Economics 23e By
Campbell McConnell,
Stanley Brue, Sean Flynn
(Solutions Manual All
Chapters 1-41, 100%
Original Verified, A+
Grade)
All Chapter Arranged Reverse: Chapter 41-1
,Chapter 41 - The Economics of Developing Countries
Chapter 41 - The Economics of Developing Countries
McConnell Brue Flynn 23e
DISCUSSION QUESTIONS
1. What are the four categories used by the World Bank to classify nations on the basis
of national income per capita? Identify two nations for each of the four categories.
LO41.1
Answer: The World Bank classifies countries into high-income, upper-middle-
income, lower-middle-income, and low-income categories on the basis of national
income per capita. Answers will come from the list or map in this chapter.
2. Explain how the absolute per capita income gap between rich and poor nations might
increase, even though per capita income (or output) is growing faster in DVCs than in
IACs. LO41.1
Answer: Because base incomes are so much higher in IACs than in DVCs,
slower growth as a proportion of GDP in these countries can still translate into
higher absolute gains in per capita living standards, causing the absolute per
capita income gap between IACs and DVCs to increase rather than decline.
For example, assume country A has a 1 percent rate of growth and current per
capita income is $10,000. One year from now, this country will have a per capita
income of $10,100 (= $10,000 + $100).
Now consider country B. This country’s rate of growth is 3 percent and per capita
income is $2,000. One year from now this country will have a per capita income
of $2,060 (= $2,000 + $60).
Although country B grew at a faster rate, it has become relatively poorer than
country A in terms of absolute per capita income. Before economic growth, the
per capita income difference between countries A and B was $8,000 (= $10,000 −
$2,000). The difference after growth is $8,040 (= $10,100 − $2,060).
3. Explain how each of the following can be obstacles to the growth of income per
capita in the DVCs: lack of natural resources, large populations, low labor
productivity, poor infrastructure, and capital flight. LO41.2
Answer: A weak resource base can be a serious obstacle to growth. Real capital
can be accumulated and the quality of the labor force improved through education
and training. But it is not as easy to augment the natural resource base. Without
41-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,Chapter 41 - The Economics of Developing Countries
access to natural resources, countries do not have the raw materials for large-scale
production.
Large populations can reduce per capita income levels in a number of ways. First,
high population growth reduces the amount of capital and raw materials available
to future workers (reduced investment and lower productivity). Second, large
populations tend to overuse natural resources (overgraze, etc.). Third, large
populations may lead to urban congestion, which might increase crime and
corruption. Finally, large populations might reduce investment in human capital
(education) because large families have fewer resources per child.
Low labor productivity (which may be the result from the problems discussed
above) can slow economic growth because workers produce less than their
respective counterparts in the IACs with the same amount of resources. This
could be the result of human capital accumulation differences and the quality of
education.
Poor infrastructure will reduce the return to private investments because
transportation costs are high. The transportation costs may be so high that no
investment takes place for a particular industry.
Capital flight, human and physical, reduces the quantity and quality of capital
available for production. This will slow growth as well.
4. What is the demographic transition? Contrast the demographic transition view of
population growth with the traditional view that slower population growth is a
prerequisite for rising living standards in the DVCs. LO41.2
Answer: The demographic transition is the process that a country’s population
goes through as the economy develops. The typical pattern is one where initial
growth is followed by a reduction in the mortality rate (better nutrition, sanitation,
etc.). This reduction in the mortality rate results in an increase in population size
and population growth. After households adjust their reproductive behavior to the
new mortality rate and the higher per capita income level, the population growth
rate falls and the population size stabilizes (see answer below).
Demographic transition view: Expanded output and income in developing
countries will result in lower birthrates and slower growth of population. As
incomes of primary family members expand, they begin to see the marginal cost
of a larger family exceeding the marginal benefit. The policy emphasis should
therefore be on economic growth. Traditional view: Developing nations should
reduce population growth as a first priority. Slow population growth enables the
growth of per capita income.
41-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Chapter 41 - The Economics of Developing Countries
5. As it relates to the vicious circle of poverty, what is meant by the saying “Some
DVCs stay poor because they are poor”? Change the box labels as necessary in Figure
41.3 to explain rapid economic growth in countries such as South Korea and Chile.
What factors other than those contained in the figure might contribute to that growth?
LO41.3
Answer: The vicious circle of poverty concept implies that the poor countries of
the world will remain poor because they do not have the resources (per capita
income) necessary to invest in the factors required for sustained economic growth.
These factors could be education (human capital), physical capital, physical
infrastructure, or social infrastructure (institutions).
To describe countries such as South Korea and Chile, we would need to change
the labels on three boxes, leading to a change in the “results” boxes. “Rapid”
population growth would change to “low” rate of population growth; “low” level
of saving would change to “high” level of saving; “low” levels of investment in
physical and human capital would change to “high” levels of investment in
physical and human capital. These three changes would result in higher
productivity and higher per capita income, which would produce a rising level of
demand. Other factors include a stable national government, a homogeneous
population, extensive investment in infrastructure, a "will to develop," and strong
private incentives..
6. Because real capital is supposed to earn a higher return where it is scarce, how do you
explain the fact that most international investment flows to the IACs (where capital is
relatively abundant) rather than to the DVCs (where capital is very scarce)? LO41.3
Answer: Capital earns a higher return where it is scarce, other things equal.
