DS Midterm Reviewer with Answers.pdf

Development and Poverty 1. Define development. a. Enhancement of human well-being (De Janvry and Sadoulet) 2. What are the three markers of well-being? a. A multidimensional concept b. Implying priorities and trade-offs c. Defining development is a national and person...

Development and Poverty 1. Define development. a. Enhancement of human well-being (De Janvry and Sadoulet) 2. What are the three markers of well-being? a. A multidimensional concept b. Implying priorities and trade-offs c. Defining development is a national and personal choice reflecting the social needs and aspirations of the corresponding individual, group, class, or nation 3. Differentiate the following: a. Absolute poverty i. A situation of being unable to meet the minimum levels of income, food, clothing, health care, shelter, and other essentials. b. Chronic poverty i. Long-term poverty c. Persistent poverty i. Insistent movement from poor to non-poor Inequality 1. Differentiate inequity and inequality. a. Inequity i. Degree of equality of opportunities to generate or achieve future life outcomes ii. Ex-ante event b. Inequality i. Current spread of life outcomes ii. Ex-post event 2. What curve and statistic measures income inequality? a. Lorenz Curve and GINI Coefficient b. What situation occurs when the statistic gets closer to 1? i. Perfect inequality c. What situation occurs when the statistic gets closer to 0? i. Perfect equality 3. What are the three aspects necessary to define an inequality? a. Among whom b. In what space c. Over what time 4. What is the difference between vertical and horizontal inequality? a. Vertical Inequality → among different individuals or households b. Horizontal Inequality → within a group 5. What are the three reasons why inequality is a problem? a. Leads to economic inefficiency b. Undermines social stability c. Simply unfair 6. Why do weak institutions exist? a. Causes i. Uncertainty of property rights and opportunities to bribe ii. Flimsy legal system makes resolving disputes and contracts difficult iii. Political instability causing uncertainty  iv. Corrupt markets leading to market failure b. When the new elites inherit extractive institutions, they may not want to incur the costs of introducing better institutions and may instead prefer to exploit the existing extractive institutions for their benefit c. When individuals make irreversible investments that are complementary to a particular set of institutions, they will then be more willing to support them, making these inefficient institutions persist 7. What are the four megatrends of inequality? a. Technological innovation b. Climate change c. Urbanization d. International Migration Market Failures 1. What is the goal of welfare economics? a. Pareto efficiency – the likelihood that a change makes some individuals better off without making anyone else worse off b. How is this goal limited? i. Highly individualistic ii. Perception of individual matters c. Why is the free market still limited? i. Several think that the “grass is always greener on the other side” ii. Reorganized to make some people even more better off iii. Current setups make some worse off 2. What are the six forms of market failure? a. Competition failure i. More efficient production by one firm ii. Natural monopoly – A situation in which it is cheaper for a single firm to produce the entire output than for each of several firms to produce part of it iii. Market only allows efficiency for a few iv. Imperfect information b. Public goods i. Private sector only sees their benefit: they will not necessarily shoulder the costs of others benefitting from their investment c. Externalities i. The occurrence of unintended (sometimes willful ignorance) harm or benefit to others as a result of my production or use of a good or service d. Incomplete markets i. Goods or services that may be too expensive to produce but people want to access at a relatively low price ii. While provided, they are often incomplete e. Information failure / information asymmetry i. Situations where information is missing or withheld f. Unemployment, inflation, and disequilibrium i. Basically, macroeconomic disturbances 3. Show the Punnett Square of exclusive and rival goods. a. See below b. Define the tragedy of the commons.  