Chapter 2

Question 1

GDP equation

Answer 1

Y = C + I + G + (x-m)

=> GDP = consumption + investment + government + (exports - imports)

Question 2

UMC

Answer 2

upper-middle income country

$3,466 - $10,725

Question 3

LMC

Answer 3

lower-middle income country

$876-$3465

Question 4

LIC

Answer 4

low-income country

less than or equal to $875

Question 5

human capital

Answer 5

INVESTMENTS IN PEOPLE in areas of EDUCATION, skills, HEALTH

Question 6

three basic indicators of development

Answer 6

real income, health, education

Question 7

PPP

Answer 7

Purchasing Power Parity

measures the amount of units of a local currency required to purchase the same basket of goods in the local economy as $1 would buy in the US

Question 8

HDI

Answer 8

Human Development Index

HDI = 1/3 (income index) + 1/3 (life expectancy index) + 1/3 (education index)

on a scale of 0 to 1 (lowest to highest human development):

Low: (0-0.499)
Medium: (0.5-0.799)
High: (0.8-1)

Question 9

NHDI

Answer 9

New HDI

NHDI = [(life expectancy index)(education index)(income index)]^1/3

Question 10

(new) Life Expectancy Index

Answer 10

LEI = (Life Expectancy) - 20 / (83.6-20)

Question 11

(new) Income Index

Answer 11

Income Index = [ ln(GNI per capita) - ln(100) ] / [ ln(87,478) - ln(100) ]

Question 12

(new) Education Index

(Mean years of schooling index)

(Expected years of schooling index)

Answer 12

Education Index = [ (MSI x ESI)^1/2] - 0 / 0.971 - 0

Mean years of schooling index = (mean yrs schooling) - 0) / (13.3 - 0)

Expected years of schooling index = (expected yrs schooling) - 0 / (18.0 - 0)

Question 13

Differences between paths to economic growth for LDCs today and the earlier paths of today’s MDCs

Answer 13

1) Human and Natural Resource Endowments
2) Income and GDP
3) Climate
4) Population
5) International migration
6) trade benefits (or lack thereof)
7) Scientific and Tech Research
8) Domestic institutions