Macroeconomics, 17th Canadian
Edition by Campbell McConnell
Complete Chapter Solutions Manual
are included (Ch 1 to 18)
** Immediate Download
** Swift Response
** All Chapters included
** ABA Teaching Notes
,Table of Contents are given below
CHAPTER 1: Limits, Alternatives, and Choices
CHAPTER 2: The Market System and the Circular Flow
CHAPTER 3: Demand, Supply, and Market Equilibrium
CHAPTER 4: Market Failures Caused by Externalities and Asymmetric
Information
CHAPTER 5: Public Goods, Public Choice, and Government Failure
CHAPTER 6: An Introduction to Macroeconomics
CHAPTER 7: Measuring the Economy’s Output
CHAPTER 8: Economic Growth
CHAPTER 9: Business Cycles, Unemployment, and Inflation
CHAPTER 10: Basic Macroeconomic Relationships
CHAPTER 11: The Aggregate Expenditures Model
CHAPTER 12: Aggregate Demand and Aggregate Supply
CHAPTER 13: Fiscal Policy, Deficits, Surpluses, and Debt
CHAPTER 14: Money, Banking, and Money Creation
CHAPTER 15:Monetary Policy, GDP, and the Price Level
CHAPTER 15B: Financial Economics
CHAPTER 16: Long-Run Macroeconomic Adjustments
CHAPTER 16B: Current Issues in Macro Theory and Policy
CHAPTER 17: International Trade
CHAPTER 18: The Balance of Payments and Exchange Rates
CHAPTER 18B: The Economics of Developing Countries
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure that all
chapters are included in this document. (Complete Chapters included Ch18-1)
Chapter 18B - The Economics of Developing Countries
DISCUSSION QUESTIONS
1. What are the four categories used by the World Bank to classify nations on the basis of
national income per capita? Identify two nations for each of the four categories. LO18B.1
Answer: The World Bank classifies countries into high income, upper middle income, lower
middle income, and low income categories on the basis of national income per capita. Answers
will come from the list or map in this chapter.
2. Explain how the absolute per capita income gap between rich and poor nations might
increase, even though per capita income (or output) is growing faster in DVCs than in IACs.
LO18B.1
Answer: Because base incomes are so much higher in IACs than in DVCs, slower growth as a
proportion of GDP in these countries can still translate into higher absolute gains in per capita
living standards, causing the absolute per capita income gap between IACs and DVCs to increase
rather than decline.
For example, assume country A has a 1 percent rate of growth and current per capita income is
$10,000. One year from now this country will have a per capita income of $10,100 (= $10,000 +
$100).
Now consider country B. This country's rate of growth is 3 percent and per capita income of
$2,000. One year from now this country will have a per capita income of $2,060 (= $2,000 +
$60).
Although country B grew at a faster rate it has become relatively poorer than country in terms of
absolute per capita income. Before economic growth the per capita income difference between
countries A and B was $8000 (=$10,000 - $2,000). The difference after growth is $8,040 (=
$10,100 - $2,060).
3. Explain how each of the following can be obstacles to the growth of income per capita in the
DVCs: lack of natural resources, large populations, low labour productivity, poor
infrastructure, and capital flight. LO18B.2
Answer: A weak resource base can be a serious obstacle to growth. Real capital can be
accumulated and the quality of the labour force improved through education and training. But it is
not as easy to augment the natural resource base. Without access to natural resources countries do
not have the raw materials for large scale production.
Large populations can reduce per capita income levels in a number of ways. First, high
population growth reduces the amount of capital and raw materials available to future workers
(reduced investment and lower productivity). Second, large populations tend to overuse natural
resources (overgraze, etc...). Third, large populations may lead to urban congestion, which might
18B-1
, McConnell Macroeconomics 17ce Solutions Manual
Chapter 18B - The Economics of Developing Countries
increase crime and corruption. Finally, large populations might reduce investment in human
capital (education) because large families have fewer resources per child.
Low labour productivity (which may be the result from the problems discussed above) can slow
economic growth because workers produce less than their respective counterparts in the IACs
with the SAME amount of resources. This could be the result of human capital accumulation
differences and the quality of education.
