Economics of Development: Per Capita Income

Questions and Answers

What factors are used to measure health according to the given indicators?

Employment rates and household size

Child mortality and nutrition (correct)

Income level and education status

Access to technology and health insurance

How is multidimensional poverty identified based on the weighted indexes?

By earning below a specific income threshold

By being deprived of at least one-third of the weighted indexes (correct)

By lacking access to education and housing

By being deprived of at least half of the indexes

Approximately how many people are considered multidimensionally poor?

About 800 million (correct)

Around 500 million

Less than 200 million

Over 1 billion

What does the Multidimensional Poverty Index (MPI) NOT consider?

Income-gap Signup and view all the answers

How long would it take a poor country with a per capita income of $1,200, growing at 4%, to catch up with a rich country earning $25,000 growing at 3%?

300 years Signup and view all the answers

Which region had the highest number of poor in millions in 1990?

Sub-Saharan Africa Signup and view all the answers

What was the global poverty rate in 2012 based on the $1.90 per day poverty line?

12.7% Signup and view all the answers

Which region showed the most significant decrease in poverty rate from 1990 to 2012?

East Asia and Pacific Signup and view all the answers

By how much did the number of poor in South Asia decrease from 1990 to 2012?

266 million Signup and view all the answers

As of 2012, which region had the lowest poverty rate?

Europe and Central Asia Signup and view all the answers

What was the absolute number of poor in the Middle East and North Africa in 2012?

6 million Signup and view all the answers

Which region's poverty rate increased from 1990 to 2012?

Sub-Saharan Africa Signup and view all the answers

How many poor people were there in Latin America and the Caribbean in 2012?

34 million Signup and view all the answers

What is the primary focus of Randomised Control Trials (RCTs) in the context of economics?

To find the most effective way to fight poverty at the micro-level Signup and view all the answers

Which of the following is NOT one of the variables used in calculating the Human Development Index (HDI)?

Employment rate Signup and view all the answers

How is the index for each variable in the HDI calculated?

Index = (Actual value – Minimum value) / (Maximum value – Minimum value) Signup and view all the answers

Which organization publishes the Human Development Index (HDI) report?

United Nations Development Programme (UNDP) Signup and view all the answers

What dimensions does the Multidimensional Poverty Index (MPI) focus on?

Education, health, and standard of living Signup and view all the answers

What issue may arise when conducting Randomised Control Trials (RCTs)?

Implementing the trial can cause behavioral changes in subjects Signup and view all the answers

What is the range of values for the indexes used in calculating the HDI?

0 to 1 Signup and view all the answers

Which factor is used to measure education in the Multidimensional Poverty Index (MPI)?

Years of schooling and child attendance Signup and view all the answers

What does the Gini ratio indicate in terms of income inequality?

It assesses the extent of income inequality within a population. Signup and view all the answers

Which index is often used alongside per capita income to gauge development?

Human Development Index Signup and view all the answers

What is the current measure of absolute poverty according to the content?

Less than $1.90 a day Signup and view all the answers

What is one of the main approaches the World Bank utilizes to tackle poverty?

Promoting opportunities and empowerment Signup and view all the answers

How long could it potentially take for an average poor country to reach the living standards of today's rich?

150 years Signup and view all the answers

What does Per Capita Income (PCY) correlate with regarding underdevelopment?

Low levels of savings and investment Signup and view all the answers

What does the Headcount Index measure?

The number of people living below the poverty line Signup and view all the answers

How is the Poverty Gap calculated?

By measuring the average income below the poverty line compared to the poverty line Signup and view all the answers

What limitation does PCY have as a measure of development?

It ignores income distribution and human development aspects Signup and view all the answers

What does the Food Energy Method assess?

The number of people lacking income for minimum food intake Signup and view all the answers

How do per capita incomes at PPP in poor countries compare to those measured by official exchange rates?

They tend to be higher on average Signup and view all the answers

Which characteristic is NOT typically associated with underdeveloped economies?

High productivity in agriculture Signup and view all the answers

What is the poverty line defined by the World Bank?

$1.90 a day Signup and view all the answers

Study Notes

Economics of Development: Key Concepts

Purchasing Power Parity (PPP) indicates that relative prices of goods vary by country; poorer countries generally have lower prices for basic services like meals and haircuts.
Per capita income (PCY) is often misleading as a sole measure of development; poverty and income distribution also play critical roles.
Low productivity in agriculture and high expenditure on necessities are common traits in countries with low PCY.
Investment and savings levels tend to be low in underdeveloped nations, along with outdated technology and poor human capital.
Exports in poorer countries are often limited to primary commodities.

Measuring Poverty

Headcount Index identifies the number of individuals living below the poverty line ($1.90 a day at PPP) with approximately 900 million classified as poor globally.
Poverty Gap assesses the average shortfall from the poverty line compared to income levels below it, illustrating the depth of poverty.
Food Energy Method calculates the population lacking sufficient income for basic nutritional needs, showing variability across countries.

Global Poverty Statistics

Significant reductions in poverty since 1990, particularly in East Asia; populations living in poverty decreased from 996 million to 147 million between 1990 and 2012.
The poverty rate in Sub-Saharan Africa remains high; about 42.7% of its population falls below the poverty line by 2012.
Global poverty dropped from nearly 2 billion in 1990 to about 897 million in 2012.

Randomised Control Trials (RCTs)

RCTs are employed to determine effective poverty alleviation strategies by comparing experimental and control groups dynamically over time.
Challenges include the potential for unrepresentative samples and biased outcomes as participants might alter their behavior due to being in an experiment.

Human Development Index (HDI)

HDI evaluates development based on life expectancy, educational attainment, and per capita income at PPP.
Index values range from 0 (minimum) to 1 (maximum); average HDI represents overall development effectiveness.

Multidimensional Poverty Index (MPI)

MPI considers multiple poverty aspects: education, health, and living standards, assigning weights to various indicators.
A person is considered multidimensionally poor if they lack one-third of the weighted indicators; current estimates suggest around 800 million individuals are affected.

Economic Growth and Catch-Up Potential

Poor nations must grow faster than wealthy nations to catch up; an example given indicates it could take 300 years for a poor country growing at 4% to match a rich country growing at 3%.
At a growth rate of 2%, a typical poor nation might take 150 years to reach the living standards of wealthier counterparts.

Key Learning Objectives

Understand measurements of income inequality and the development gap on global scales.
Comprehend the PPP as a critical factor in comparing living standards internationally.
Recognize the limitations of PCY as a development metric.
Familiarity with different poverty measurement methods and their implications.
Recognize the role of RCTs in poverty alleviation strategies.
Knowledge of the World Bank's poverty reduction approaches and indices like HDI and MPI.

Chapter Summary Insights

The disparity between rich and poor nations continues to grow, with rising Gini ratios indicating increased inequality.
The number living on less than $1.90 has decreased, but absolute poverty remains a significant global challenge.
PCY's correlation with underdevelopment traits highlights the need for broader measures of economic health.
Development metrics like HDI and MPI provide comprehensive insights beyond income alone.

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Description

Explore the concept of Per Capita Income (PCY) as a critical measure of development. This quiz assesses your understanding of how PCY varies across countries and its significance in evaluating living standards through Purchasing Power Parity (PPP) rates. Test your knowledge of economic indicators and their implications for development.