Economic Development, 11E Michael P Todaro Stephen C Smith Instructor Manuals by TBtutors

Type:

Instructor Manual

Resource:

Economic Development

Edition:

11th Edition

Author(s):

Michael P. Todaro Stephen Smith

Online Instructor’s Manual to accompany

Economic Development Eleventh Edition

Michael P. Todaro New York University

Stephen C. Smith The George Washington University

Authored by

Pareena G. Lawrence University of Minnesota, Morris

Contents Introduction

........................................................................................................................................

Part One

Principles and Concepts ...............................................................................................

Chapter 1

Introducing Economic Development: A Global Perspective ..........................................

Chapter 2

Comparative Economic Development ............................................................................

Chapter 3

Classic Theories of Economic Growth and Development ..............................................

Chapter 4

Contemporary Models of Development and Underdevelopment ...................................

Part Two

Problems and Policies: Domestic .................................................................................

Chapter 5

Poverty, Inequality, and Development ...........................................................................

Chapter 6

Population Growth and Economic Development: Causes, Consequences, and Controversies ..................................................................................

Chapter 7

Urbanization and Rural–Urban Migration: Theory and Policy ......................................

Chapter 8

Human Capital: Education and Health in Economic Development ...............................

Chapter 9

Agricultural Transformation and Rural Development ....................................................

Chapter 10

The Environment and Development ...............................................................................

Chapter 11

Development Policymaking and the Roles of Market, State, and Civil Society ............................................................................................................

Part Three

Problems and Policies: International and Macro ......................................................

Chapter 12

International Trade Theory and Development Strategy .................................................

Chapter 13

Balance of Payments, Debt, Financial Crises, and Stabilization Policies ...................................................................................................... 104

Chapter 14

Foreign Finance, Investment, and Aid: Controversies and Opportunities ...................... 112

Chapter 15

Finance and Fiscal Policy for Development ................................................................... 120

Appendix

Additional Exam Questions ......................................................................................... 129

Introduction This introduction offers a description of the main features of this manual and provides some general suggestions for teaching undergraduate development economics, which may be particularly useful for instructors who have not previously taught a development economics course. Each chapter of the manual corresponds to a chapter in the text and contains the following sections: • Key Concepts: This section highlights the major topics covered in the chapter and offers a brief interpretation of the chapter’s general perspective and overall conclusions for easy reference. This is not to be considered an inclusive summary of all the points covered in the text. • Lecture Suggestions: Suggestions for developing and organizing lectures are offered, based on the experiences of several instructors who have previously used this text. Many chapters contain suggestions on where to find additional material that can be useful for expanding on some of the topics covered in the text. This section of the manual is not to be considered a complete lecture guide, but it can be useful for organizing lectures, filling in gaps, and suggesting new ideas for lecture topics. There are also suggestions for discussion topics included in each chapter. • Sample Questions: These questions can be used for homework or exams. The questions for review found at the end of each chapter in the text can also suggest potential essay questions for the exam. In many cases, where a question is not directly derived from material in the text, a very brief answer is suggested. In most cases, what you expect for an answer will depend on what you cover in lecture, as far as the level of detail. Most chapters also have one or two questions related to the case study at the end of each chapter. It is suggested that you use these questions only if you plan to lecture and expand on the case study. The case study summaries can be found at the end of the chapter. As in previous editions, case studies have been updated and revised to reflect the content of the relevant chapters. The appendix to this manual contains more exam questions for each section of the text.

◼ Lecture Ideas for First-Time Instructors Development economics, with the breadth of material and ideas it covers, is one of the most difficult undergraduate courses to teach. The material in the text touches on every branch of economics, whereas most instructors tend to specialize in only a few branches of economics. In this respect, teaching the class for the first time can be overwhelming. Here are a few ideas which may make it easier: • Pick the topics and chapters that you would like to cover in your course and follow the text fairly closely the first time. The students tend to like this anyway because then they know what to expect on the test. • Emphasize economic theory and the applicability of the theory to developing countries. This works especially well in cases where the economics background of the students is only at the introductory level. • Emphasize development problems and the associated pros and cons of solutions. This provides a nice structure to many lectures.