Poor infrastructure will reduce the return to private investments because transportation costs are
high. The transportation costs may be so high that no investment takes place for a particular
industry.
Capital flight, human and physical, reduces the quantity and quality of capital available for
production. This will slow growth as well.
4. What is the demographic transition view? Contrast the demographic transition view of
population growth with the traditional view that slower population growth is a prerequisite
for rising living standards in the DVCs. LO18B.2
Answer: The demographic transition is the process that a country's population goes through as
the economy develops. The typical pattern is one where initial growth is followed by a reduction
in the mortality rate (better nutrition, sanitation, etc...). This reduction in the mortality rate results
in an increase in population size and population growth. After households adjust their
reproductive behavior to the new mortality rate and the higher per capita income level the
population growth rate falls and the population size stabilizes (see answer below).
Demographic transition view: Expanded output and income in developing countries will result in
lower birthrates and slower growth of population. As incomes of primary family members
expand, they begin to see the marginal cost of a larger family exceeding the marginal benefit.
The policy emphasis should therefore be on economic growth. Traditional view: Developing
nations should reduce population growth as a first priority. Slow population growth enables the
growth of per capita income.
5. As it relates to the vicious circle of poverty, what is meant by the saying “Some DVCs stay
poor because they are poor”? Change the box labels as necessary in Figure 18B.3 to explain
rapid economic growth in countries such as South Korea and Chile. What factors other than
those contained in the figure might contribute to that growth? LO18B.3
Answer: The vicious circle of poverty concept implies that the poor countries of the world will
remain poor because they do not have the resources (per capita income) necessary to invest in the
factors required for sustained economic growth. These factors could be education (human
capital), physical capital, physical infrastructure, or social infrastructure (institutions).
To describe countries such as South Korea and Chile, we would need to change labels on three
boxes, leading to a change in the “results” boxes. “Rapid” population growth would change to
“low” rate of population growth; “low” level of saving would change to “high” level of saving;
18B-2
Edition by Campbell McConnell
Complete Chapter Solutions Manual
are included (Ch 1 to 18)
** Immediate Download
** Swift Response
** All Chapters included
** ABA Teaching Notes
,Table of Contents are given below
CHAPTER 1: Limits, Alternatives, and Choices
CHAPTER 2: The Market System and the Circular Flow
CHAPTER 3: Demand, Supply, and Market Equilibrium
CHAPTER 4: Market Failures Caused by Externalities and Asymmetric
Information
CHAPTER 5: Public Goods, Public Choice, and Government Failure
CHAPTER 6: An Introduction to Macroeconomics
CHAPTER 7: Measuring the Economy’s Output
CHAPTER 8: Economic Growth
CHAPTER 9: Business Cycles, Unemployment, and Inflation
CHAPTER 10: Basic Macroeconomic Relationships
CHAPTER 11: The Aggregate Expenditures Model
CHAPTER 12: Aggregate Demand and Aggregate Supply
CHAPTER 13: Fiscal Policy, Deficits, Surpluses, and Debt
CHAPTER 14: Money, Banking, and Money Creation
CHAPTER 15:Monetary Policy, GDP, and the Price Level
CHAPTER 15B: Financial Economics
CHAPTER 16: Long-Run Macroeconomic Adjustments
CHAPTER 16B: Current Issues in Macro Theory and Policy
CHAPTER 17: International Trade
CHAPTER 18: The Balance of Payments and Exchange Rates
CHAPTER 18B: The Economics of Developing Countries
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure that all
chapters are included in this document. (Complete Chapters included Ch18-1)
Chapter 18B - The Economics of Developing Countries
DISCUSSION QUESTIONS
1. What are the four categories used by the World Bank to classify nations on the basis of
national income per capita? Identify two nations for each of the four categories. LO18B.1
Answer: The World Bank classifies countries into high income, upper middle income, lower
middle income, and low income categories on the basis of national income per capita. Answers
will come from the list or map in this chapter.
