Name____________________
Student ID____________________
Midterm Exam
Economics 2000
Tuesday, October 30th, 2012
Write your answers on this white exam paper.
Multiple Choice (1/2 point each)
1. Which Multinational Institution takes charge of ensuring short-term financial
liquidity by providing short-term loans during a financial crisis?
a.
b.
c.
d.
Bank for International Settlements
World Bank
Asian Development Bank
International Monetary Fund
______D________
2. Green GDP can be calculated by:
a.
b.
c.
d.
Adding environmental cleanup costs to GDP
Subtracting environmental cleanup costs from GDP
Adding value of natural resources extracted to GDP
Adding value of natural resources discovered to GDP
________B______
3. An Argentine worker can make 5 automobiles per month or 15 motorcycles. An
American worker can make 1 automobile per month or 2 motorcycles. We can say:
a. America has both an absolute and a comparative advantage in making
automobiles.
b. America has an absolute advantage in automobiles but not a comparative
advantage.
c. America has a comparative advantage in automobiles but not an absolute
advantage.
d. America has neither an absolute nor a comparative advantage in automobiles.
______C________
1
4. Your firm wants to invest in a heavy industrial factory making machine tools which
requires a disciplined workforce able to follow precise rules and a committed
management teams. According to Hofstede’s Cultural Dimensions theory, a culture
with a high measurement along which dimensions might have a strong competitive
advantage.
a. Power Distance and Uncertainty Aversion
b. Uncertainty Aversion and Individualism
c. Uncertainty Aversion and Traditional Values
d. Power Distance and Individualism
_______A_______
Short Answer
5.
(2 points) Economic journalist Thomas Friedman wrote in his book The Lexus and
the Olive Tree “That’s why I define globalization this way: it is the inevitable
integration of markets, nation-states and technologies to a degree never witnessed
before – in a way that is enabling individuals, corporations and nation-states to reach
around the world farther, faster, deeper and cheaper than ever before.” Construct two
arguments against Friedman’s remarks.
A. Globalizaton is aided by policy decisions to increase international trade and finance.
These policies could be reversed.
B.
During the imperial/colonial period, there was also large scale
internationalization. This was reversed.
C.
During the financial crisis, several aspects of globalization were reversed
including trade and financial flows. Since 2008, globalization has not increased greatly.
6. (2 points) Name an objective and a subjective measure of potential institutional gaps
in goods markets.
A. Consumer credit information, internet penetration, ease of starting a business
(procedures, cost)
B. Executive
2
7. (2 points) The Human Development Index tries to measure development along the
lines of economic philosopher Amartya Sen. This index measures standard of living
using national income, life expectancy and health. Explain why national income
might better capture Sen’s idea of development than would GDP.
Sen argues that development is the elimination of constraints on peoples choices. Income
acts to relax constrints on people that come from lack of funds. These funds might come
from domestic or foreign sources. GDP is a measure of production which creates income,
however, other constraints may also exist. A short lifespan or poor health will also
constrain choices.
8. (2 points) According to the theories of Elinor Ostrom, why might having a high
level of interpersonal trust create efficiencies in society?
High trust allows for the creation of institutions that allow for the sharing of common
goods. If common goods, like public places, are important than high trust will allow for
their most efficient use.
3
9. (2 points) The OECD under its Better Life Initiative is attempting to create measures
of well-being to compare with GDP. They have conducted surveys of people in all
member countries on their health. A representative sample of people in each country
was asked “How is your health? Very good, good, not very good, or poor.” At their
web site, http://www.oecdbetterlifeindex.org/topics/health/ the OECD reports the %
of people answering good or very good including the following countries.
% Answering Good or Very Good
Germany
65%
Korea
44%
Japan
33%
USA
75%
Compare these results from subjective measures of health with objective measures such
as life expectancy.