i. A situation where many people take more of their share in a pool of common resources shared by a population 4. What are the types of externalities? a. Production externalities i. Positive – honey production; upcycling; fixing my house ii. Negative – waste dumping; manufacturing noises and waste b. Consumption / Use externalities i. Positive – vaccination; food waste for mulch of others ii. Negative – road congestion; smoking 5. Why is government intervention not the sole solution? a. Not always, and not always in the long run b. Government ought to be under a public goods provision mindset c. Government intervention is not always perfect nor competitive d. Efficiency of certain services may not be their priority Wicked Problems 1. What are the nine characteristics of wicked problems? a. Difficult to clearly define b. Many interdependencies and are often multi-causal c. Attempts lead to unforeseen consequences d. Often unstable e. Usually have no clear solution f. Socially complex g. Never at the responsibility of any one group h. Necessitates changing behaviors i. Characterized by chronic policy failure 2. What are the three ways forward according to the UN Common Agenda (2021)? a. A renewed social contract b. Solidarity between generations c. Delivering and protecting public goods and commons Monetary Measures 1. Differentiate the following: a. Headcount Ratio (HCR) (α = 0) i. Percentage of people in a population below a poverty line b. Depth of Poverty / Poverty Gap Ratio (α = 1) i. Average distance of the poor from the poverty line 2. Severity of Poverty / Squared Poverty Gap (α = 2) i. Degree of income inequality among the poor 3. Is economic growth enough for development? Why or why not? a. It is socially costly 4. What are examples of redistributive growth? a. Labor-intensive growth b. Agricultural growth 5. Define and differentiate: a. GDP i. Aggregate value-added by all firms in a country b. Gross National Product / Income (GNP / GNI) i. GDP + net factor income from abroad ii. Repatriated profits  iii. Remittances by migrants c. GDP/GNIPPc i. GDP or GNI divided by the population of a country ii. Growth in GDPPc / GNIPc is a good measure of average income progress over time d. CPI i. Sometimes called the GDP Deflator ii. A calculated value that allows GDP to adjust to inflation e. PPP i. Calculation of GNI using a common set of international prices for all goods and services, to provide more accurate comparisons of living standards f. Nominal i. Raw value ii. Based on current prices (of that year) g. Real i. Value taking inflation into account ii. Based on a peg price set at a common year 6. How do you compute towards US$ 2010 GDPPc? a. Divide GDP by population b. Get nominal US$ value with official exchange rate c. Divide by CPI 7. What is the equation for GPI? a. GPI = GDP + value of unpaid work – costs of crime, social breakdown, and environmental damages Semi-/Non-Monetary Measures 1. Differentiate vulnerability from vulnerability of the poor a. For everyone: probability of falling into poverty as a consequence of exposure to shocks b. Especially for the poor: Probability that future outcomes are lower than current outcomes because of shocks c. Why are the poor generally more risk averse? i. A decline in current outcomes of the poor has higher impact than the same happening to the non-poor d. Differentiate the following: i. Covariate risks – affecting many people ii. Idiosyncratic risks – affects individuals or particular households iii. Risk of irreversibility – shocks that could lead to chronic and/or persistent poverty 2. What are basic needs or entitlements? a. Commodities or services over which a person can exercise ownership or command b. What are some of the indicators of basic needs or entitlements? i. HDI ii. MPI c. How does one assess basic needs? i. Availability ii. Accessibility iii. Security  iv. Acceptability v. Quality 3. What is sustainability concerned with? a. Intergenerational equity 4. What are the three aspects of sustainability? a. Climate change and carbon emissions b. Transmission of the stocks of assets across generations (natural, physical, human, social) c. Accumulation of public debt 5. What are the challenges of sustainability? a. Thinking about the future: For how many generations? b. Social scope: For whose wellbeing? c. A need for the participation of the most industrialized (polluting) countries 6. For Easterly, what are three important categories for higher quality of life? a. Individual rights and democracy b. Political stability and peace c. Absence of “bads” 7. Define and differentiate the following concepts of Amartya Sen: a. Capabilities i. Choices a person makes among “functionings” that they can achieve, and the freedom to exercise such choices b. Functioning i. What people can be or do c. Freedom i. The exercise of choice Economic Sustainability 1. Why do Coordination Failures occur? a. A situation in which the inability of agents to coordinate their behavior (choices) leads to an outcome (equilibrium) that leaves all agents worse off than in an alternative situation that is also an equilibrium. b. Define complementarities. Are they always good? i. An action taken by an individual or organization that increases the incentives for other agents to take similar actions ii. Can lead to status quo bias: a preference to maintain the current state of affairs 2. What is the Big Push Model? a. A concerted, economy-wide, and typically public policy–led effort to initiate or accelerate economic development across a broad spectrum of new industries and skills. b. What are the limitations of this model? i. Expensive. Requires massive investment ii. Insufficient information on where to invest iii. Insufficient information on final equilibrium (might still be bad or even worse than current state) iv. Government may prevent coordination 3. Describe Dougnut Economics. a. What is the center ring called?  