Poverty

Question 1

Define GDP

Answer 1

Market value of all final goods and services produced within a country in a given period of time

Question 2

Define Nominal GDP

Answer 2

quantity x prices in the year that the quantity was measured

Question 3

Define Real GDP

Answer 3

Quantity x constant price (chosen in a particular year)
prefer this one as a measure because it controls for inflation across years

Question 4

Define GDP per capita

Answer 4

GDP of a country/population of that country (= Real GDP/population)

Question 5

What are some issues with GDP (6 answers)

Answer 5

• double counting
• PPP: can’t compare GDP across countries
• GDP per capita doesn’t reflect distribution of income
• Increase in income (increase of GDP) does not correspond to a better quality of life
• GDP doesn’t account for unpaid work/gifts or informal transfers.

Question 6

What is double counting

Answer 6

One firms output is sometimes another firms input–> we must distinguish between final and intermediate goods
-Use Value Added

Question 7

What is Value Added

Answer 7

To account for double counting (final and intermediate goods)
=Revenue - cost of intermediate goods

Question 8

What is the PPP

Answer 8

• Purchasing Power Parity: How to compare GDP across countries
  -The law of one price
  -But domestic goods may be much cheaper due to developing countries lower cost of living (a Banana will be cheaper in India than in USA)
• The PPP is a collection of data on domestic prices of 150 categories of goods and services in each country–construct “international prices” for these goods and services
  -New PPP, GDP = quantity x international prices for these goods and services

Question 9

What is the law of One Price?

Answer 9

Goods have to have approximately the same price everywhere, used to avoid a surplus or shortage of goods in different countries

Question 10

Is GDP a good measure of development? (Arguments for Yes)

Answer 10

• Relevant for poor people bc money can buy you your basic needs
• It gives you the possibility to buy needed goods with higher GDP

Question 11

Is GDP a good measure of development? (Arguments for No)

Answer 11

• Amartya Sen’s “Development of Freedoms” ie. development id much more than GDP, there are interconnected factors:
  1.Political freedoms
  2. Economic facilities
  3. Social Opportunities
  4. Transparency guarantees
  5. Protective security

Question 12

Explain Amartya Sen’s Capabilities approach

Answer 12

-Functionings: what a person can do with the commodities (ie. a book for someon who can read is useful for someone who can’t its not useful).

-Capabilities: ways to converts commodities into functionnings (ie. you need education to benefit from a book)

Question 13

Explain what the HDI is.

Answer 13

Human Development Index:
- based on longevity (life expectancy), education (Literacy, school enrolment), a log of real GDP per capita PPP

Question 14

Define what a decreasing return to income is.

Answer 14

the Higher GDP the more satisfied ppl tend to be but there is a threshold around where more money doesn’t really make you happier

Question 15

What’s another way to measure poverty?

Answer 15

Household Surveys

Question 16

Explain Household Surveys

Answer 16

data from questionnaires on a representatie sample of the population (captures goods produced or consumed by househlds - which GDP doesn’t do).

*In the surveys provide the shortest period of time to asses the good and vary the time periods for different goods *ex: consumming water = week (because it’s something used often), whereas tuition = a year (something used less often)

Ex. Chen and Ravallion (creators of the poverty line): 675 Surveys in 116 countries, financed by major world bank effort = LSMS (living standards measurement survey)

Question 17

Production vs. Consumption, which is better?

Answer 17

• Consumption > production surveys.→Why? Because its a closer proxy of well-being, illegal/unreported income are accounted for, more stable than income due to consumption smoothing ex: coffee is bought once a month but with measuring consumption data is less sporatic because you don’t consume that coffee once a month.→problem: recall of every category for the people filling out the survey.

Question 18

Explain the poverty line.

Answer 18

• creators: Chen and Ravallion
  It’s the average daily number of calories humans need is 2000
  -conduct surveys to look at the basket of food consumed–> calculated income needed to get 2000 calories = poverty line

Question 19

What are some other indicators of poverty?

Answer 19

• Infant Mortality
• Secondary Education enrollment
• Urbanization rates
• Electricity