Economic homework test

Homework: Economics of Developing Countries

NAME:

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1: Consider an economy with the following distribution of income:

INCOME DISTRIBUTION

% of Population % of Income

bottom 20% 5

lower-bottom 20% 10

middle 20% 15

upper-middle 20% 25

top 20% 45

a) Draw the Lorenz curve of this economy

b) What will happen to the Lorenz curve if the government introduces a progressive

income tax system?

c) What will happen to the Gini coefficient if the government introduces a progressive

income tax system?

2: Comment on the following information on income distribution

INCOME DISTRIBUTION

% of Population % of Income

bottom 20% 5

lower-bottom 20% 15

middle 20% 20

upper-middle 20% 25

top 20% 45

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3: Assume an economy where half of the population has no income and individuals in

the other half have all the same income. a) Draw the Lorenz curve for this economy. b)

Calculate the Gini coefficient.

4. Consider an economy with 7 households. The three poorest households in this economy

have income (and consumption) per day of 0.2$, 0.5$ and 0.5$, respectively. The other

four households have income above the poverty line. The poverty line is 1$ per day. What

is the poverty gap of this economy?

a) 3/7

b) 0.5

c) 0.25

d) 0.68

e) None of the above.

5. You are reading a report on poverty in Honduras. They report a head count index of

0.25, a mean consumption of those below the poverty line of 1.3$ and a poverty gap of

0.0875. What poverty line is being used in this report?

a) 1$

b) 1.25$

c) 1.75$

d) 2$

e) We do not have enough information

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