Introduction

• Research selected countries to use as examples. Talk about these countries throughout the whole course. Remind student that there are many developing countries, and it is not realistic to expect one person to be an expert on all countries. • Look up examples from current events and apply them to the theories discussed. Student interest is maintained by illustrating important problems and policy issues with recent events in the developing world, growth in microcredit organizations, climate change and its impact on developing nations, controversies over structural adjustment packages, export success of East Asia, reforms in China, Aids crisis in Africa, work of the Gates Foundation and the economic aftermath and recovery after the Asian tsunami. In the United States, the Newspaper Periodicals Index will help you locate the right article as well as identify topics you may have missed. • Use the group presentation approach described below. This has the advantage of taking up some lecture time, but is also a valuable learning experience for all concerned. • Emphasize the areas that you know best. Teaching development economics can be fun and exciting, yet challenging at the same time. The extent of the challenge is a function of class size and each student’s background in economics, as well as the breadth of the material and ideas it covers.

◼

Writing Exams

Many instructors will find that essay-type questions (and to a lesser extent numerical problems) are most appropriate for this subject, in order to see if students have really grasped the ideas. Suggestions for multiple choice questions are also offered, though frequently the material does not lend itself to multiple choice questions, but may be useful if class size is large.

◼ Ideas for Assignments There are many different types of assignments that can be used. • Traditional homework assignments. This works well if you plan to use graphical analysis, numerical analysis, or econometric analysis in your lectures. It also works well if the students have had intermediate level micro and macro as a prerequisite. In this case, they will already have been exposed to a lot of the analytical tools that you will use. • Short papers. This works well if you do not want to use traditional homework assignments. One option is to assign two short papers of about five pages in length. Have the first one due a few weeks after the start of the course, and the second one at the end of the course. For the first paper, have the students research the general growth and development experience of a country of their, or your, choice. The purpose of the assignment is to get them to do some background reading on the country. You can assign specific items that they must report on or leave it more open. Possibilities include data on growth and other key indicators. Political and social factors can also be included. For the second paper, have the student keep the same country and research a more specific hypothesis or problem that they have learned in the class. Popular topics are growth and the environment, trade strategy, population growth, and income inequality. You may restrict the list of topics or have them submit the topic for approval. • Group projects. This works well if you have a small class. You should choose a list of countries and have the students decide which group to be in. You might then choose three or four hypotheses or problems for the group to research, and have each person in the group present one topic. To encourage interest and participation in the presentation process, tell the students that they will be tested on the other group presentations. This will encourage questions and discussion.

Introduction

• Current events/News journal. Have the students collect articles throughout the course related to development issues (two or three per week) and have them write up a short summary of each article discussing the relationship between the article and what they learned in class. You can even have one or two students present their article in class at the start of each class. You may want to devote ten minutes of class time to a brief discussion about the articles and how they relate to what students have covered in the course or will shortly cover; perhaps they may never explicitly study the topic but you can explain to them why the issue is still important to the dialogue on economic development.

