ECN-115A Fall 2009 PS_3 Key

ECN-115A Fall 2009 PS_3 Key - The Economics of Development...

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1 The Economics of Development: ARE/EC-115-A Dr. Stephen A. Vosti Fall 2009 Problem Set 3 – Poverty Measures and Policy Action to Reduce Poverty Poverty can be measured in several ways, and depending on the measure adopted, different types of policy action can be more/less effective in reducing poverty. One commonly used method for measuring poverty is the Foster-Greer-Thorbecke (FGT), or P( α ), method, which is calculated as follows: 1 1 ( ) i H i i Z y P N Z , where ‘Z’ is the poverty line, ‘y i ’ is the income of the i th household, ‘ H ’ is an indicator of the last household below the poverty line, ‘N’ is the population size, and ‘ α ’ is a poverty weight assigned by the analyst (you). 1. Assume that households in a particular community have the following levels of income. Household Number Annual Income 1 110 2 30 3 70 4 140 5 80 6 60 7 50 8 130 9 80 10 150 Prepare a histogram that presents a ranking of households by income level. (NB: No equation is required to prepare this figure.)
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