Question

A2. Suppose an international development bank is deciding whether to use the headcount index or the poverty gap to measure the effects of a country's poverty-reducing policies, as a criterion for additional lending. Explain how and why this decision might effect the nature of these policies. A3. Explain why the Solow (neoclassical growth) model predicts conditional convergence of per capita incomes across countries. A4. Countries A and B have just two age groups and each age group consists of equal numbers of men and women. The following table gives the numbers in each age group, fer- tility rates and mortality rates for each group in period 1. If the current Young become the Old in period 2 and their children become the Young, how does each country's population change and why? Initial age Fertility Mortality rate (%) distribution rate Young in A Old in A 60 2.2 10 40 100 Young in B Old in B 40 2.2 10 60 100

Answer 1

By assuming that information is available about that certain geographical region measured on following the international welfare measure and we have specific data for each household and individual in the nation especially data related to the poverty line and income per capita. so to look on what basis additional lending can be granted, we have to first check both the method of calculating the poverty and then only we can decide which concept to be followed and what will be the best for the firm. headcount index mainly tells us about the proportion of the population that is poor out of the total population so it is just a mathematical number through which we can only find out the number of people but it will be difficult to get the intensity of poverty in the country, whereas poverty gap index measures the exact extent by which different proportion of population fall below the poverty line, and summation of all these gaps between the poverty line and the difference between the proportion of population below it can provide the exact information about minimum cost of eliminating the poverty from total population in country. definitely the above two concepts provide important insight about the poverty level existing in the society but when we have to take any decision regarding policy framework it is better to consider poverty gap index as by using it we can find the current status of poverty spread in the society and it will be better if the decision of additional lending will be taken on looking after it because it will give us the data of whether people will be able to repay that money or not by looking at their current poverty gap.