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(ECON343)FinalExam_spring_2004.pdf
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Final Examination






. This exam has four questions. You are required to answer all of them. You have 2 hours and 30 minutes to write this exam.




. The point distribution is as follows:



Question 1: 11 points

Question 2: 17 points

Question 3: 32 points

Question 4: 40 points










GOOD LUCK !


1. [11 points: 1 + 4 + 6]
Read the following paragraph carefully.

Within the poor households there is an on-going process of nutritional development: the targets of discrimination are established once and for all C certain individuals may be systematically denied nutrition and medical care, so that scarce resources can be better focused on some remaining subset of family members.

Now answer the following questions:

(i) Name at least two groups of individuals that perhaps are systematically denied nutrition and medical care within the poor households.

(ii) Look at Table 1 that shows the calorie intakes and requirements (by sex) in rural Bangladesh (1975-76). Do you find evidence that females are systematically denied nutrition? Explain.

(iii) Now look at Figure 1 that shows the sex ratios (females per 100 males) in different Asian countries. Comment on the discrimination against females putting together your observations in Table 1 and Figure 1.





2. [17 points: 7 + 10]



A typical agricultural production cycle can be divided into a slack season and a peak season C the slack season comes first and the peak season comes after that. In an agricultural region the casual wages vary widely between these two seasons: $400 in the slack season and $1,600 in the peak season. Casual employment is always available so that an agricultural laborer can always fall back upon these casual wages.

Anka is an agricultural laborer and she does not like these wage fluctuations C she is fluctuation-averse. Her utility function is given by
where x is her wage. She would like to smooth out her consumption, that is, consume the same amount in each season. To finance her excess consumption in the slack season, Anka needs to borrow.

Birju, a large landowner and a potential employer of Anka, is fluctuation-neutral C he does not mind fluctuating wage payments, he just cares for the absolute values of the wage payments.

There is no bank in this region. So Anka cannot borrow from a bank. Birju has enough money to lend to Anka and since there is no bank, his opportunity cost of fund is zero.

(a) [7 points: 3 + 4]
Suppose that Birju offers Anka to lend $200 in the slack season and, knowing her preference to smooth out consumption, charges an interest rate such that she can consume the same amount in both seasons.

(i) What is the interest rate Birju offers? (Show your work.)

(ii) Will Anka accept this loan offer? Explain clearly.



(b) [10 points]
Find out the consumption-smoothing loan off