DEPARTMENT OF ECONOMICS
Fall 2018 ECO314 Ramesh Mohan
EXAM 2: Take home (15 points)
INSTRUCTION: ANSWER ALL QUESTIONS. PROVIDING REFERENCES TO YOUR WORK IS A MUST.
Why Economists Are Still Grasping for Cure to Global Poverty
Africa’s Poverty Trap http://online.wsj.com/article/SB117462055909446522.html?mod=djem_jiewr_em
Why Foreign Aid Is Hurting Africa
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa
Answer all 7 questions. Type your answers. Print it – Make sure you leave enough space for diagrams, and draw appropriate diagram by hand.
QUESTIONS: 1) Graphically show how it is possible that two steady states exist if the economies have similar rates of depreciation, population growth and technological progress. Under which conditions might the economy eventually end up in the low k* steady state? Explain the intuition.
Based on the diagram above, discuss critically whether countries are converging to similar per capita income? Are there any empirical studies (search in google scholar and cite two papers) to support your claim? (2 points)
2) What is meant by the “germ theory of disease” as it applies to the
economics of poor nations? What would such a theory look like? Why is
it important for economists to discover such a theory? (2 points)
3) What are foreign aid and poverty trap? What role has foreign aid played in the economic development of many African nations over the past 50 years? Can countries grow out of a poverty trap without the help of foreign aid? What evidence is there that this is possible? (2 points)
4) Could a change in the savings rate, s, lift the economy out of its poverty trap without outside assistance in a club economies? If yes, characterize the minimum change in the savings rate needed and whether it will have to be permanent. If no, explain why not. Use relevant diagram to demonstrate your claim . (2 points)
5) What is the Millennium Development Program? According to Easterly, what is missing from this program? (2 points)
6) Eastern European Convergence
Based on the articles above, according to the growth models we learned, discuss critically convergence/divergence in Eastern European countries (also known as transition economies). (2 points)
7) A Convergence Tale
a) “As the Czech Republic, Estonia, Hungary, Poland and Slovenia embark on joining the European Union, they need only look as far as Greece to spot the rewards — and the dangers — that lie ahead”. Discuss critically the statement.
b) Discuss Productivity Convergence of European Economies.
c) Do you think Markel’s Harmonic Convergence a viable one for Europe?
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