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Development Economics Exam Problems

1. The document contains the final exam questions for a Development Economics course. It includes mathematical problems involving Harrod-Domar and Solow growth models and questions about income distribution, taxation, and Lorenz curves. 2. It also asks students to comment on statements about the validity of instruments in growth studies, the measurability of leadership effects, and the interchangeability of culture and institutions. 3. Students must also answer two essay questions, choosing from topics about the relationship between social security, fertility decline, and other factors; the tax rate that maximizes growth in the Persson-Tabellini inequality model; and the main elements of the "Regulation and Distrust" paper model.

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171 views1 page

Development Economics Exam Problems

1. The document contains the final exam questions for a Development Economics course. It includes mathematical problems involving Harrod-Domar and Solow growth models and questions about income distribution, taxation, and Lorenz curves. 2. It also asks students to comment on statements about the validity of instruments in growth studies, the measurability of leadership effects, and the interchangeability of culture and institutions. 3. Students must also answer two essay questions, choosing from topics about the relationship between social security, fertility decline, and other factors; the tax rate that maximizes growth in the Persson-Tabellini inequality model; and the main elements of the "Regulation and Distrust" paper model.

Uploaded by

sasha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Development Economics at ICEF

Final exam
May 26, 2018
Part II: Problems.

Mathematical problems. Solve both.

1. Early growth theories. Consider Harrod-Domar and Solow growth models with following
production functions. Harrod-Domar model: Y=K/5; Solow growth model Y =5 K 0.3 L0.7.
Depreciation rate = 5%. Population growth is zero. L=100.
a. (10pts) If K=2000, which savings rate maximizes the long run growth rate in Harrod-
Domar model?
b. (10 pts) Which savings rate maximizes per capita consumption in Solow model in long run?
You can refer to a theorem without proving it.

2. Suppose the distribution of incomes in an economy of 1000 individuals is given by the Lorenz
curve of the following form: L(x) = x4, where 0≤x≤1 denotes a fraction of population. The GDP
(aggregate income) is 10 million USD.
a. (15 pts) Find the income y(x) of each person in the economy, as function of x.
b. (15 pts) Suppose the government imposes a tax of 20% on all income, and distributes the
tax revenue to all people equally. Find everyone’s income after redistribution.
c. (15 pts) Find the Lorenz curve after redistribution.
d. (20 pts) Calculate the Gini coefficient before and after redistribution.
e. (15 pts) Identify which individuals will support the redistribution

True, false, uncertain? Provide comments on any 2 out of the following statements. (40 pts. each)

3. Past settlers mortality is a valid instrument for institutions. 

4. The effect of leadership on country development is impossible to measure because the change
of leadership is itself affected by country growth.

5. In the context of economic development, culture and institutions are completely interchangeable
and their effects cannot be separated.

Essays – provide a detailed answer to any 2 out of the following questions. (60 pts. each)

6. . Explain the mechanism through which better social security for old people is believed to have
reduced fertility. Which other factors are believed to have influenced fertility decline?

7. In the Persson-Tabellini model of inequality and growth, which tax rate maximizes the
economic growth rate? Explain the intuition of the model. Why does inequality lead to
suboptimal tax rate?

8. In the model of the “Regulation and Distrust” paper, outline the main building blocks without
providing the details. In that model, social welfare under government regulation is a quadratic
function of the share of civic individuals. Why?

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