Text Exercises with Answers

1. Read the definition of GNP per capita and answer the following questions:

1. What does this indicator measure? [GNP per capita measures the average income of a country’s citizens. It shows what part of a country’s GNP each person would have if GNP were divided equally.]
2. Why is knowing GNP per capita helpful in studying development? [It is a good first step toward understanding a country’s economic strengths and needs, as well as the general standard of living enjoyed by the average citizen.]

2. Read the definitions of low-income, middle-income and high-income countries and answer the following questions:

1. What was the highest GNP per capita a country could have in 1998 to be included among the low-income countries? [$760]
2. What would you expect the general living conditions to be like in a low-income country? [There would probably be a lower standard of living than in middle- and high-income countries; there would be few goods and services available to the general public; and many people would not be able to meet their basic needs.]
3. What was the range of GNP per capita for middle-income countries in 1998? [$761-$9,360]
4. What would you expect the general living conditions to be like in a middle-income country? [The standard of living would probably be higher than in a low-income country, but lower than a high-income country. People would have access to more goods and services than in a low-income country, but many people still would not be able to meet their basic needs.]
5. What was the range of GNP per capita for high-income countries in 1998? [$9,361 and above]
6. What would you expect the general living conditions to be like in a high-income country? [The standard of living would probably be higher than in low- and middle-income countries, with more access to goods and services. Most people would probably be able to meet their basic needs, but would still have things that they want.]

3. The items listed below would be included in calculating a country’s GNP. Which items are goods? Which are services?

• food [good]
• housing [good]
• teachers’ salaries [service]
• home computers [good]
• getting a haircut at the hairdressers [service]

4. Answer each of the following questions briefly, referring back to the Text if necessary.

1. Name three factors that influence economic growth. [Some factors that influence economic growth include the health, education, and skill levels of the labor force; transportation, communication, and energy systems; quality of tools and technology; access to raw materials and capital; fair wages and prices for goods and services; savings and investment; value and variety of exports; and access to world markets.]
2. How can population growth rate affect the GNP per capita growth rate? [Assuming that GNP stays the same, the higher the population growth rate, the lower the GNP per capita growth rate. If the population growth rate is slower than the GNP growth rate, the GNP per capita growth rate is positive; if the population growth rate equals the GNP growth rate, the GNP per capita growth rate is zero; and if the population growth rate is faster than the GNP growth rate, the GNP per capita growth rate is negative.(For more in-depth information, read growth rates.)]
3. Does GNP per capita give a complete picture of the standard of living of all people in a country? Why or why not? [No, because it is an average. GNP per capita does not show how income is distributed. And although it shows the average income, it does not show whether people lead fulfilling lives. In addition, it does not include unreported income from the informal sector, nor show what goods and services are available and how much people can buy with their money.]

5. Calculate GNP per capita for countries A and B using this formula: GNP ÷ Population = GNP per capita

Based on your answers, identify each country as low income, middle income, or high income. [Country A is low income; country B is high income.]

6. Use the population information in the table below to answer the question that follows.

How many times greater is the average GNP per capita of high-income countries than that of low-income countries? [$25,480 ÷ $520 = 49 times]

7. Read the definition of growth rates, then calculate the annual GNP per capita growth rates for countries A and B using the following formula:

Note: Average annual growth rates of GNP per capita for a period of years provide a better picture than rates for a single year. Calculating any growth rate for a period longer than a year requires more complicated mathematical formulas than the one used to calculate an annual rate.

8. Purchasing power parity (PPP) is used to compare how much a dollar can buy in different countries. If GNP per capita goes up after being adjusted for PPP, one can buy more goods and services than the GNP per capita figure would suggest. If it goes down after adjustment, one can buy less than the figure would suggest. Look at the following table and answer the questions below.

1. In which country would you be able to purchase more with a dollar? [Country A]
2. In which country is the average person likely to have the better standard of living? [Country B]
3. Based on these data, in which country would you prefer to live? Explain your answer.[Probably in country B, because even though you can buy less with each dollar, the value of your per capita income is still greater than in country A.]

9. Natural resource accounting tries to measure and allow for the costs of depleting natural resources and degrading the environment that can be part of economic growth. Listed below are some products that would add value to a country’s GNP. For each product, list some potential environmental and resource costs that might not be recognized in GNP, but which would be included in natural resource accounting.

Product	Potential environmental and resource costs
Wood furniture	[Possible answer: Cutting down trees for wood could result in lack of trees for future use; decrease in the Earth’s ability to purify air; soil erosion which could make land less fertile and increase dangers of flooding; silting; loss of habitat for wildlife; and decrease in biodiversity.]
Food crops	[Possible answer: Growing food crops such as maize could result in soil erosion which can make land less fertile and increase dangers of flooding; silting; water pollution from pesticides and fertilizers; and loss of soil nutrients. Farmers’ use of irrigation could deplete fresh water resources or cause salinization of the soil which happens when fields are over-irrigated.]
Electricity from a coal burning plant	[Possible answer: Mining the coal could result in a lack of coal for future energy use and land degradation of the mining area, which could result in a loss of habitat for wildlife. Burning coal for electricity could result in air pollution; acid rain; pollution of rivers and lakes; destruction of fisheries; decrease in biodiversity; and decreased crop yields.]