However, when comparing investment opportunities between IACs and DVCs,
other things are not equal. Advanced factories filled with specialized equipment
require a productive work force. IACs have an abundance of educated,
41-3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Campbell McConnell,
Stanley Brue, Sean Flynn
(Solutions Manual All
Chapters 1-41, 100%
Original Verified, A+
Grade)
All Chapter Arranged Reverse: Chapter 41-1
,Chapter 41 - The Economics of Developing Countries
Chapter 41 - The Economics of Developing Countries
McConnell Brue Flynn 23e
DISCUSSION QUESTIONS
1. What are the four categories used by the World Bank to classify nations on the basis
of national income per capita? Identify two nations for each of the four categories.
LO41.1
Answer: The World Bank classifies countries into high-income, upper-middle-
income, lower-middle-income, and low-income categories on the basis of national
income per capita. Answers will come from the list or map in this chapter.
2. Explain how the absolute per capita income gap between rich and poor nations might
increase, even though per capita income (or output) is growing faster in DVCs than in
IACs. LO41.1
Answer: Because base incomes are so much higher in IACs than in DVCs,
slower growth as a proportion of GDP in these countries can still translate into
higher absolute gains in per capita living standards, causing the absolute per
capita income gap between IACs and DVCs to increase rather than decline.
For example, assume country A has a 1 percent rate of growth and current per
capita income is $10,000. One year from now, this country will have a per capita
income of $10,100 (= $10,000 + $100).
Now consider country B. This country’s rate of growth is 3 percent and per capita
income is $2,000. One year from now this country will have a per capita income
of $2,060 (= $2,000 + $60).
Although country B grew at a faster rate, it has become relatively poorer than
country A in terms of absolute per capita income. Before economic growth, the
per capita income difference between countries A and B was $8,000 (= $10,000 −
$2,000). The difference after growth is $8,040 (= $10,100 − $2,060).
3. Explain how each of the following can be obstacles to the growth of income per
capita in the DVCs: lack of natural resources, large populations, low labor
productivity, poor infrastructure, and capital flight. LO41.2
Answer: A weak resource base can be a serious obstacle to growth. Real capital
can be accumulated and the quality of the labor force improved through education
and training. But it is not as easy to augment the natural resource base. Without
41-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,Chapter 41 - The Economics of Developing Countries
access to natural resources, countries do not have the raw materials for large-scale
production.
Large populations can reduce per capita income levels in a number of ways. First,
high population growth reduces the amount of capital and raw materials available
to future workers (reduced investment and lower productivity). Second, large
populations tend to overuse natural resources (overgraze, etc.). Third, large
populations may lead to urban congestion, which might increase crime and
corruption. Finally, large populations might reduce investment in human capital
(education) because large families have fewer resources per child.
Low labor productivity (which may be the result from the problems discussed
above) can slow economic growth because workers produce less than their
respective counterparts in the IACs with the same amount of resources. This
could be the result of human capital accumulation differences and the quality of
education.
Poor infrastructure will reduce the return to private investments because
transportation costs are high. The transportation costs may be so high that no
investment takes place for a particular industry.
Capital flight, human and physical, reduces the quantity and quality of capital
available for production. This will slow growth as well.
4. What is the demographic transition? Contrast the demographic transition view of
population growth with the traditional view that slower population growth is a
prerequisite for rising living standards in the DVCs. LO41.2
Answer: The demographic transition is the process that a country’s population
goes through as the economy develops. The typical pattern is one where initial
growth is followed by a reduction in the mortality rate (better nutrition, sanitation,
etc.). This reduction in the mortality rate results in an increase in population size
and population growth. After households adjust their reproductive behavior to the
new mortality rate and the higher per capita income level, the population growth
rate falls and the population size stabilizes (see answer below).
Demographic transition view: Expanded output and income in developing
countries will result in lower birthrates and slower growth of population. As
incomes of primary family members expand, they begin to see the marginal cost
of a larger family exceeding the marginal benefit. The policy emphasis should
therefore be on economic growth. Traditional view: Developing nations should
reduce population growth as a first priority. Slow population growth enables the
growth of per capita income.
41-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Chapter 41 - The Economics of Developing Countries
5. As it relates to the vicious circle of poverty, what is meant by the saying “Some
DVCs stay poor because they are poor”? Change the box labels as necessary in Figure
41.3 to explain rapid economic growth in countries such as South Korea and Chile.
What factors other than those contained in the figure might contribute to that growth?
LO41.3
Answer: The vicious circle of poverty concept implies that the poor countries of
the world will remain poor because they do not have the resources (per capita
income) necessary to invest in the factors required for sustained economic growth.
These factors could be education (human capital), physical capital, physical
infrastructure, or social infrastructure (institutions).
To describe countries such as South Korea and Chile, we would need to change
the labels on three boxes, leading to a change in the “results” boxes. “Rapid”
population growth would change to “low” rate of population growth; “low” level
of saving would change to “high” level of saving; “low” levels of investment in
physical and human capital would change to “high” levels of investment in
physical and human capital. These three changes would result in higher
productivity and higher per capita income, which would produce a rising level of
demand. Other factors include a stable national government, a homogeneous
population, extensive investment in infrastructure, a "will to develop," and strong
private incentives..
6. Because real capital is supposed to earn a higher return where it is scarce, how do you
explain the fact that most international investment flows to the IACs (where capital is
relatively abundant) rather than to the DVCs (where capital is very scarce)? LO41.3
Answer: Capital earns a higher return where it is scarce, other things equal.
However, when comparing investment opportunities between IACs and DVCs,
other things are not equal. Advanced factories filled with specialized equipment
require a productive work force. IACs have an abundance of educated,
41-3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