2. Explain how the absolute per capita income gap between rich and poor nations might
increase, even though per capita income (or output) is growing faster in DVCs than in IACs.
LO18B.1
Answer: Because base incomes are so much higher in IACs than in DVCs, slower growth as a
proportion of GDP in these countries can still translate into higher absolute gains in per capita
living standards, causing the absolute per capita income gap between IACs and DVCs to increase
rather than decline.
For example, assume country A has a 1 percent rate of growth and current per capita income is
$10,000. One year from now this country will have a per capita income of $10,100 (= $10,000 +
$100).
Now consider country B. This country's rate of growth is 3 percent and per capita income of
$2,000. One year from now this country will have a per capita income of $2,060 (= $2,000 +
$60).
Although country B grew at a faster rate it has become relatively poorer than country in terms of
absolute per capita income. Before economic growth the per capita income difference between
countries A and B was $8000 (=$10,000 - $2,000). The difference after growth is $8,040 (=
$10,100 - $2,060).
3. Explain how each of the following can be obstacles to the growth of income per capita in the
DVCs: lack of natural resources, large populations, low labour productivity, poor
infrastructure, and capital flight. LO18B.2
Answer: A weak resource base can be a serious obstacle to growth. Real capital can be
accumulated and the quality of the labour force improved through education and training. But it is
not as easy to augment the natural resource base. Without access to natural resources countries do
not have the raw materials for large scale production.
Large populations can reduce per capita income levels in a number of ways. First, high
population growth reduces the amount of capital and raw materials available to future workers
(reduced investment and lower productivity). Second, large populations tend to overuse natural
resources (overgraze, etc...). Third, large populations may lead to urban congestion, which might
18B-1
, McConnell Macroeconomics 17ce Solutions Manual
Chapter 18B - The Economics of Developing Countries
increase crime and corruption. Finally, large populations might reduce investment in human
capital (education) because large families have fewer resources per child.
Low labour productivity (which may be the result from the problems discussed above) can slow
economic growth because workers produce less than their respective counterparts in the IACs
with the SAME amount of resources. This could be the result of human capital accumulation
differences and the quality of education.
Poor infrastructure will reduce the return to private investments because transportation costs are
high. The transportation costs may be so high that no investment takes place for a particular
industry.
Capital flight, human and physical, reduces the quantity and quality of capital available for
production. This will slow growth as well.
4. What is the demographic transition view? Contrast the demographic transition view of
population growth with the traditional view that slower population growth is a prerequisite
for rising living standards in the DVCs. LO18B.2
Answer: The demographic transition is the process that a country's population goes through as
the economy develops. The typical pattern is one where initial growth is followed by a reduction
in the mortality rate (better nutrition, sanitation, etc...). This reduction in the mortality rate results
in an increase in population size and population growth. After households adjust their
reproductive behavior to the new mortality rate and the higher per capita income level the
population growth rate falls and the population size stabilizes (see answer below).
Demographic transition view: Expanded output and income in developing countries will result in
lower birthrates and slower growth of population. As incomes of primary family members
expand, they begin to see the marginal cost of a larger family exceeding the marginal benefit.
The policy emphasis should therefore be on economic growth. Traditional view: Developing
nations should reduce population growth as a first priority. Slow population growth enables the
growth of per capita income.
5. As it relates to the vicious circle of poverty, what is meant by the saying “Some DVCs stay
poor because they are poor”? Change the box labels as necessary in Figure 18B.3 to explain
rapid economic growth in countries such as South Korea and Chile. What factors other than
those contained in the figure might contribute to that growth? LO18B.3
Answer: The vicious circle of poverty concept implies that the poor countries of the world will
remain poor because they do not have the resources (per capita income) necessary to invest in the
factors required for sustained economic growth. These factors could be education (human
capital), physical capital, physical infrastructure, or social infrastructure (institutions).
To describe countries such as South Korea and Chile, we would need to change labels on three
boxes, leading to a change in the “results” boxes. “Rapid” population growth would change to
“low” rate of population growth; “low” level of saving would change to “high” level of saving;
18B-2
