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ECONOMICS 313 A
ECONOMIC DEVELOPMENT 1
Fall 2009
Practice PROBLEM SET NO. 1
While you do not hand in your answers, it is in your best interest to work on these questions
before the conferences.
Part A: Short Essays:
Please answer the following questions. An answer need not be more than a few paragraphs, as long
as the terms are well defined and arguments presented coherently.
1. Chapter 1, questions 7 and 8, page 35.
2. Chapter 2, questions 4, 6, 8 and 9, pages 97-98
Part B: Quantitative Questions:
Question 1
Consider two countries, A and B, who both produce haircuts and corn. The currency in
Country A is the Dollar ($) and in Country B is the Franc (F). The official exchange rate trades
one Dollar to 1.2 Francs. Haircuts and corn are produced in the following quantities and are
sold at the following prices:
Haircuts
Corn
(a)
(b)
(c)
(d)
(e)
Country A
Price ($)
Quantity
20
100
5
60
Country B
Price (F)
Quantity
12
50
6
150
What is GDP in Country A and what is GDP in Country B, expressed in each
country’s currency?
What is country B’s GDP, expressed in dollars, using the official exchange rates?
What is country B’s GDP, expressed in dollars, using Purchasing Power Parity (PPP)
prices?
Which method (exchange rate or PPP) is better to convert country B’s GDP into
dollars? Why?
Can you say that one country is richer than the other? Why or why not?
Question 2
1
Using the Human Development Report 2007, using the formulae in the textbook and
described in class, double check the HDI for Zimbabwe and for Uganda (show all your
work). What explains the differences between the two? Now, compare these figures with
those in the Human Development Report 2000. What differences do you see between the
2005 and 2000 reports in terms of the HDI for these two countries? Is comparing the HDI
value and ranking over this time period informative? Relative to the range of HDI from top
to bottom, these two countries are relatively close. If you were to suggest a unique
development policy to each country to improve the HDI ranking for next year, what would
it be?
2