◼ The Internet The Internet has opened up great possibilities as far as sources of information are concerned. It is worth remembering that, when assigning papers, many of your students will not go to the library at all, but will use the Internet instead. Therefore, instructors should point out both the potentials and pitfalls of information collected from the Internet. The World Bank web site (www.worldbank.org), for example, has a wealth of information, and it is relatively easy to locate country summaries on the Internet that help with assignments. As a result, it is not too unrealistic to assign students the task of looking up information about particular countries in order to be prepared for class discussion. Other useful web sites include: Countries and Regions (www.worldbank.org/html/extdr/regions.htm) World Bank Development Data and Statistics (www.worldbank.org/data/) International Monetary Fund (www.imf.org) IMF World Economic Outlook (http://www.imf.org/external/pubs/ft/weo/2010/02/index.htm) United Nations Economic and Social Development (www.un.org/ecosocdev/) United Nations Statistics Division (unstats.un.org/unsd/) United Nations Development Program (www.undp.org) Human Development Report (http://hdr.undp.org/en/) For more online resources, visit the text’s Companion Website at www.pearsonhighered.com/todaro_smith. Updates to the Companion Website were provided by Abbas Grammy of California State University, Bakersfield. There you’ll find an online syllabus builder to create a calendar of assignments for each class. For the student, this site offers multiple-choice quizzes, readings, graphing and quantitative exercises, and maps and Internet exercises based upon the country case studies, with numerous web links to economic development and country data sites. The Instructor’s Resource Center (http://www.pearsonhighered.com/educator/product/EconomicDevelopment/9780138013882.page) carries PowerPoint lecture slides to aid you in classroom discussion. These were authored by Meenakshi Rishi of Seattle University.

Part One Principles and Concepts

Chapter 1 Introducing Economic Development: A Global Perspective ◼ Key Concepts It is easy to forget that students (especially in rich countries) may have a limited understanding of how life in the developing world differs from life in the developed world. The first main point of Chapter 1 is to drive this idea home, while also introducing through examples of debt crises and oil shocks, the idea that the world is becoming increasingly interdependent and that actions taken in the developed world can have a profound impact, for better or worse, on the developing world. The second point is to provide an overview of the nature of development economics as a field. A defense of development economics as a distinct field, rather than an agglomeration of other economics subfields, is offered. A major theme of the book, that development economics must encompass the study of institutional and social, as well as economic, mechanisms for modernizing an economy while eliminating absolute poverty, is introduced. The plan of the book is introduced through a series of 27 basic questions of development economics. Depending on the amount of material covered by the instructor, students should be able to intelligently address most of these questions by the end of the course. Section 1.3 looks deeper into the meaning of development and offers both the traditional economic measures and the new economic view of development that is multidimensional. This alternative approach is closely tied to the discussion of Sen’s “Capabilities” approach, first introduced in the 7th edition. Further, this section talks specifically about happiness in the context of economic development, relating the level of happiness not only to level of income but to other factors such as democratic freedoms and the quality of social relationships. The role of normative values in development economics—a subject dealing with human misery and human potential, with equity as well as efficiency, with cultural change that causes losses as well as gains, and with transfer as well as creation of wealth—is also stressed. The conclusion is that development is both a physical reality and a state of mind. The meaning and objectives of development include the provision of basic needs, reducing inequality, raising living standards through appropriate economic growth, improving self-esteem in relation to the developed countries, and expanding freedom of choice in the market and beyond. Section 1.4 presents an in depth examination of the UN’s Millennium Development Goals (MDGs). This includes a more comprehensive list of the goals themselves (appearing in Table 1.1) and a discussion of the shortcomings of the MDGs. Finally, the case study on Brazil at the end of the chapter has been revised and updated.

