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OSU ECON 4130 - SP14 Exam 1 Rev

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AU13 Midterm 1 ReviewEconomics 4130AU13 Midterm 1 ReviewThe exam will have 7, 10-point questions on it from the questions below.1. List 2 data sources researchers use to estimate historical standards of living and explain what they can infer from these sources. 1. censuses, surveys (population, demographic information, occupational distributions)2. tax records (production information, shipping information, exports and imports, wealth)3. church records (births, deaths, life expectancy)4. heights and skeletal remains (Professor Steckel’s research)— Individual height determined by “genetic potential” and nutrition (health) during growing year. We now believe that genetic potential does not vary by race or ethnicity. Average height of a population represents a measure of nutrition and stress (pollution, disease, work) during childhood.List three indicators of economic development other than National Income measures (NI, GDP, or GNP, level, growth rate, or per capita) that are of interest to economists and explain what can be inferred from each of these indicators.1. Average annual rate of inflation-Indicator of the stability of a government. A regime with high inflation is usually indicative of a government printing money for its own purposes (lavish palaces and courts) or war. 2. Life expectancy at birth—Unambiguous measure of well-being.3. Adult literacy, both female and total:Adult literacy is measure of human capital (productive capacity of the labor force) as wellas it is negatively correlated with child labor. Strong preference for societies to want theirchildren in school rather than at work as incomes rise.Female literacy: Indicator of gender equality. A society that doesn’t educate it’s girls generally has lower status of women.2. Explain in detail 3 weaknesses of per capita GNP (or GDP) as a measure of economic well-being. 1. Does not capture all economically important activitiesa. Black market/ informal (barter) market-much larger in less developed countries.b. Agriculture production for own consumption.c. Housework (production in the home). Some economies have seen GDP grow relatively more just as production preciously done in the home, moves to the market (child care, cleaning services, more meals out…)2. Dollar value of a good does not always equal “social” value (e.g., no accounting for pollution costs). In the industrial revolution, wages rose, priced fell, but there was overcrowding, more disease, poor working conditions… War rises GDP (government spending) without making us better off. So does a crime wave (more prisons, police.3. Welfare depends not only on size of national income but on its distribution. Honduras and Sri Lanka had same GNP per capita in 2009 – around $2,000, but different income distributions:4. Does not account for differences in “cost of living” across time and spaceEven if GDP per capita were a good measure of average income, comparisons across space and time would be hindered by the fact that the “cost of living” – that is, the cost of a certain bundle of goods or a certain lifestyle – is not the same in different societies (prices – housing prices in particular, taxes, etc.)Although this measure has the flaws you just listed (and others) it is the mostoft-referenced statistic when considering standard of living differences across countries. Why?Despite these caveats, GDP still most oft-referenced measure of countries’ welfarefor two main reasons: 1) Widely available It is widely available for a number of countries and a number of years. For the U.S. wecan estimate GDP back to 1840, for the U.K. even further back. Almost every country since 1960s.2) Even with all these flaws, it is highly and predictably correlated with any other measure.3. What has happened to global economic inequality since 1960? Why? Characterize the progress in social measures (education and health) in impoverished nations. Why is thereless of a link between improvement in these measures and GDP than in the past? Growth and Development trends since 1960. 1. In some sense, “world inequality is high and rising”a. Rather than deceasing inequality, globalization has widened it, mostly as the rich became richer. Poor, are still poor.b. But, as China and India have large populations and have experienced tremendous growth since 1980s, overall global inequality as declined.c. Overall 70% of world income inequality is explained by differences across countries, leaving 30% explained by differences within countries.2. Improvements in health and education in less developed nations.a. Nonlinear impact of income on life expectancy. That a little income improvement helps a lot, but at higher incomes, less impact at the margin. See Figure 1.7 in WESS.b. For reasons discussed by Easterlin, health and education have increased more than growth-“human development is a necessary, but not sufficient condition for economic growth”.“Why Isn’t the whole world developed?”1. Education.See Figure 1 in Text. It is difficult to deduce whether increased education rates are a cause or a consequence of economic development. We do know that economic growth rises quickly with diffusion of basic education but the impact dampens with increases in higher levels.2. Health measures. Again, these factors are mutually reinforcing. But, today, the technology transmission of things like pesticides, water purification, vaccines and medications, sewer systems can have a dramatic impact w/ relatively few engineers and doctors.3. Secularization. Easterlin argues that increasing secularization such as occurred with the Protestant Reformation in Europe important in increasing the quantity and quality of education.4. Political factors-Such as independence from Colonial Powers, and also the role of incentives such as secure private property rights, most famously discussed by Douglass North.4.a. Describe the North and Thomas model explaining the Neolithic Revolution. Specifically, use a graph to illustrate how population growth affected this change. 1. The value marginal production that man gets from hunting is high and constant until a certain level of increase population (qd), when the return begins to diminish.2. The value marginal production that man gets from agriculture is constant with increase population, yet lower than hunting up until a certain point, qc.3. This decrease in returns to


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