Econ 111|| QUESTIONS AND ANSWERS 100%
CORRECT!!!
How does the World Bank rank economies? correct answers WB ranks 213 economies with a
population of at least 30,000 by their levels of gross national income (GNI) per capita
GNI per capita often used as a summary index of the relative economic well-being of people
in different nations
Which groups does the WB lump economies into? correct answers Low-income countries
(LICs)
Lower-middle-income (LMCs)
Upper-middle-income (UMCs)
High-income OECD
Other high-income
LMCs and UMCs informally grouped as the middle-income countries
What constitutes the core of the high-income OECD developed world? correct answers The
countries of western Europe, North America, Japan, Australia, and New Zealand
Newly industrializing countries correct answers Countries at a relatively advanced level of
economic development with a substantial and dynamic industrial sector
Human capital correct answers Productive investments in people, such as skills, values, and
health resulting from expenditures on education, on-the-job training programs and medical
care
What are the qualifications to be a least developed country? correct answers 1) Low income
2) Low human capital
3) High economic vulnerability
How do you calculate GNI per capita? correct answers Total domestic and foreign value
added claimed by a country's residents without making deductions for depreciation of the
domestic capital stock
Comprises GDP plus factor incomes earned by foreign residents, minus income earned in the
domestic economy by non-residents
Gross domestic product (GDP) correct answers Total final output of goods and services
produced by the country's economy *within the country's territory by residents and
nonresidents* regardless of its allocation between domestic and foreign claims
Purchasing power parity correct answers Calculation of GNI using a common set of
international prices for all goods and services, to provide more accurate comparisons of living
standards
, The number of units of a foreign country's currency required to purchase the identical
quantity of goods and services in the local developing country market as $1 would buy in the
US
Why is PPP useful? correct answers Takes into account the different purchasing power of
different currencies, thus income gaps between developed and developing nations tend to be
less when used instead of exchange-rate conversion
Most widely used measure of the comparative status of socioeconomic development correct
answers Human Development Index (HDI)
presented by the United Nations Development Programme (UNDP)
New HDI (2010+ version) correct answers Ranks each country on a scale of 0 to 1 (lowest to
highest human development) based on three goals or end products:
1) *Long and healthy life* - measured by life expectancy at birth
2) *Knowledge* - measured by a combination of average schooling attained by adults and
expected years of schooling for school-age children
3) *Decent standard of living* - measured by real per capita gross domestic product adjusted
for PPP to reflect cost of living and for the assumption of diminished marginal utility of
income
How to calculate the NHDI correct answers Dimension index = [ Actual value - Minimum
value ] / [ Maximum value - Minimum value ]
Why is a geometric mean used to compute the New HDI? correct answers An arithmetic
mean would assume perfect substitutability across income, health, and education. But a
geometric mean ensures that poor performance in any dimension directly affects the overall
index, thus allowing for imperfect substitutability. In other words, it captures how "well-
rounded" a country's performance is
A higher value of the education index shouldn't compensate one-for-one with a lower value
of the health index
How are economists able to modify the NHDI? correct answers It can be modified to reflect
income distribution, gender, regional, and ethnic differentials to better hone in on which
significant groups within a country are participating in that country's development
Divergence correct answers Tendency for per capita income to grow faster in higher-income
countries than in lower-income countries so that the income gap widens across countries over
time (began during industrialization 200 years ago)
Convergence correct answers Tendency for per capita income to grow faster in lower-income
countries than in higher-income countries so that lower-income countries are "catching up"
over time
What are two reasons to expect developing countries are "catching up" by growing faster on
average than developed countries? correct answers 1) Technology transfer - they can leapfrog
over some of the earlier stages of tech development and move immediately to high-
productivity techniques of production
CORRECT!!!
How does the World Bank rank economies? correct answers WB ranks 213 economies with a
population of at least 30,000 by their levels of gross national income (GNI) per capita
GNI per capita often used as a summary index of the relative economic well-being of people
in different nations
Which groups does the WB lump economies into? correct answers Low-income countries
(LICs)
Lower-middle-income (LMCs)
Upper-middle-income (UMCs)
High-income OECD
Other high-income
LMCs and UMCs informally grouped as the middle-income countries
What constitutes the core of the high-income OECD developed world? correct answers The
countries of western Europe, North America, Japan, Australia, and New Zealand
Newly industrializing countries correct answers Countries at a relatively advanced level of
economic development with a substantial and dynamic industrial sector
Human capital correct answers Productive investments in people, such as skills, values, and
health resulting from expenditures on education, on-the-job training programs and medical
care
What are the qualifications to be a least developed country? correct answers 1) Low income
2) Low human capital
3) High economic vulnerability
How do you calculate GNI per capita? correct answers Total domestic and foreign value
added claimed by a country's residents without making deductions for depreciation of the
domestic capital stock
Comprises GDP plus factor incomes earned by foreign residents, minus income earned in the
domestic economy by non-residents
Gross domestic product (GDP) correct answers Total final output of goods and services
produced by the country's economy *within the country's territory by residents and
nonresidents* regardless of its allocation between domestic and foreign claims
Purchasing power parity correct answers Calculation of GNI using a common set of
international prices for all goods and services, to provide more accurate comparisons of living
standards
, The number of units of a foreign country's currency required to purchase the identical
quantity of goods and services in the local developing country market as $1 would buy in the
US
Why is PPP useful? correct answers Takes into account the different purchasing power of
different currencies, thus income gaps between developed and developing nations tend to be
less when used instead of exchange-rate conversion
Most widely used measure of the comparative status of socioeconomic development correct
answers Human Development Index (HDI)
presented by the United Nations Development Programme (UNDP)
New HDI (2010+ version) correct answers Ranks each country on a scale of 0 to 1 (lowest to
highest human development) based on three goals or end products:
1) *Long and healthy life* - measured by life expectancy at birth
2) *Knowledge* - measured by a combination of average schooling attained by adults and
expected years of schooling for school-age children
3) *Decent standard of living* - measured by real per capita gross domestic product adjusted
for PPP to reflect cost of living and for the assumption of diminished marginal utility of
income
How to calculate the NHDI correct answers Dimension index = [ Actual value - Minimum
value ] / [ Maximum value - Minimum value ]
Why is a geometric mean used to compute the New HDI? correct answers An arithmetic
mean would assume perfect substitutability across income, health, and education. But a
geometric mean ensures that poor performance in any dimension directly affects the overall
index, thus allowing for imperfect substitutability. In other words, it captures how "well-
rounded" a country's performance is
A higher value of the education index shouldn't compensate one-for-one with a lower value
of the health index
How are economists able to modify the NHDI? correct answers It can be modified to reflect
income distribution, gender, regional, and ethnic differentials to better hone in on which
significant groups within a country are participating in that country's development
Divergence correct answers Tendency for per capita income to grow faster in higher-income
countries than in lower-income countries so that the income gap widens across countries over
time (began during industrialization 200 years ago)
Convergence correct answers Tendency for per capita income to grow faster in lower-income
countries than in higher-income countries so that lower-income countries are "catching up"
over time
What are two reasons to expect developing countries are "catching up" by growing faster on
average than developed countries? correct answers 1) Technology transfer - they can leapfrog
over some of the earlier stages of tech development and move immediately to high-
productivity techniques of production
