Activity (Final Period)

Fill-in questions
1. High-income nations can be classified as (industrially advanced, developing) ___ countries.
Industrially advance countries have a (higher, lower) ___ starting base for per capita income
than developing countries, so the same growth for IACs and DVCs means a(n) (increase,
decrease) ___ in the absolute income gap.
2. Low per capita income in DVCs means that there is (lower, higher) ____ life expectancies,
(lower, higher) ___ adult literacy, (lower, higher) ____ daily calorie supply, (lower, higher) ___
daily energy consumption and (lower, higher) ___ infant mortality.
3. The process for economic growth is the same for IACs and DVCs. It involves (less, more) ___
efficient use of existing resources and obtaining (lower, higher) ___ productive resources.
4. In terms of human resources,
a. Many DVCs are (under, over) ___ populated and have (higher, lower) ___ population growth
rates than IACs. Rapid population growth can cause per capita income to (increase,
decrease) ____.
b. In DVCs, many people are unable to find jobs, so there is (underemployment,
unemployment) ____, and many people are employed for fewer hours than they desire or
work at odd jobs, so there is (underemployment, unemployment) ___.
c. In DVCs, labor productivity is very (high, low) ___, partly because these countries have not
been able to invest in (stock and bonds, human capital) ___; when the best trained workers
leave DVCs to work in IACs, there is (demographic transition, brain drain) ____ that
contributes to the decline in skill level and productivity..
5. Capital accumulation is critical to the development of DVCs. If there were more capital goods,
this would improve (natural resources, labor productivity) ___ and help boost per capita output.
An increase in capital goods is necessary because the (demand for, supply of) ___ arable land is
limited. The process of capital formation is cumulative, investment increases the (output,
natural resources) ___ of the economy and this in turn makes it possible for the economy to
save more and invest more in capital goods.
6. The formation od domestic capital requires that a nation save and invest.
a. Savings is difficult in DVCs because of a (high, low) ___ potential for saving, and investment
is difficult because of (many, few) ___ investors or entrepreneurs, and (strong, weak) ___
incentives to invest. These also the problem of private savings being transferred to IACs,
this transfer is called (brain drain, capital flight) ___.
b. Many DVCs do not have the infrastructure or (private, public) ___ capital goods that are
necessary for productive (private, public) ___ investments by businesses.
c. Nonfinancial (in-kind) investment involves the transfer of surplus labor from (agriculture,
industry) ___ to improve of agricultural facilities or infrastructure.
7. The technologies used in the advanced industrial countries might be borrowed by and used in
the DVCs , but
a. The technologies used in the advanced countries are based on a labor force that is (skilled,
unskilled) based on a labor that is relatively (abundant, scarce) ____, and capital that is
relatively (abundant, scarce) ___, and their technologies tend to be (labor, capital) intensive,
while
b. The technologies required in in developing countries must be based on a labor force that is
(skilled, unskilled) ___, labor that is relatively (abundant, scarce) ___, and capital that is
relatively (abundant, scarce) ___ and their technologies tend to be (labor, capital) intensive.
8. Other obstacle of economic growth in DVCs include those dealing with problems of national
unity, religion, and customs, or (institutional, sociocultural) ___ problems, and those dealing
 with such issues as political corruption, poor school systems, and land reform, or (institutional,
sociocultural) ___ problems.
9. In most DVCs, there is vicious circle of poverty. Savings is low because the income per capita is
(high, low) ___, and because savings is low, investment is in real and human capital is (high, low)
____. For these reasons the productivity of labor and output (income) per capita remain (high,
low) ___.
10. Three major ways that IACs can assist in the economic development in DVCs is by (increasing,
decreasing) ___ international trade barriers, (increasing, decreasing) ___ foreign aid, and
(increasing, decreasing) ___ the flow of private capital investments.
11. Direct foreign aid for DVCs generally comes from individual nations in the form of (private,
public) ____ loans grant from (Bank of America, World Bank) ___ which is supported by (12,
180) ___ member nations. This organization is a (first, last) ___ resort lending agency for DVCs
and provides (military, technical) ___ assistance for DVCs.
12. DVCs can adopt policies to encourage economic growth. They can (open, close) ___ economies
to international trade, (encourage, discourage) ___ direct foreign investment and the
development of human capital, and (expand, control) ___ population growth. IACs can also
adopt policies to help the DVCs. They can (raise, lower) __ trade barriers, (encourage,
discourage) ___ immigration of the brightest and best educated, and direct foreign aid to the
(middle-income, low-income) ___ DVCs.
13. The causes of the growing inequality of incomes are due to (more, less) ___ demand of highly
skilled workers, entrance in the labor force of (more, less) ____ experienced baby boomers, and
____ (more, less) ___ families headed by single-wage earners. Other factors include (more, less)
___ international competition that reduced the average wage of low-skilled workers, (more,
less) ____ immigration that increased the number of low-income families.
14.

