QUESTION 1
a. To compare living standards across countries, would you rather convert GDP per capita into a
common currency using market exchange rates or the price of a Big Mac?
b. Consider the following table with measures of income inequality in the countries Delta, Eta and
Chi.
DELTA ETA CHI
KUZNETS RATIO (P80/P20) 5.5 4.5 3
GINI COEFFICIENT 0.30 0.32 0.28
COEFFICIENT OF VARIATION 0.52 0.61 0.62
Is inequality higher in Delta or in Eta?
c. Consider the following table with measures of income inequality in the countries Delta, Eta and
Chi.
DELTA ETA CHI
KUZNETS RATIO (P80/P20) 5.5 4.5 3
GINI COEFFICIENT 0.30 0.32 0.28
COEFFICIENT OF VARIATION 0.52 0.61 0.62
Is inequality higher in Eta or in Chi?
d. In recent decades, most countries have seen an increase in income inequality and a decrease in
human capital (i.e. the years of schooling). Comment.
e. The Gini coefcient for global interpersonal income inequality is currently 0.62. The country with
the highest Gini coefcient is South Africa with a Gini of 0.58. How is this possible?
, QUESTION 2
a. Consider the income distributon of country Gamma. The poverty line in Gamma is 150.
COUNTRY POOR MIDDLE-CLASS RICH
GAMMA
AVERAGE INCOME 70 140 500
LEVEL
GROUP SIZE 10 20 10
Compute the headcount rato and the income gap rato for Gamma.
b. Evaluate the following statement: the income gap rato is insensitve to inequality among the poor.
c. Researchers propose a new poverty measure that not only counts how many people have an
income below the poverty line, but also counts how many people lack access to health care and how
many lack modern sanitaton. Comment on this proposal.
d. In households in poor regions, there is ofen inequality in the distributon of food amongst family
members. Use the concept of the capacity curve to explain this inequality.
a. To compare living standards across countries, would you rather convert GDP per capita into a
common currency using market exchange rates or the price of a Big Mac?
b. Consider the following table with measures of income inequality in the countries Delta, Eta and
Chi.
DELTA ETA CHI
KUZNETS RATIO (P80/P20) 5.5 4.5 3
GINI COEFFICIENT 0.30 0.32 0.28
COEFFICIENT OF VARIATION 0.52 0.61 0.62
Is inequality higher in Delta or in Eta?
c. Consider the following table with measures of income inequality in the countries Delta, Eta and
Chi.
DELTA ETA CHI
KUZNETS RATIO (P80/P20) 5.5 4.5 3
GINI COEFFICIENT 0.30 0.32 0.28
COEFFICIENT OF VARIATION 0.52 0.61 0.62
Is inequality higher in Eta or in Chi?
d. In recent decades, most countries have seen an increase in income inequality and a decrease in
human capital (i.e. the years of schooling). Comment.
e. The Gini coefcient for global interpersonal income inequality is currently 0.62. The country with
the highest Gini coefcient is South Africa with a Gini of 0.58. How is this possible?
, QUESTION 2
a. Consider the income distributon of country Gamma. The poverty line in Gamma is 150.
COUNTRY POOR MIDDLE-CLASS RICH
GAMMA
AVERAGE INCOME 70 140 500
LEVEL
GROUP SIZE 10 20 10
Compute the headcount rato and the income gap rato for Gamma.
b. Evaluate the following statement: the income gap rato is insensitve to inequality among the poor.
c. Researchers propose a new poverty measure that not only counts how many people have an
income below the poverty line, but also counts how many people lack access to health care and how
many lack modern sanitaton. Comment on this proposal.
d. In households in poor regions, there is ofen inequality in the distributon of food amongst family
members. Use the concept of the capacity curve to explain this inequality.
