Chapter 22 Web – The Economics of Developing Countries
22W-1
CHAPTER 22 Web
The Economics of Developing Countries
Note: This bonus web chapter is available at the textbook Web site: www.mcconnell19e.com.
A. Short-Answer, Essays, and Problems
1. What is the extent of income inequality among nations? Explain, citing relevant data on incomes received
by populations and total GDP in the United States and developing nations.
2. How are countries classified based on income?
3. What is the magnitude of the differences in GDP per capita between industrially advanced countries and
developing countries?
4. In 2008 the real per capita income in the average industrially advanced country was about $37,665 per year.
The average in low-income developing countries was about $523 per year.
(a) What is the gap in the average standards of living?
(b) If real per capita income were to grow at a rate of 2% during a year in both the average industrially
advanced and the average developing country, what would happen to the standard of living in each
country and the gap in the standard of living?
5. In terms of economic and social conditions, how do industrially advanced countries and developing
countries differ?
6. “If two countries are growing at the same rate, the income gap between the two countries should remain the
same.” Evaluate this statement.
7. A breakdown of the shares of economic production for two different countries is listed below, along with
per capita income and growth rate. Use this information to calculate the growth rates per sector and answer
the following questions.
Country A
Country B
Growth
Rates A
Growth
Rates B
Services
10%
60%
____
____
Industry
15%
20%
____
____
Natural Resources
30%
15%
____
____
Agricultural
45%
5%
____
____
Per Capita Growth Rate
5%
5%
—
—
Per Capita Income
$400
$25,000
—
—
(a) What is the amount of per capita growth in countries A and B? Will the growth increase, decrease or
maintain the income gap?
(b) Suppose country A’s economy becomes more industrialized, increasing the productive share of
services and industry. What likely effect will this having on country A’s growth rate? Suppose as a
result of this change the growth rate of services and industry is now 3.5% and 2.5% respectively, while
the rates for natural resources and agriculture remain the same. What is the new total growth rate?
What is the new distribution of the economy? What is the effect of the new growth on the income
gap?
(c) What growth rate would country A have to maintain to reduce the income gap with country B by 10%,
assuming country B grew by 5%? If country B grew by 2%? If country B experienced no growth?
(d) What growth rate would country A have to maintain to reduce the income gap with country B
completely if country B experienced 3% growth?
Chapter 22 Web – The Economics of Developing Countries
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(e) What do your answers in (a) through (d) tell you about the situation facing developing countries? How
does the element of time (growth over several years) change your answer?
8. What are the human realities of poverty in DVCs?
9. It is stated that “the avenues of economic growth are essentially the same for both industrially advanced
and developing nations.” What are the two basic avenues?
10. What is the natural resource problem in DVCs?
11. Evaluate the statement: “No nation can grow without a large natural resource base.”
12. List the three major human resource problems in developing nations.
13. What is the human resource problem in DVCs?
14. Discuss the problem of population in developing nations using the rule of 70.
15. Why is working to increase the production of consumer goods a “catch 22”?
16. Explain the logic behind the demographic transition view.
17. Why do developing nations often have low labor productivity? Are the workers just lazy?
18. What is the capital accumulation problem in DVCs?
19. Economic development in DVCs often focuses on capital accumulation. Why?
20. What are the prospects for domestic capital formation in DVCs?
21. What is the technology problem in DVCs?
22. What is the difference between capital-using and capital-saving technological advances? Give examples.
23. Of what significance is the “will to develop”?
24. Why is land reform of significant concern for developing countries and what restricts its implementation?
25. Compare the problems in achieving growth in an advanced nation with those of a developing nation. Do
these problems differ in degree or in kind? Explain.
26. Draw and explain a diagram that illustrates the vicious circle of poverty in DVCs.
27. What positive role can government play in fostering economic growth in developing countries?
28. How can embracing globalization by governments in DVCs promote economic growth?
29. What are the problems with government actions in DVCs?
30. What can IACs do to expand trade with DVCs?
31. “In a recent recession the losses sustained by the developing countries through a decline in raw-material
prices by far outweighed any foreign aid given over several years.” Explain.
32. If IACs admit more temporary workers from DVCs, will it help DVCs? Explain.
Chapter 22 Web – The Economics of Developing Countries
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33. Describe the main characteristics of direct foreign aid from IACs to DVCs.
34. Discuss the allocation of direct foreign aid from IACs to the lowest-income DVCs and its issues.
35. How can debt policies for DVCs create a moral hazard?
36. What is the World Bank? Explain its primary purpose.
37. What are two affiliates of the World Bank? What do they do?
38. What are the three basic criticisms of foreign aid to DVCs?
39. Describe the characteristics of private capital flows to DVCs.
40. (Last Word) What are the roots of the persistent famines in sub-Saharan Africa?
Chapter 22 Web – The Economics of Developing Countries
B. Answers to Short-Answer, Essays, and Problems
(Note: Page references are to the Web Chapter pages)
1. What is the extent of income inequality among nations? Explain, citing relevant data on incomes received
by populations and total GDP in the United States and developing nations.
