Development Economics at ICEF

Midterm exam

April 2, 2018

Part II: Problems.

16. Suppose the Lorenz curve of a population is given by the equation y=0.9x3+0.1x, where
0≤x≤1 is the fraction of the population and y is the fraction of total income earned by that
population. Suppose the total population is 100 and total income of that population is $1 million
per year.
a. (12 pts.) What is the income of the poorest person?
b. (12 pts.) What is the income of the median person?
c. (12 pts.) What is the income of the richest person?
d. (12 pts.) What is the rank of the person with average income? (poorest = rank 1,
richest = rank 100)
e. (12 pts.) Calculate the Gini coefficient for the economy.

Write a ½-page essay on any two of the following three topics (35 points each).

17. Outline the reasons why brain drain may be not such a bad thing for the home country of
emigrants. In your own view, do positive effects outweigh the negative effects? Why?

18. Explain the main ideas of Jared Diamond’s theory of development. How does he explain the
rise of the European civilization? What was the role of disease in the expansion of European
civilization?

19. Discuss the use of instrumental variables in empirical research. What problems does it help
to overcome? Which variables can be used as instruments? Which instruments were used in the
studies we discussed in class?