Developmental Economics Question
Study Guide
Chapter 7 The Men from Kabul
- Understand how the example of the fruit seller and the rag picker are typical of credit markets (high interest rates, lack of larger loans from formal institutions)
- Understand why the poor often use informal lending markets such as borrowing from a relative.
- Be able to explain why the poor pay such high interest rates even though they are unlikely to default. Understand the influence of collateral and the multiplier
- Understand the importance of groups for microfinance institutions.
- Be able to explain the evidence that Duflo and Banerjee find regarding the limited effectiveness of microcredit.
- Be able to explain why the focus might need to shift to larger firms.
- Chapter 8 Saving Brick by Brick
- Understand that the poor do actually have enough money to save, but the reasons they do not save in traditional forms and the forms they use instead.
- Understand how the fertilizer experiment shows how household savings can be promoted.
- Understand the importance of self control and how financial products can be designed to help the poor overcome these issues and save.
- Be able to explain the role of future expectations in savings.
Chapter 9 Reluctant Entrepreneurs
- Note how the poor have smaller businesses with low capital inputs, understand the implications of this type of business
- Understand how the marginal rate of return on capital falling influences the size of businesses.
- Be able to explain how a steady job can transform a poor households.
Requirements: one page