Chapter 1

Introducing Economic Development: A Global Perspective

◼ Lecture Suggestions The diversity of the developing world is worth stressing not only for the benefit of American students, notorious for being a bit shaky on geography, but students in developing countries as well, who may be unfamiliar with developing regions other than their own. Students should know that the developing world is economically and culturally far more diverse than the developed world. You might make some summary observations, such as within the developing world, per capita incomes range by a factor of well over 100 (from Mozambique to Singapore), while South Korea has a per capita income about equal to that of Greece and about half that of Spain. Incomes in industrial economies range by a factor of only three. Interesting statistics can be found from sources such as the World Bank World Development Reports and the United Nations Human Development Reports. Presenting a few maps and tables, or even a slide show if you take the time to develop one, can be a valuable way to refresh the student’s memory on geography, highlight important differences between nations and regions, and provide an overview of development issues and problems. For the slide show you could select color graphics drawn from sources such as the United Nations Human Development Reports and World Bank World Development Reports, both of which are published annually. The art history department at many colleges and universities will have special equipment for making slides from prints. These graphics can be combined with a few representative photos of economic activities that you yourself, or a colleague, have taken in developing countries. The result is a presentation that maintains student interest and sets the stage for the issues covered in the course. Some students have limited knowledge of historical events in the post World War II era, especially the events of the 1970s and 1980s. Some have little notion of oil price shocks, the external debt crises of the 1980s and the more recent Asian financial crises such as: what caused them, what effects they had around the globe, and how they underline economic interdependence. Touching briefly on these issues can make for a good introductory lecture theme. In many universities, the economic development course will be filled with students who are not majoring in economics. These students may come from different colleges with majors such as social sciences (anthropology, sociology, or political science) or the business college (management, finance, etc.) and may have had as little as one semester of introductory economics. Given that you are teaching an economics class, you may wish to remind the students of this fact. Economics provides an important framework for analyzing many of the important development problems and hence the class will draw on the students’ knowledge of economics. You may also remind the students that traditional economics is in large the study of decision making under conditions of scarcity. You might use the first lecture to set the stage for the approach you will take, whether it will be more interdisciplinary, more economic, more mathematical and quantitative, more historical, or some combination. The first week or two of class will likely involve discussions of social, political, and institutional factors as well as economic factors. Emphasize that development economics is a difficult subject to study and teach because it does not focus just on one country, but on all less-developed countries. Further emphasize that you will try to teach key concepts and ideas which can be applied to the experiences of many developing countries. These concepts and ideas are important for understanding where the developing countries are today, as well as what their options are for the future.

Todaro/Smith • Economic Development, Eleventh Edition

The 27 basic questions can be used to motivate student interest in the subject as well as present an overview of what the class is all about. It can be emphasized that there is no one answer to the general question of why some countries are more developed than others. There are as many different opinions on what a less developed-country should do to become more developed. A good approach is to present differing viewpoints throughout the course and let the students make up their minds on their own. If you have developing-country experience, mentioning some of your own experiences with, “How the Other Half Live,” is a way of introducing the first chapter and really getting students’ attention.

◼ Discussion Topics Encouraging class participation is a good way to motivate the students and make them feel involved in the learning process. The first few weeks of class in particular are conducive to this sort of exercise. Two ideas for discussions at this stage are: • What is the meaning of economic development? In what way(s) is economic growth different from economic development? • Is it possible for the whole world to be developed? This can be an interesting question to ask at the beginning of the course and then again at the end of the course.

◼

Sample Questions

Short Answer 1. Provide a definition of development economics. Justify your choice carefully. Answer: See the section in Chapter 1 entitled, “The Nature of Development Economics,” on pages 7–8 for some ideas about how the students might answer this question. They should in some way say that development economics is more than just growth in GDP. 2. In defining development to include more than just the growth of per capita income, there is an implicit assumption that the growth of per capita income alone is not sufficient to guarantee the reduction of poverty and the growth of self-esteem. Is it possible that there could be growth of per capita income without the achievement of these other objectives? Answer: Per capita income can show growth even when that growth does not touch vast portions of the population. The growth may be centered in one area or sector of the economy for example. Also, most developed countries have, at some time in their histories, introduced policies emphasizing equality. 3. In what way is development economics greater in scope than traditional economics? Answer: Development economics must encompass the study of institutional, political, and social as well as economic mechanisms for modernizing an economy while eliminating absolute poverty and transforming states of mind as well as physical conditions. More details found in the chapter. 4. Make a case that development economics might be merely a combination of all the other subfields of economics, only applied to low-income countries. Answer: See Question 3 above.