Life Expectancy
Germany
Japan
80.0 Korea
82.9 USA
80.8
78.2
Describe some advantages and disadvantages of using subjective measures vs. objective
measures of health
We see that East Asian countries do the worst in subjective measures of Health while the
USA does by far the best. This contrasts with objective measures which we saw in our
homework shows that the USA does the worst in terms of life expectancy and infant
mortaility. An advantage of examining subjective measures is that they can include all the
variety of things that can add up to feeling healthy. For example, Americans may live
relatively shorter lives than Asians, but during their lives they may receive more rapid or
complete treatment for chronic or occasional diseases which might make their lives less
satisfying. The disadvantage of using subjective measures is that people in different
countries might have a different frame of reference or different frame of reference for
what constitutes being healthy or a different standard for complaining about ill health. In
addition, infants and others who die too early deaths cannot be surveyed. This makes
personal descriptions of health difficult to interpret.
4
10. (2 points) OECD researchers also tested the quality of education by travelling to
member countries and implementing standardized tests for reading competence on a
representative group of 17 year olds. Students were given a score of 200 to 600.
Reading Comprehension Score: Average Student
Germany
497
Korea
549
Japan
520
USA
500
Suppose you wanted to construct a Development Index which combined survey indices
of health with quality measures of education. Describe precisely how you would
construct such an index. Calculate that Index for the USA.
1
X 1j  X Min
1
An index for any measure is created using the measure X 1j DI JX  1
. The
1
X Max  X Min
overall development index can be calculated as
N
X 1j  X 2j  ...  X jN In this case, N =
2, Health and education. In general, the choice of the min and max probably lie within 0
and 100 for subjective health and between 200 and 600 for education.
For USA this would mean
2
.75  .75 =.75
5
Calculations
11. (2 points) In 2011, the British pound traded at an exchange rate of US$1.48 per
British pound. The following chart shows the GDP per capita in 2011 in local
currency units along with the PPP conversion factor in local currency units per US$.
Convert GDP levels into US dollars using both the exchange rate and PPP conversion
method.
UK
GDP per Capita
PPP Conversion factor
2011
£24,067.06
0.62
PPP Conversion
Exchange Rate Conversion
__$38,817.85
$35,619.26
6
12. (3 points) You have data from a fictional version of Indonesia in 2009 and 2010. In
this version of Indonesia, only two goods are produced: consumption and investment.
In 2009, consumption goods were 69% of GDP. The volume growth rate of
consumption was 4.04% while the volume growth rate of investment was 10.41%.
a. Calculate the volume growth rate of GDP in 2010.
g Q  w1 g q1  w2 g q2  .69*.0404  .31*.1041  .060147
______________
b. Calculate investments contribution to GDP growth.
w2 g q2 =0.032271
______________
13. (3 points) You are given information on the PPP GDP per Capita for Indonesia 2005
measured in international dollars, $3102. In addition, you are given a measure of the
Lorenz curve cumulative distribution by quintile.
20th Percentile
40th Percentile
60th Percentile
80th Percentile
100th Percentile
a.
b.
Lorenz Curve
0.0834
0.2034
0.3614
0.5714
1
Estimate the median income for Indonesia in 2005.
Share of income to middle quintile is ShareMiddle = LCMidddle - LC Seconde . Average
ShareMiddle
15.8
 GDPPerCapita
 3102  2450.58
of middle quintile is
20
20
______________
Estimate the GINI coefficient for in 2005.
GINI  100*(1  2  Sum of Trapezoids Area)
Trapezoids Area  .2 
LC j  LC j 1
2
Trapezoids
1
2
3
4
5
0.00834
0.02868
0.05648
0.09328
0.15714
Sum
0.34392 GINI
31.216
______________
7
11. (3 points) The World Values Survey argues that cultures can be best explained by
looking at 2 key dimensions.
a. Label the axes of the following chart with these dimensions.
b. Country A has a very high divorce rate. Represent country A as a point on the
graph.
c. Place Hong Kong or other East Asian growth countries on the graph.
2
HK
A
___Secular_______vs,_Traditional_____________
0
-2
0
___Suvival_____vs, _____Lifestyle____________
8
2