Unit 2: Economic Growth vs. Development

Question 1

What is the Gini coefficient?

Answer 1

A measure of income distribution in a country.

Question 2

What does a Gini coefficient score of 100 mean?

Answer 2

That all income in a country is received by 1 household

Question 3

What is an overvalued exchange rate?

Answer 3

An overvalued exchange rate implies that a countries currency is too high for the state of the economy.

Question 4

What is Foreign Direct Investment (FDI)?

Answer 4

A foreign direct investment (FDI) is a controlling ownership of a business in one country by an entity based in another country.

Question 5

True or false:

Inequality is fairly stable through time for a given country.

Answer 5

True.

Dramatic change in a country’s inequality usually happens over multiple decades.

Question 6

What is the “Washington Consensus”?

Answer 6

The Washington Consensus is a set of 10 economic policy prescriptions considered to constitute the “standard” reform package promoted for crisis-wracked developing countries.

It is called the Washington Consensus because it was developed by Washington, D.C.–based institutions such as the International Monetary Fund (IMF), World Bank, and the US Treasury Department.

Question 7

What is Structural Change (relative to economies)?

Answer 7

Structural Change is when a market noticably changes the way it functions or operates.

Note: causes of structural change can be complex.

Question 8

What is the “East Asian miracle”?

Answer 8

The theory that growth is most enduring in (originally east asian) countries that maintain

• outward orientation
• inward Foreign Direct Investment (FDI)
• low external debt or deficits
• macro stability
• equal income distribution

Question 9

What are 5 important determinants of economic growth?

Answer 9

• High Quality economic institutions
• High Quality political institutions
• Outward orientation
• Marcoeconomic stability
• Human Capital accumulation

Question 10

According to Dani Rodrik, Macroeconomic and financial stability require these 3 things:

Answer 10

• Debt sustainability
• Prudential regulation
• sound money

Question 11

Policies intended to make structural change are difficult to manage because (2 reasons)…

Answer 11

• a lack of complete information - it is difficult to know exactly where and how to intervene
• a lack of political alignment - any policy can be captured or taken advantage of from powerful rent-seekers

Question 12

What does “rent-seeking” mean?

Answer 12

Rent-seeking generally means “to seek benefit for yourself without returning any new or meaningful value”

Question 13

True or false:

Developing countries were responsible for the bulk of global growth by 2010

Answer 13

True

Question 14

High Growth picked up in Latin America and Africa starting around 1990 and surpassed levels not experienced since _____ (which decade?)

Answer 14

The 1960s

Question 15

Which of the following groups has had the most severe growth/recession cycles since 1995?

• Advanced Countries (North America, Western Europe, Japan, Korea, Singapore, Hong Kong and Taiwan)
• Emerging Asia
• Latin America
• Sub-Sharan Africa

Answer 15

Sub-Saharan Africa

Question 16

What does a Gini coefficient score of 0 mean?

Answer 16

That all households in a country have the same income.

Question 17

What is Trade Liberalization?

Answer 17

Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations.

Question 18

What 2 countries have seen dramatic change in inequality over the past few decades?

Answer 18

• China
• United States

Question 19

What is the range of a the Gini coefficient measurement?

Answer 19

0-100

Question 20

What countries are considered the BRICs countries?

Answer 20

• Brazil
• Russia
• India
• China

Question 22

Growth in developing countries nearly triples from around ____ percent per capita in the 1980s to almost ____ percent before the crisis of 2008.

Answer 22

2 percent to 6 percent.

Question 23

True of false:

Broad-based growth leads to longer and less volatile growth periods.

Answer 23

True.

Question 24

What is Macroeconomic volatility?

Answer 24

Large swings in a country’s international economic performance. Often measured in exchange rate changes (depreciation or inflation)

Question 25

What 3 inequality channels affect growth sustainability?

Answer 25

• Credit Market Imperfections. e.g. poor people may not have the means to finance their education or health
• Political Economy. e,g, inequality may give all power to the wealthy who only invest in growth narrow growth for their individual benefit vs. broad benefit.
• Political instability. e.g. high unemployment causing social unrest which impairs motivation to grow.

Question 26

What is the “convergence gap”?

Answer 26

The difference in productivity levels of two countries (or two groups of countries).