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Suppose 14 percent of the Indian labor force is in self-employment. From this fact, we cannot conclude anything about the share of the labor force in formal employment in India.
Mozambique had a population of 25.2 million people in 2012, 9.3 million of these people were employed (81% in agriculture). Suppose that the population of Mozambique increases to 25.7 million in 2013 and employment decreases to 9.1 million. We can conclude that unemployment has increased in Mozambique between 2012 and 2013.
Nsima is the staple food of rural Malawi and one of the least expensive, edible ways to get calories in rural Malawi. . It is cooked, ground white maize flour. Suppose economists estimate that the price elasticity of demand for ground white maize flour is positive. This is consistent with the existence of calorie based capacity constraints in rural Malawi.
Sialkot Pakistan is in Punjab province. It is a major supplier of hand knit soccer balls globally. Production is done in-home. A local contractor receives an order from an exporter. The local contractor identifies self-employed families whose business is to sew the balls in their homes (this is what's known as a cottage industry). Suppose that we expect global demand for soccer balls to increase with the coming World Cup. What effect will this have on the labor demand in Sialkot?
· The rise in global demand should increase prices, because more soccer balls will be demanded. The increase in prices should increase labor demand.
· Increase demand should raise soccer ball prices. Although this might facilitate entry into manufacture, there is reason why this would result in prices lower than before the increase in demand. Just because employment is cottage, doesn't remove it from the labor market clearing problem. Self-employment impacts labor demand the same as formal employment
The Ilam district is the center of tea production in Nepal. India is the largest tea consumer in the world. Until 1991, India prohibited the import of tea. Once India lifted import restrictions, demand for Nepal tea exports from Ilam increased dramatically. Tea is typically grown on plantations using hired in labor. Model the economy in Ilam as consisting of a self-employed sector which can freely hire in and fire labor and the wage sector which largely consists of work on tea plantations but can also include working in other people's farm or business. For simplicity, assume no one in Ilam owes the land used for tea (it is owned outside of the district). What is the impact of the increase in demand for tea from Ilam on self-employment in Ilam?
· The increase in demand for tea from Ilam should increase tea prices in Ilam. The increase in tea prices should increase wages because of an increase in labor demand. The rise in wages should reduce employment in the self-employed sector.
· This question was designed to get people thinking about what happens in the self employment (separable household model when wages increase) and to think more on how markets operate.
Uganda's decline in the prevalence of HIV has occurred because of mortality from HIV at older ages.
Information on the prevalence of HIV in a country, presuming the information implies a higher prevalence rate than expected, will reduce risky behaviors, because people will know that the costs associated with those risky behaviors are higher.
A great deal attention is paid to the problem of transaction sex in Sub-Saharan Africa. True or False: if you are involved in a sexual relationship where your partner occasionally gave you gifts or some spending money, then you are engaging in transaction sex.
Kenya's abstinence education program appears to have reduced HIV in Kenya.
HIV is more prevalent among adolescent males than older males, because younger males are more likely to engage in risky behaviors.
Returns to education are lower in agriculture than in other industries of employment in low income countries.
Net primary school enrollment rates above 100 are plausible in low income countries.
In the schooling model developed in class, the agency problems refer to the problem of finding an agent to place a child into a job.
Because the total cost of schooling depends on both its direct costs and its opportunity costs, schooling responds to changes in direct costs in the same way it responds to changes in wages.
Assume parental preferences are Cobb-Douglas over current consumption and the child's future well-being (using the functional form considered in class). Consider a family with one boy and one girl with a common non-child labor income Y. Assume returns to education (b) do not differ by gender. Assume that wages for child laborers do not differ by gender. Assume direct schooling costs do not differ by gender. Then, the parent will choose the same education for the boy and girl.
Most economically active children work for pay in agriculture.
The Luxury Axiom states that child labor occurs whenever parents cannot cover basic needs without child income.
The Substitution axiom states that child and adult labor are perfect substitutes.
The existence of Bonded child labor in the world owes to the pervasiveness of unscrupulous employers exploiting the desperation of poor parents.
Using the classical child labor supply model from class (same one used Monday), define non-labor income Y as adult labor income: vA where v is the adult wage and A is the number of adults in the household. Add to the substitution axiom to the model. This implies that w=alpha*v where w is the child wage before and alpha is the productivity shifter ( a child laborer is as productive as alpha adult workers, alpha<1). In this case, an increase in adult wages influences child labor, and that increase depends only on the price of schooling and the child's wage.
Boys in Mexico are more apt to be employed in paid employment. From this we can conclude that the opportunity cost of time in school is greater for boys than girls.
When child labor and adult labor are perfect substitutes and there are multiple sectors in which both children and adults participate, employment regulation that only focuses on one sector should not change the number of working children or adults.
The U.S. Government regularly contracts with NGOs to rescue child laborers, meaning that they identify children in hazardous activities and remove them from those jobs. For example, a recent contract removed 385 children from cut flower businesses in Ecuador. In competitive markets, this should result in a fewer children working in cut flower businesses.
Consider the Basu and Van model developed in class (the one based on the luxury axiom and the substitution axiom). Consider an economy with child labor present. What is the impact of the imposition of a minimum wage at (a tiny bit above) the subsistence level of consumption? Pick the best answer.
Transfers like Progresa that provide cash conditional on school attendance are an effective way to promote school attendance even when schools are terrible. Suppose for example that b is close to 0 in the classical schooling model from last class.
Inexperienced and barely trained teachers retard student achievement in school.
Out-migration can cause individuals to systematically underestimate returns to education and thereby invest in less education.
Attempts to incentivize teacher attendance through classroom monitoring have proven ineffective as teacher's have sabotaged the monitoring equipment.