Chapter 1

Introducing Economic Development: A Global Perspective

5. What do you think are the most serious obstacles to further progress in the developing world? Answer: The main point here is to ensure that students are thinking carefully about the issues raised in the text. You may also wish to draw from the critical questions on Pages 9–11. 6. In reviewing discussions of life in developing countries, what is it about lifestyles in the low-income countries compared with lifestyles in the high-income countries that most strikes you? Why? Answer: This is an open-ended question to stimulate reflection. 7. It has been said that “underdevelopment is a state of mind.” Comment. Answer: You may look for a discussion of the role of modern values in the development process, as on Pages 12–14 of the text. 8. Do you think it is in the material interests of high-income countries to help low-income countries improve their economic performance? Why or why not? Answer: Answers might touch on increasing the market for products in which high-income countries have a comparative advantage, reducing the dangers of regional war and terrorism, reducing international transmission of disease, and curbing international migration. 9. How is happiness related to development? Answer: Answers should make reference to the correlation between happiness and income level as well as touch on the connection between happiness and social relationships, personal and democratic freedoms, religious beliefs, and health, among other factors listed on Page 20. Further, answers should include a discussion on happiness as being a part of Amartya Sen’s concept of functionings. 10. What are the Millennium Development Goals (MDGs) and how did they come about? What do you consider to be the most important of these and why? Answer: The answer should stress that the goals cover a broad range of objectives both economic and social. These were put forward so that developing countries would have numerical targets against which their progress could be judged and, where warranted, appropriate assistance offered. An interim assessment of the MDGs can be found at: www.unmilleniumproject.org. 11. Why are women often referred to as playing a central role in economic development? Answer: An answer should include how women can influence whether or not the next generation will be impoverished through their role of childrearing based on the resources they bring to this task and the values they pass to their children. Another key point that should be mentioned is that empirically, women tend to allocate a higher percentage of the income under their own control to the family and children than men. 12. What are the most important characteristics that have shaped Brazil’s economic and social progress during the last three decades? Answer: Discussion should include the large degree of income inequality, the need for land reform as a result of the dualistic nature of the land tenure system and the environmental challenge faced by what is one of the world’s most environmentally diverse countries.

Todaro/Smith • Economic Development, Eleventh Edition

◼ Multiple Choice 1. Countries tend to be classified as more or less developed based on a. the literacy rate. b. the poverty rate. c. the level of income per capita. d. the types of goods they produce. Answer: C 2. Which of the following demonstrates international interdependence? a. the oil shocks b. the debt crisis c. global warming d. all of the above. Answer: D 3. A subsistence economy is a. a very low income economy. b. an economy in which people make what they consume. c. an economy in which people receive food for pay. d. all of the above. Answer: B 4. Development economics is the study of the a. alleviation of absolute poverty. b. transformation of institutions. c. allocation of resources in developing countries. d. all of the above. Answer: D 5. Development economics must have a scope wider than traditional economics because a. values and attitudes play little role in the pace of development. b. people in developing societies do less utility-maximizing. c. transformation of social institutions is necessary for development. d. all of the above. Answer: C 6. A good definition of the meaning of development is the a. elimination of absolute poverty. b. improvement in the quality of life. c. fulfillment of the potential of individuals. d. all of the above. Answer: D

Chapter 1

Introducing Economic Development: A Global Perspective

7. Which of the following is not an important objective of development? a. increases in per capita income b. the expansion of available choices c. increases in individual and national self-esteem d. all of the above are important objectives of development Answer: D 8. The Millennium Development Goals include a. eliminating the proportion of people living on less than $1 per day. b. universal primary education. c. increasing exports by one half. d. all of the above. Answer: B 9. The core values of development include a. increasing income per person. b. reducing the inequality of income. c. the ability to meet basic needs. d. all of the above. Answer: C

Chapter 2 Comparative Economic Development ◼ Key Concepts In the new edition, Chapter 2 serves to further examine the extreme contrasts not only between developed and developing countries, but also between different developing countries. As in the last edition, Chapter 2 introduces quantitative comparison methods. After classifying countries as low–income, lower–middle income, upper–middle income, high income OECD, and other high-income countries (in accordance with the World Bank’s income classification structure), Purchasing Power Parity (PPP) is explained as a tool to make more accurate comparisons between countries based on income level. As an alternative to the World Bank’s classification based on income, Chapter 2 looks at other key development factors such as education and gender inequality, mainly through an introduction to the Human Development Index and how it is calculated. This edition also introduces students to the new Human Development Index and how it differs from the original HDI. It emphasizes the calculations of these two indexes and how a nation’s income level is often not consistent with its HDI or NHDI. Numerous new country comparison tables were added to better illustrate this point. The new edition emphasizes the similarities among developing countries. The chapter stresses ten key similarities of developing countries: • • • • • • • • • •