i. Social foundation – Depicts the proportion of people that lack access to life’s essentials (healthcare, education, food, water, etc.) b. What is the outer ring called? i. Ecological ceiling – Represents planetary boundaries that life depends on and must not be overshot c. What are the three goals of doughnut economics? i. Safe and just space for humanity ii. Regenerative economy iii. Distributive economy Social Sustainability 1. What does Participatory Development require? a. Empowerment b. Devolution 2. What are human rights? a. Often discussed in a legal context, but constitutively ethical b. Why are they significant? i. Because they enable freedoms that demonstrate social importance and social influenceability c. Differentiate rights holders and duty bearers i. Rights holders: those who have the ability to claim and exercise those rights ii. Duty bearers: those responsible in realizing the rights d. Human rights are our what to everyone? i. Obligation 3. What are the three risk management mechanisms? a. Reduction / Prevention b. Management / Mitigation c. Coping 4. What are the three risk management arrangements? a. Informal b. Market-based c. Public 5. Draw the risk mechanisms and arrangements matrix and provide an example for each. a. See Below Environmental Sustainability 1. Define and provide an example for the four ecosystem services. a. Provisioning – Material benefits i. Food, water, fiber, wood, fuels b. Regulating – Benefits from environmental regulation i. Air quality, soil fertility, flood control, crop pollination c. Cultural – Non-material benefits i. Recreation, tourism, aesthetic appreciation, inspiration, spiritual experiences d. Supporting – Necessary natural processes for other ecosystem services i. Habitats, biodiversity, nutrient cycling, water cycle 2. What are Ostrom’s Eight Principles to managing our common pool resources? a. Clearly Defined Boundaries i. Persons with rights to withdraw from and the boundaries of the common- pool resource are clearly defined  b. Proportional Equivalence Between Benefits and Costs i. Match and proportion appropriation roles’ benefits, costs, and local contexts c. Collective-Choice Arrangement i. Persons affected by the rules can participate in modifying these d. Monitoring i. Active auditors of the common-pool resource conditions and appropriate behavior are accountable to the appropriators e. Graduated Sanctions i. Rule violators are to receive graduated sanctions f. Conflict Resolution Mechanism i. Ensure rapid access to low-cost and local dispute resolutions g. Minimal Recognition of Rights i. External authorities respect rules set h. Nested Enterprises (Coordination in Governance Across Scales) i. Create multiple levels for governance of the common-pool resource 3. How do we combat overpopulation? a. Investing in social security i. Embracing risk management (e.g., subsidized risk insurance) ii. Financial aid and support (e.g., conditional cash transfers) iii. Better provision of public goods and services iv. Education b. Women empowerment 4. What is Jevon’s Paradox? a. Efficiency-increasing technology having counterintuitive effects b. Makes technology cheaper but increases demand 5. What are Negative Production Effects? a. Efficiency-increasing technologies lead to more investments b. Resulting in increase in negative effects used in production 6. What is the Green Conscience Phenomenon? a. People’s easy seduction by the promise of new clean-energy technologies b. Subconsciously believing that we can maintain our current levels of consumption c. We latch onto the belief that technological advancement is a cure-all  Exclusive Yes No Private Common Pool Yes (Cars, houses, pens, (Air, fishing grounds, groceries) beaches, grazing land) Rival Club Public (Golf courses, (National defense, No swimming pools, R&D, farm to market wireless internet, roads, justice) cinemas)  Informal Market-Based Public Prevention Multiple jobs/diversified In-service training Macroeconomic policies production Market-based labor standards Labor market policies Migration Infrastructural improvements Hygiene and disease prevention Disease prevention Proper feeding Conflict management Less risky production Pre-service training Mitigation Multiple jobs/diversified production Investments in multiple financial Pension systems Investments in human, physical, and assets Asset transfers real assets Microfinance Support for financial services to the Investments in social capital Insurance poor Share tenancy Mandatory insurance Public infrastructure Coping Transfers Sale of financial assets Transfers (food, health, shelter, Child labor Bank loans cash, goods, education) Dissaving in human capital Subsidies Sale of assets Migration Borrowing from networks