Income inequality can be portrayed graphically by drawing a (Phillips, Lorenz) ____ curve.
 a. When such curve is plotted, the cumulative percentage of (income, families) ____ is
measured along the vertical axis.
b. The curve which would show a completely(perfectly) equal distribution of income is a
diagonal line which would run from the (lower, upper) ___ left to the (lower, upper) ___
right corner of the graph.
c. The extent degree of income inequality is measured by the area which lies between the line
of complete equality and the (horizontal axis, Lorenz curve) ____.
15. The fundamental tradeoff is between equality and (welfare, efficiency) ____. This means that
less income equality leads to a (greater, smaller) ____ total output, and a larger total output
requires (more, less) ____ income inequality.
16. The economic problem for society that wants more equality is how to (minimize, maximize)
____ the adverse effects on economic efficiency.

Problem Solving
1. Suppose that the real per capita income in the average industrially advance country is $8,000
per year and in the average DVC $500 per year.
a. The gap between their standards of living is $ ____ per year.
b. If GDP per capita were to grow at a rate of 5 percent during a year in both industrially and
developing countries, the standard of living in the IACs would rise to $___ in a year; the
standard living in the DVCs would rise to $___ in a year and the gap between their standard
of living would (narrow, widen) ___ to $ ___ in a year.
2. Suppose that it takes a minimum of 5 units of food to keep a person alive for a year, the
population can double itself every 10 years, and the food supply can increase every 10 years by
the amount of what it was in the beginning of the year (0).
a. Assume that both population and the food supply grow at these rates. Complete the
following table by computing the size of the population and the food supply in years 10 to
60.
Year Food Supply Population
0 200 20
10 __ __
20 __ __
30 __ __
40 __ __
50 __ __
60 __ __
b. What happens to the relationship between the food supply and the population in the 30 th
year?
c. What would actually prevent the population from growing at this rate following the 30 th
year?
d. Explain why the standard of living failed to increase in the years following the 30 th even
though the food supply increased by 75 percent between years 30 and 60.
3. (Length of time problem) How long will it take to double per capita income if the rate of
economic growth is 5.5 percent? Use the rule of 72
4. (Length of time problem) The Republic of the Philippines would like to triple per capita income
by achieving 6.75 percent of economic growth every year. How long will it take the Republic of
the Philippines to triple the per capita income?
5. (Length of time problem) Assume that the base year per capita income in Country A is USD2,000
and its target per capita income is USD5,000. How long will it take Country A to achieve its
target per capita income if it grows by 5.50 percent every year?
6. (Growth rate problem) What growth rate does the Republic of the Philippines have to achieve if
it aims to triple per capita in 12 years?
7. (Growth rate problem) Assume that the base year per capita income in Country A is USD2,000
and its target per capita income is USD5,000. How long will it take Country A to achieve its
target per capita income if it grows by 5.50 percent every year?
8. Use the data below to compute for the human development index (HDI) Round off all final
answers to one decimal place. Show your solutions.
Development Dimension Indicators Actual Data
Life expectancy 75 years
Mean years of schooling 12 years
Expected years of schooling 10 years
Real per capita GNI 6,500 PPP$
Solve the following
a. Life expectancy index
b. Mean years of schooling
c. Education index
d. Income index
e. Income index
f. Human development index.
9. Suppose the price of Big Mac in the United State is $3.25 and GBP in Great Britain determine the
implies PPP exchange rate?
10. From the base price levels of 100 in year 2000, Japanese and Unite State price levels in 2015
stood at 102 and 106 respectively.
a. If the 2000 USD:JPY exchange rate was USD0.007692, what should be the implies PPP
exchange rate.
b. If the exchange rate in 2015 was JPY1 = USD0.008696, by how many percent should the
currency would appreciate or depreciate to hold the law of one price?