Girls schooling is more elastic to distance than boys.
Duflo's evaluation of the INPRES school construction project found that INPRES increased schooling and raised wages. Which of the following best describes her research design to look at the impact of INPRES on educational attainment?
Why might preference for sons result in reduced educational investment in girls
Why might the mobility of girls compared to boys in India be important in accounting for gender differences in education?
Average Returns to education are higher for boys than girls throughout the developing world.
Altruistic parents should invest equally in their children.
Sibling Rivalry is the idea that having more siblings means fewer resources to invest in children
The total fertility rate is a forecast of how many children a woman born today will have in her lifetime
The decline in fertility in China was larger before China adopted its one child policy than after.
The fertility effects of improvements in access to contraceptives are largest for young women.
Increases in non-labor income will reduce fertility.
Consider the Becker Quality - Quantity model developed in class. Suppose that the government of Kenya makes primary schooling free. Model this as a decrease in the price of child quality (pie - c in the model). What effect will this have fertility? Pick the best answer
The consumer loan default rate is 7.7 percent in Brazil. The current interbank interest rate in Brazil is 7.5 percent per year. Assume there's no risk built into this rate. What should the marginal product of capital be in Brazil if the neoclassical model of capital markets holds?
· 8.08 percent
· MPK=Marginal cost = (1+d)*r
Adverse selection occurs when lenders are unable to prevent the willful ex-post default of borrowers.
Add collateral into the adverse selection model developed in class. Consider a separating equilibrium where lenders choose interest rates that are high enough to only attract high risk lenders. Without collateral, the lender chooses an interest rate that does not depend on the probability the project is successful. WIth collateral, the interest rate depends on the probability of success.
Pick the best definition of credit rationing.
· Credit rationing is when there are differences between identical agents in their ability to borrow
· Different agents may face different interest rates for a number of reasons. If I'm a high risk type and you are a low risk type, I would love to borrow more at your interest rate. I cannot, because I'm high risk. That is not credit rationing.
· Credit rationing is if I would like to borrow at a given interest rate that is available to me (or someone identical to me), but I am unable to do so
Repayment rates are higher in formal, traditional bank lending that informal lending.
Microcredit attains higher repayment rates than observed in informal lending.
The high take-up rates associated with micro-credit reveal that there is a large, unmet demand for credit in developing countries.
The observation that microcredit may not be a tool for fighting extreme poverty implies that there is no role for microcredit in development policy.
Consider a borrower in Pakistan with a business manufacturing soccer balls in-home. He borrows to purchase a latex bladders and synthetic leather sheets. Alternatively, he can work in a local agricultural labor market. Suppose that there is limited liability but full information between lenders and borrowers. Suppose the borrower has a loan amount L* at an interest rate i*. Suppose consumer protests about working conditions in Pakistan reduce demand for Pakistani soccer balls. This consumer action reduces revenue (through lower prices) in the manufacture of soccer balls but does not impact agricultural labor markets. So long as the decline in revenue from the consumer action is still above his cost of borrowing, the borrower will repay his debt to the lender.
If discount rates are the inverse of 1+r (discount rate=1/(1+r)), the individuals equalize the marginal utility of consumption over time. Assuming time consistent representation of preferences (so that the marginal utility in any time period associated with a given level of consumption is the same) and the usual assumptions on utility functions, this observation that the marginal utility of consumption is the same over time, implies that consumption is the same over time.
Suppose that a taxi driver borrows $10 at the start of the day to rent a taxi and he pays $11 to the lender at the end of the day. This implies an interest rate of 10 percent per day. Suppose the lender faces a cost of capital of 10 percent per year (that's the rate the lender borrows out). What is the default risk implied by the classical credit model on this transaction? (hint - you need to look at your credit notes )
Suppose the taxi driver decides to give up the mid-day tea for $0.20 and use that to reduce his borrowing. On his first day of this plan, he still has to borrow the $10, but he saves the $0.20 that day so that on day 2, he has his $0.20 and only borrows $9.8 . How many days does he need to give up his tea in order to eliminate his need to borrow (choose the closest answer)?
Suppose that a taxi driver borrows $10 at the start of the day to rent a taxi from a friend. He pays the friend $10 back at the end of the day. Suppose the taxi driver decides to give up the mid-day tea for $0.20 and use that to reduce his borrowing. On his first day of this plan, he still has to borrow the $10, but he saves the $0.20 that day so that on day 2, he has his $0.20 and only borrows $9.8 . How many days does he need to give up his tea in order to eliminate his need to borrow (choose the closest answer)?
MFI's in Mexico charge on average interest rates of 90% or more per year. Which of the following could explain why individuals consistently and repeatedly borrow at such high rates?
Generally individual consumption more closely tracks individual income than it does average consumption in a community.
Ideal partners in a mutual insurance arrangement have independent income streams.
In which of the following settings are we most likely to see mutual insurance functioning effectively.
Child fostering arrangements in West Africa are largely driven by household labor needs.
When households can costlessly save and borrow, there is no need to enter into separate mutual insurance arrangements.
Natural disasters are more costly in high income countries than in low income countries.
U.S. spending on food aid programs has been declining between 1980 and present
U.S. spending on food aid is positively correlated with U.S. prices of food aid products
Poor families in western Tanzania make up stories about witchcraft in order to avoid feeding elder women.
We see the tragedy of the commons because an individual shepherd:
Equates marginal cost of a goat to the average product of milk it produces
Which of the following is not a normative argument for state intervention in the provision of education.
The private returns to education are large compared to other potential uses of capital
Wasteful competition occurs when states offer public goods for localities to compete for.
In standard economic models of economic growth, leaders should have no influence on long-term economic outcomes.
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