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Chapter 23: Global Poverty
Solutions Manual
Learning Objectives for Chapter 23
After reading this chapter, you should know
LO 23-01. How U.S. and global poverty are defined.
LO 23-02. How many people in the world are poor.
LO 23-03. What factors impede or promote poverty reduction.
Questions for Discussion
1. Why should Americans care about extreme poverty in Haiti, Ethiopia, or Bangladesh?
(LO 23-02)
Answer: For starters, one might embrace the notion that a poor child in Haiti, Ethiopia, or
2. If you had only $14 to spend per day (the U.S. poverty threshold), how would you spend it?
What if you had only $2 a day (the World Bank “severe poverty” threshold)? (LO 23-01)
3. If a poor nation must choose between building an airport, some schools, or a steel plant,
which one should it choose? Why? (LO 23-03)
4. How do more children per family either restrain or expand income-earning potential?
(LO 23-03)
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
5. Are property rights a prerequisite for economic growth? Explain. (LO 23-03)
6. How do unequal rights for women affect economic growth? (LO 23-03)
7. How does microfinance alter prospects for economic growth? The distribution of political
power? (LO 23-03)
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
8. Can poor nations develop without substantial increases in agricultural productivity? (See
Figure 23.2) How? (LO 23-03)
9. Would you invest in Cambodia or Kenya on the basis of the information in Figure 23.5?
(LO 23-03)
10. Why do economists put so much emphasis on entrepreneurship? How can poor nations
encourage it? (LO 23-03)
11. How do nations expect nationalization of basic industries to foster economic growth?
(LO 23-03)
12. If economic growth reduced poverty but widened inequalities, would it still be desirable?
(LO 23-03)
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
13. What market failure does Bill Gates (World View, p. 495) cite as the motivation for global
philanthropy? (LO 23-03)
Problems
1. The World Bank’s threshold for “extreme” poverty is $1.25 per person per day.
(a) How much annual income does this imply for a family of four?
(b) What portion of the official U.S. poverty threshold (roughly $29,000 for a family of four)
is met by the World Bank’s measure?
(LO 23-01)
Answers:
Feedback:
(a) The World Bank’s threshold for extreme poverty is $1.25 per person per day. This
(b) $1,825 per family is roughly 6 percent (= $1,825 / $29,000) of the U.S. poverty threshold.
2. There are 2.4 billion people are in “severe” poverty with less than $2 of income per day.
(a) What is the maximum combined income of this “severely” poor population?
(b) What percentage of the world’s total income (roughly $75 trillion) does this represent?
(LO 23-02)
Answers:
Feedback:
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
3. In Namibia,
(a) What percentage of total output is received by the richest 10 percent of households? (See
World View, p. 493.)
(b) How much output did this share amount to in 2014, when Namibia’s GDP was $14
billion?
(c) With a total population of 2 million, what was the implied per capita income of
(i) The richest 10 percent of the population?
(ii) The remaining 90 percent?
(LO 23-02)
Answers:
Feedback:
(a) According to the World View, the richest 10 percent of households in Namibia receive 55
(b) In 2014, with a GDP of $14 billion, Namibia’s richest 10 percent had a share of $7.7
(c)(i) Assuming a total population of 2 million, the richest 10 percent of the population
(ii) The remaining 90 percent of Namibia, 1.8 million people (= 2 million – 200,000), have
4. (a) How much foreign aid does the United States now provide? (See Table 23.2.)
(b) Is the U.S. gives $30 billion in foreign aid, how much more is required to satisfy the UN’s
Millennium Aid Goal if U.S. GDP = $18 trillion?
(LO 23-03)
Answers:
Feedback:
(a) According to Table 23.2, the United States provides $30 billion in foreign aid.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(b) The United Nations’ Millennium Aid Goal is to raise foreign aid levels to 0.7 percent of
donor country GDP. For the United States, this would imply foreign aid of $126 billion (=
0.7% × $18 trillion) or $96 billion (= $126 billion – $30 billion) more than current levels.
5. If the industrialized nations were to satisfy the UN’s Millennium Aid Goal, how much more
foreign aid would they give annually? (See Table 23.2.) (LO 23-03)
Feedback:
6. According to Table 23.3, how many years will it take for per capita GDP to double in
(a) China?
(b) Madagascar?
(c) Zimbabwe?
(LO 37-03)
Answers:
Feedback:
The Rule of 72 allows one to determine how long it will take for a value to double by
dividing the annual percentage change into the number 72.
(a) According to Table 23.3, the annual per capita GDP growth rate for China is 10.1 percent.
(b) According to Table 23.3, the annual per capita GDP growth rate for Madagascar is 0.7
(c) According to Table 23.3, the annual per capita GDP growth rate for Zimbabwe is –8.4
7. (a) Which low-income nation in Table 23.3 has a GDP growth rate closest to that of the
United States?
(b) How much faster is that nation’s population growth?
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(c) How much lower is its per capita GDP growth?
(LO 23-03)
Answers:
Feedback:
(a) According to Table 23.3, the United States has a GDP growth rate equal to 2.0 percent.
(b) Burundi’s population growth rate is 2.0 percent. The United States has a population
8. According to the World View on page 495,
(a) How much money is spent annually to combat baldness?
(b) How much medical care would that money buy for each child who dies from malaria each
year?
(LO 23-03)
Answers:
Feedback:
(a) According to the World View, $1 billion is spent each year combating baldness.
(b) According to the World View, 2,000 African children die each day from malaria. This
9. Foreign aid to poor nations amounted to $19 per year per person. What percentage did this
aid cover of
(a) The extreme poverty budget?
(b) The severe poverty budget?
(LO 23-03)
Answer:
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Feedback:
(a) $1.25 per day for the "extreme poverty" budget amounts to $456.25 (= $1.25 × 365) a
(b) $2 per day for the "severe poverty" budget amounts to $730 (= $2 × 365) a year. So $19
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