Low levels of living and productivity Low levels of human capital High levels of income inequality and absolute poverty High rates of population growth Social fraternization Large rural population with rapid rural–urban migration Low levels of industrialization Adverse geography Underdeveloped financial systems and markets Lingering colonial impact and external dependence

The subsection on the relative importance of private and public sector and civil society has been eliminated from this chapter. Within the discussion of these similarities are highlights of the diversity among developing nations despite their commonalities. The chapter goes into greater detail when discussing that developing countries began modern economic growth with initial conditions much different from those of the developed countries. In comparison to the position of the developed countries on the eve of their development, many of today’s LDCs have: • more limited natural resource endowments. • lower per capita incomes. • a less temperate climate and possibly unfavorable geographic conditions. .

Chapter 2

Comparative Economic Development

• larger population sizes and growth rates. • fewer migration possibilities, but a larger “braindrain” problem among those who do migrate (the new edition specifically addresses the problems associated with remittances). • fewer growth benefits from international trade. • limited scientific and technological research capacity. • ineffective domestic institutions. This section is followed up by a discussion as to whether the living standards in developing and developed nations are starting to converge. A section on the long-run causes of comparative development provides a framework linking these causes, designed purposely to give students a foundation for the following chapters which discuss different theories of economic development. Included is a diagram that is helpful for students when trying to visualize the linkages. The chapter ends with a case study on Pakistan and Bangladesh.

◼ Lecture Suggestions To avoid presenting list after list of similarities and differences between countries, students find it more interesting if you ask them to come up with the list and then fill in any items they have missed, as noted in the discussion topic section below. If you did not already discuss interesting statistics (or covered those very briefly) you could do this here as part of the discussion of common characteristics. Interesting statistics include data on the distribution of income, the percentage of people by region or country who are absolutely poor, life expectancy, infant mortality, literacy, and health indicators. The discussion of common characteristics can be viewed as a preview of topics to be discussed in more detail later in the course. Interesting questions can be raised that will be answered throughout the course. The questions that students ask at this stage can indicate which topics they are interested in, their knowledge of some of these topics, and any misconceptions they may have about various development issues. Note that the text discusses GNP as opposed to GDP, though both terms are defined in the chapter. Given that many principles of macroeconomics textbooks focus on GDP rather than GNP, it may be helpful to remind students of the difference. You can also discuss which may be the better measure for less developed countries and/or whether there is likely to be a significant difference between the two. Look up some examples for different countries. Stressing this issue depends, of course, on the background of the students. When discussing the classification of developing countries as either low income, lower-middle income, or upper-middle income you can also discuss: • Classifying countries using GNP per capita, or the human development index and comparing the two classifications. Show the students what factors are represented in the HDI and how it is computed (note the new coefficients in the newer version). This can further focus student attention on the broader meaning of development and the importance of looking beyond average income levels. The table on page 52 can help students contrast GDP per capita with HDI levels to show that a certain level of GDP does not guarantee an equivalent HDI. Starting on page 54, eight new changes are outlined as of 2010. • The GNP conversion problem. In order to classify countries according to GNP per capita each country’s GNP must be converted to dollars. This discussion can first review the definition of GNP and what counts and does not count in GNP. In particular, non-market transactions may be more prevalent in less developed countries. Nominal versus real GNP can also be reviewed. The concept of an exchange rate can be introduced here, as can fixed versus flexible exchange rates, in terms of highlighting problems