2. How are countries classified based on income?
3. What is the magnitude of the differences in GDP per capita between industrially advanced countries and
developing countries?
4. In 2008 the real per capita income in the average industrially advanced country was about $37,665 per year.
The average in low-income developing countries was about $523 per year.
(a) What is the gap in the average standards of living?
(b) If real per capita income were to grow at a rate of 2% during a year in both the average industrially
advanced and the average developing country, what would happen to the standard of living in each
country and the gap in the standard of living?
5. In terms of economic and social conditions, how do industrially advanced countries and developing
countries differ?
Chapter 22 Web – The Economics of Developing Countries
22W-5
6. “If two countries are growing at the same rate, the income gap between the two countries should remain the
same.” Evaluate this statement.
7. A breakdown of the shares of economic production for two different countries is listed below, along with
per capita income and growth rate. Use this information to calculate the growth rates per sector and answer
the following questions.
Country A
Country B
Growth
Rates A
Growth
Rates B
Services
10%
60%
____
____
Industry
15%
20%
____
____
Natural Resources
30%
15%
____
____
Agricultural
45%
5%
____
____
Per Capita Growth Rate
5%
5%
—
—
Per Capita Income
$400
$25,000
—
—
(a) What is the amount of per capita growth in countries A and B? Will the growth increase, decrease or
maintain the income gap?
(b) Suppose country A’s economy becomes more industrialized, increasing the productive share of
services and industry. What likely effect will this having on country A’s growth rate? Suppose as a
result of this change the growth rate of services and industry is now 3.5% and 2.5% respectively, while
the rates for natural resources and agriculture remain the same. What is the new total growth rate?
What is the new distribution of the economy? What is the effect of the new growth on the income
gap?
(c) What growth rate would country A have to maintain to reduce the income gap with country B by 10%,
assuming country B grew by 5%? If country B grew by 2%? If country B experienced no growth?
(d) What growth rate would country A have to maintain to reduce the income gap with country B
completely if country B experienced 3% growth?
(e) What do your answers in (a) through (d) tell you about the situation facing developing countries? How
does the element of time (growth over several years) change your answer?
Country A
Country B
Rates A
Rates B
Services
10%
60%
Industry
15%
20%
Natural Resources
30%
15%
Agricultural
45%
5%
Per Capita Growth Rate
5%
5%
—
—
Per Capita Income
$400
$25,000
—
—
Chapter 22 Web – The Economics of Developing Countries
8. What are the human realities of poverty in DVCs?
9. It is stated that “the avenues of economic growth are essentially the same for both industrially advanced
and developing nations.” What are the two basic avenues?
10. What is the natural resource problem in DVCs?
11. Evaluate the statement: “No nation can grow without a large natural resource base.”
12. List the three major human resource problems in developing nations.
13. What is the human resource problem in DVCs?
Chapter 22 Web – The Economics of Developing Countries
14. Discuss the problem of population in developing nations using the rule of 70.
15. Why is working to increase the production of consumer goods a “catch 22”?
16. Explain the logic behind the demographic transition view.
17. Why do developing nations often have low labor productivity? Are the workers just lazy?
18. What is the capital accumulation problem in DVCs?
Chapter 22 Web – The Economics of Developing Countries
19. Economic development in DVCs often focuses on capital accumulation. Why?
20. What are the prospects for domestic capital formation in DVCs?
21. What is the technology problem in DVCs?
22. What is the difference between capital-using and capital-saving technological advances? Give examples.
23. Of what significance is the “will to develop”?
Chapter 22 Web – The Economics of Developing Countries
24. Why is land reform of significant concern for developing countries and what restricts its implementation?
25. Compare the problems in achieving growth in an advanced nation with those of a developing nation. Do
these problems differ in degree or in kind? Explain.
26. Draw and explain a diagram that illustrates the vicious circle of poverty in DVCs.
27. What positive role can government play in fostering economic growth in developing countries?
Chapter 22 Web – The Economics of Developing Countries
28. How can embracing globalization by governments in DVCs promote economic growth?
29. What are the problems with government actions in DVCs?
30. What can IACs do to expand trade with DVCs?
31. “In a recent recession the losses sustained by the developing countries through a decline in raw-material
prices by far outweighed any foreign aid given over several years.” Explain.
32. If IACs admit more temporary workers from DVCs, will it help DVCs? Explain.
33. Describe the main characteristics of direct foreign aid from IACs to DVCs.
Chapter 22 Web – The Economics of Developing Countries
34. Discuss the allocation of direct foreign aid from IACs to the lowest-income DVCs and its issues.
35. How can debt policies for DVCs create a moral hazard?
36. What is the World Bank? Explain its primary purpose.
37. What are two affiliates of the World Bank? What do they do?
38. What are the three basic criticisms of foreign aid to DVCs?
39. Describe the characteristics of private capital flows to DVCs.
Chapter 22 Web – The Economics of Developing Countries
40. (Last Word) What are the roots of the persistent famines in sub-Saharan Africa?