ECN 360 - Economic Development

ECN 360, Economic Development
Autumn 2016
Todd Schoellman Problem Set 4
As a reminder, you are allowed and encouraged to do this problem set with others. However, each
student must submit his or her own problem set, which may not be a direct copy of another student's.
Section 1: Multiple Choice. Select one. 5 points each, 60 points total.
Question 1 What is true of the poor's borrowing and lending activity?
a. Poorer people pay lower interest rates.
b. They have no capacity to borrow or lend.
c. Typical interest rates might be 40—50% per year.
d. They borrow heavily from banks.
Question 2 Suppose you have an economy where ½ of the population earns $0 a year and ½ earns $100
a year. What is the Gini coefficient?
a. 0.125.
b. 0.25.
c. 0.5.
d. 1.
Question 3 What is the relationship between the size of the informal economy and development?
a. Richer countries have larger informal countries.
b. Poorer countries have larger informal countries.
c. The size of the informal economy does not vary much with development.
d. None of the above: it is not possible to measure the size of the informal economy.
Question 4 What was the main effect of the natural experiment that granted titles to some squatters in
Argentina?
a. They earned higher incomes.
b. They were more likely to take out mortgages.
c. They invested more in their properties.
d. They were more likely to be employed.
Question 5 Which view of the informal economy is best supported by the evidence?
a. The romantic view.
b. The parasitic view.
c. The Malthusian view.
d. The dual economy view.
Question 6 Which sector of the economy grows throughout the process of structural transformation?
a. Manufacturing.
b. Services.
c. Agriculture.
d. Mining. Question 7 What happens to urbanization and rural wages when urban wages rise, say due to structural
transformation?
a. Urbanization increases and rural wages rise.
b. Urbanization increases and rural wages fall.
c. Urbanization decreases and rural wages rise.
d. Urbanization decreases and rural wages rise.
Question 8 What is the main benefit of using implicit association tests?
a. They help people understand their own internal biases.
b. They provide evidence of discrimination in practical settings.
c. They are difficult to game.
d. They are widely available for countries around the globe.
Question 9 According to the Kuznets curve, how will a country's inequality change as it grows?
a. There is no clear relationship predicted.
b. It will tend to rise throughout the process.
c. It will tend to fall throughout the process.
d. It will first rise, then fall.
Question 10 What makes the market for credit so much more complicated than the market for oranges?
a. Supply is not increasing in the price.
b. There is no well-defined price for credit.
c. Transactions take place over time.
d. The demand is nonlinear.
Question 11 Which of the following is an example of moral hazard?
a. Consumers with worse health histories are charged higher rates.
b. Drivers with car insurance are more likely to speed.
c. People with poor vision are more likely to buy vision insurance.
d. Insurance companies refuse to sell health insurance to those who are seriously ill.
Question 12 Which of the following is an example of adverse selection?
a. Consumers with worse health histories are charged higher rates.
b. Drivers with car insurance are more likely to speed.
c. People with poor vision are more likely to buy vision insurance.
d. Insurance companies refuse to sell health insurance to those who are seriously ill.
Section 2: Short Answer. 20 points each, 40 points total
Question 1 Explain how credit markets differ between poor and rich countries. Make sure your answer
touches on how they accomplish screening, monitoring, and punishment.
Question 2 Give and explain two theories of why women face less discrimination in rich than in poor
countries.