Todaro/Smith • Economic Development, Eleventh Edition

with exchange rate conversions. A distinction can be made between market and central-bank determined exchange rates and mention that, in the past two decades, many LDCs have adopted market rates. To explain purchasing power parity you can look up the latest Big Mac index from The Economist magazine. • Characteristics such as education, literacy, and share of industry in GNP tend to change predictably with the level of GNP. The diversity that exists between developing nations can be discussed partly by highlighting the differences between countries in Africa, Asia, and Latin America in terms of colonial experience, income level, political regime, wars, culture, trade strategy, and level of education. To further highlight specific country differences, such as size and resource endowments, it is useful to focus on one or two countries and point out the differences between them, as well as the special challenges each country faces. Introduce the concepts of modern economic growth and structural change. Traditional society and modern economic growth can be placed in historical perspective and a short discussion on the different conditions faced by developing countries and currently developed countries can follow. The legacy of colonialism and dependence in representative countries from various developing regions can be contrasted. Discuss the various theories of Comparative Development.

◼ Discussion Topics • Ask the students what they think the common features of developing countries are and make a list of their suggestions on the board. At the end, add anything that they have missed. Along the way you can elaborate on their suggestions. • Ask the students whether they think becoming more economically developed is equivalent to becoming more industrialized. You can present data on the share of industry in GDP, discuss the difference between necessary and sufficient conditions, and introduce the concept of modern economic growth and the structural changes that go along with development (this is discussed further in Chapter 3 as part of the structural change theory). Students will find it instructive to review the many differences between Europe on the eve of its postwar “miracle” and developing countries at their time of independence. These differences include infrastructure (at least engineering plans for destroyed sections), human capital (such as industrial skills even if industry was destroyed), magnitude and type of capital inflow, values of modernity, developing countries lower political autonomy and the legacy of colonialism, and the fact European countries not only were not colonies themselves but owned colonies. This topic can also be discussed in Chapter 3 as part of the discussion of the Harrod-Domar model. The Harrod-Domar model worked well for the European countries after WWII because they had the right complementary inputs in place.

◼

Sample Questions

Short Answer 1. Explain how low levels of living can turn into a vicious cycle in developing countries. Answer: See the section on low levels of living in the chapter.

Chapter 2

Comparative Economic Development

2. Carefully explain some of the similar problems faced by otherwise diverse countries in Africa, Asia, and Latin America. Answer: This calls for students to summarize some of the main points discussed in the chapter. 3. What are some of the main ways in which the economies of developing countries differ from one another? Answer: See the Key Concepts above for a summary. 4. Explain why purchasing power parity measures of income levels tend to show a smaller difference between poor and rich countries. Answer: PPP measures show the number of units of developing country currency required to purchase a basket of goods and services in the developing country market that costs one dollar in the U.S. Prices for most services tend to be much cheaper in developing countries than in the U.S. 5. In what way does nationalism tend to be a hindering force in attaining modern economic growth and development, and in what way a facilitating force? Answer: This is a question that would depend on what you have covered in lecture. 6. What are the three main indicators that make up the Human Development Index? Answer: Life expectancy, educational attainment, GDP per capita measured in PPP terms. 7. If countries are first ranked by level of real GDP per capita, and then by the value of the Human Development Index, would you expect the ranking of countries to be similar or different? Explain. Answer: The final column of Table 1 in the Human Development Report (hdr.undp.org) shows the difference in ranking between the two classification methods and students can be directed to that. 8. Comment on the following statement: The level and growth rate of real GDP per capita can be a misleading indicator of development. At the same time, countries that experience sustained increases in real GDP per capita over time will tend to be more developed. Answer: Open-ended essay. 9. What are the three major components of economic growth? Answer: Capital accumulation, labor force growth, and technological progress. 10. Explain the lingering effects of colonialism and how it is still playing a role in hindering economic development in the developing world. Answer: Answers should be based on the points covered in the section on the colonial impact as well as in lecture. 11. Why might the use of more advanced technology not be a sufficient condition for sustained economic growth? Answer: It may require an inefficiently high capital labor ratio and complementary factors, especially education, may be lacking. Additional points depend on lecture coverage.