# answerkey1 - ECON 202, Fall 2007 Malhar Nabar Answer Key #...

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ECON 202, Fall 2007 Malhar Nabar Answer Key # 1 Posted: February 12 1. Cross Country Income Data Consult the Penn World Tables cross country income data available at < http://pwt.econ.upenn.edu/php_site/pwt61_form.php > . Refer to the following series: (a) Real GDP per capita (Chain Series: rgdpch) and (b) Real GDP per worker (Chain Series: rgdpwok). For the following group of countries GROUP A: Nigeria, Pakistan, Paraguay, Rwanda, Uganda; and GROUP B: Luxembourg, New Zealand, Norway, UK, USA calculate a. The ratio of the average GDP per capita for GROUP B relative to the average GDP per capita for GROUP A in 1965 dollar" currency units that take into account the di/erences in cost of living between rich and poor countries. Every country±s statistics are converted from their domestic currency units into this common international currency unit before the cross-country comparisons are made. ( average y cap ) B ( average y cap ) A = 12400 : 29235 1139 : 058941 = 10 : 89 b. The ratio of the average GDP per worker for GROUP B relative to the average GDP per worker for GROUP A in 1965 average y wrkr ± B ( average y wrkr ) A = 30233 : 14796 3076 : 357935 = 9 : 83 c. The ratio of the average GDP per capita for GROUP B relative to the average GDP per capita for GROUP A in 2000 ( average y cap ) B ( average y cap ) A = 29069 : 64547 1846 : 85517 = 15 : 74 d. The ratio of the average GDP per worker for GROUP B relative to the average GDP per worker for GROUP A in 2000 average y wrkr ± B ( average y wrkr ) A = 61142 : 56771 4539 : 521058 = 13 : 47 1

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2. Data Analysis a. Comparing 1 (a) and 1 (c): has this ratio increased or decreased? Comparing (b) and (d): has the ratio increased or decreased? Has the gap in living standards (measured by GDP per capita) widened by more or less than the gap in productivity (measured by GDP per worker) between these two groups of countries? Both gaps have widened. The gap in living standards has widened by more than the gap in productivity. b. Suggest possible reasons for why the disparities are moving in the directions you have identi- The rising gap in living standards is partly explained by the rising gap in productivity and partly by a relatively more favorable dependency burden. Recall that y cap = y wrkr wrkrs population The ratio of average productivity across the two groups has widened from 9.83 in 1965 to 13.47 in 2000. The countries in Group B have, on average, achieved faster productivity growth than the countries in Group A during this time interval. Possible factors that explain this are - greater phys- ical capital accumulation, greater human capital accumulation, more rapid technological progress. In addition, it appears to be the case that the dependency burden in Group A has increased relative
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