prove that being overweight causes heart attacks?

i) Give an example in which the correlation is the result of reverse causation.

ii) Give an example in which the correlation is the result of an omitted variable.

B) Research indicates a positive correlation between countries whose population have more years of schooling and GDP per capita. Does this prove that more education (as reflected in increased years of schooling) results in higher income?

i) Give an example in which the correlation is the result of reverse causation.

ii) Give an example in which the correlation is the result of an omitted variable.

3.Nigeria and Pakistan are about the same size in terms of total population, at about 300 million. Use the figures in the table below to calculate the head-count ratio and average poverty gap in each country and carefully interpret the results.

Income Distribution below poverty line ($1 per day)| 25 cents per day| 50 cents per day| 75 cents per day | Nigeria (millions of people)| 80| 40| 30|

Pakistan (millions of people)| 20| 50| 80|

4. The table below reports the distribution of income in Chile and the United States in 2009. A)Draw the Lorenz curve for the two countries in the same graph. Without actually calculating the Gini coefficient, use the information from the Lorenz curves and explain which country has the lower income inequality measure. B)Calculate the Gini coefficient for both...