Solutions Manual For

Solutions Manual For Macroeconomics 23 rd Edition By Campbell McConnell (All Chapters 1-21, 100% Original Verified, A+ Grade)

All Chapters Arranged Reverse:

21-1 This is The Original Solutions Manual For 23 rd Edition, All other Files in The Market are Fake/Old/Wrong Edition. 1 / 4

Chapter 21 - The Economics of Developing Countries Chapter 21 - The Economics of Developing Countries McConnell Brue Flynn 23e

DISCUSSION QUESTIONS

1.What are the four categories used by the World Bank to classify nations on the basis of national income per capita? Identify two nations for each of the four categories.

L O21.1

Answer: The World Bank classifies countries into high-income, upper-middle-

income, lower-middle-income, and low-income categories on the basis of national income per capita. Answers will come from the list or map in this chapter.

2.Explain how the absolute per capita income gap between rich and poor nations might increase, even though per capita income (or output) is growing faster in DVCs than in I A C s. L O21.1

Answer: Because base incomes are so much higher in I A C s than in DVCs, slower

growth as a proportion of GDP in these countries can still translate into higher absolute gains in per capita living standards, causing the absolute per capita income gap between I A C s and DVCs to increase rather than decline.For example, assume country A has a 1 percent rate of growth and current per capita income is $10,000. One year from now, this country will have a per capita income of $10,100 (= $10,000 + $100).Now consider country B. This country’s rate of growth is 3 percent and per capita income is $2,000. One year from now this country will have a per capita income of $2,060 (= $2,000 + $60).Although country B grew at a faster rate, it has become relatively poorer than country A in terms of absolute per capita income. Before economic growth, the per capita income difference between countries A and B was $8,000 (= $10,000 − $2,000). The difference after growth is $8,040 (= $10,100 − $2,060).

3.Explain how each of the following can be obstacles to the growth of income per

capita in the DVCs: lack of natural resources, large populations, low labor

productivity, poor infrastructure, and capital flight. L O21.2

Answer: A weak resource base can be a serious obstacle to growth. Real capital

can be accumulated and the quality of the labor force improved through education and training. But it is not as easy to augment the natural resource base. Without 21-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. 2 / 4

Chapter 21 - The Economics of Developing Countries access to natural resources, countries do not have the raw materials for large-scale production.Large populations can reduce per capita income levels in a number of ways. First, high population growth reduces the amount of capital and raw materials available to future workers (reduced investment and lower productivity). Second, large populations tend to overuse natural resources (overgraze, etc.). Third, large populations may lead to urban congestion, which might increase crime and corruption. Finally, large populations might reduce investment in human capital (education) because large families have fewer resources per child.Low labor productivity (which may be the result from the problems discussed above) can slow economic growth because workers produce less than their respective counterparts in the I A C s with the same amount of resources. This could be the result of human capital accumulation differences and the quality of education.Poor infrastructure will reduce the return to private investments because transportation costs are high. The transportation costs may be so high that no investment takes place for a particular industry.Capital flight, human and physical, reduces the quantity and quality of capital available for production. This will slow growth as well.

4.What is the demographic transition? Contrast the demographic transition view of population growth with the traditional view that slower population growth is a prerequisite for rising living standards in the DVCs. L O21.2

Answer: The demographic transition is the process that a country’s population

goes through as the economy develops. The typical pattern is one where initial growth is followed by a reduction in the mortality rate (better nutrition, sanitation, etc.). This reduction in the mortality rate results in an increase in population size and population growth. After households adjust their reproductive behavior to the new mortality rate and the higher per capita income level, the population growth rate falls and the population size stabilizes (see answer below).

Demographic transition view: Expanded output and income in developing

countries will result in lower birthrates and slower growth of population. As incomes of primary family members expand, they begin to see the marginal cost of a larger family exceeding the marginal benefit. The policy emphasis should

therefore be on economic growth. Traditional view: Developing nations should

reduce population growth as a first priority. Slow population growth enables the growth of per capita income.21-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. 3 / 4

Chapter 21 - The Economics of Developing Countries 5.As it relates to the vicious circle of poverty, what is meant by the saying “Some DVCs stay poor because they are poor”? Change the box labels as necessary in Figure 21.3 to explain rapid economic growth in countries such as South Korea and Chile. What factors other than those contained in the figure might contribute to that growth? L O21.3 Answer: The vicious circle of poverty concept implies that the poor countries of the world will remain poor because they do not have the resources (per capita income) necessary to invest in the factors required for sustained economic growth.These factors could be education (human capital), physical capital, physical infrastructure, or social infrastructure (institutions).To describe countries such as South Korea and Chile, we would need to change the labels on three boxes, leading to a change in the “results” boxes. “Rapid” population growth would change to “low” rate of population growth; “low” level of saving would change to “high” level of saving; “low” levels of investment in physical and human capital would change to “high” levels of investment in physical and human capital. These three changes would result in higher productivity and higher per capita income, which would produce a rising level of demand. Other factors include a stable national government, a homogeneous population, extensive investment in infrastructure, a "will to develop," and strong private incentives..

6.Because real capital is supposed to earn a higher return where it is scarce, how do you explain the fact that most international investment flows to the I A C s (where capital is relatively abundant) rather than to the DVCs (where capital is very scarce)? L O21.3

Answer: Capital earns a higher return where it is scarce, other things equal.

However, when comparing investment opportunities between I A C s and DVCs, 21-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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