4.1-3 Growth and Development Basics

Question 1

What is actual SR growth?

Answer 1

Increase in real GDP of a given time.

Question 2

What is potential LR growth?

Answer 2

Increase in capacity.
Increase in production possibility.

Question 3

What are the main problems with growth?

Answer 3

It isn’t sustainable.
Demand Pull inflation.
Shortages occur when not keeping with increased demand
More factories - more population - more waste.

Question 4

What are the main sources of growth?

Answer 4

Natural = discover more resources
Human = more/more skilled people
Capital = Better/More access to technology
Institutions = Political Stability, Banking, Property Rights

Question 5

What is development?

Answer 5

Standard of living/quality of life.

Question 6

How does one measure development?

Answer 6

Human Development Index
and/or
National Income per Capita (GNI)

Question 7

In order what is the left side of the poverty cycle?

Answer 7

Growth =

Low saving
Low investment
Low Growth

Question 8

In order what is the right side of the poverty cycle?

Answer 8

Development =

Low healthcare/education
Low human capital
Low Productivity

Question 9

Define economic growth

Answer 9

Increase in real GDP over a period of time.

Question 10

Define sustainable development

Answer 10

Improvement in standard of living today that does not compromise the standard of living in the future.

Question 11

Explain why merit goods are being under consumed.

Answer 11

Q2 is the socially optimum consumption
But Q1 is the free market therefore there is underconsumption.
Because MSB > MPC because of MEC
Market does not take into account MEC and so produces DWL (shaded area)

Question 12

Why might growth result in inflation?

Answer 12

Growth causes an increase in AD
Increase in real GDP
Increase in Prices
No response in AS
Demand pull inflation

Question 13

Why does environmental degradation cause market failure?

Answer 13

Environmental Degradation is a negative externality in production.
Q2 is socially optimal
Q1 is free market which is below optimal.
MSC > MPC because of MEC
Market does not take into account MEC and produces DWL (shaded area)

Question 14

How is lack of infrastructure a barrier to growth?

Answer 14

Decrease in productivity
Decrease in AS
Decrease in productive capacity.
Low Income

Question 15

How does a lack of international markets act as a barrier to growth?

Answer 15

Without international markets (X-M) decreases.
Decreasing AD
Less GDP
Low income
Low growth

Question 16

Low levels of healthcare acting as a barrier to development?

Answer 16

Low healthcare
People become unwell = Low human capital
People don’t work because unwell =Low productivity
Low Income
Low development

Question 17

Low levels of education acting as a barrier to development?

Answer 17

Low education
People are untrained = Low human capital
People can’t work as fast because untrained =Low productivity
Low Income
Low development

Question 18

How does high levels of gender inequality become a barrier to development?

Answer 18

Women don’t have proper education
Women don’t have knowledge of healthcare
Impact human capital of them and their family members
Less productivity because worse human capital and women don’t work = fewer workers
Low income

Question 19

Why are informal markets a barrier to development?

Answer 19

Markets not controlled by government are not policed the same, and worked could be in bad conditions / no health or safety equipment
Human capital lowers because of these conditions
Productivity lowers
Low Income

ALSO

No tax revenue - no infrastructure etc.

Question 20

Why are informal markets a barrier to growth?

Answer 20

No tax revenue for government
No government spending on infrastructure.
Decrease in productivity
Decrease in AS
Decrease in productive capacity.
Low Income

Question 21

When answering a question about G and D using AD/AS diagram.

Answer 21

Write up AD = C+I+G+(X-M)
AD and AS diagram

Question 22

When answering questions about poverty cycles remember…

Answer 22

You need to explain WHY x lowers.

Question 23

When answering a G+D 15 marker…

Answer 23

DEFINE = Development + HDI, + AD=C+I+G+(X-M)
A-B-C-D
Poverty cycle diagram
Evidence from source with reasoned arguments

Question 24

What is Foreign Direct Investment?

Answer 24

Investment for expanding productive capacity in the long run by buying out existing firms overseas by a foreign country or firm.

Question 25

When answering an FDI 15 marker.

Answer 25

Quotations
Definitions = Development/Growth/HDI
Inflation, Subsidies, Market Failure, Merit Good, Gov. Intervention AS NEEDED
Diagram = AD/AS or Poverty Cycle
Evaluation = SR, LR, Stakeholders, +/-
Conclusion/synthesis.

Question 26

How does FDI help development?

Answer 26

^ education ^ training ^ productivity ^ income

^ infrastructure ^ productivity ^ AS ^ income

Question 27

How does FDI help growth?

Answer 27

v savings gap ^ investment ^ AD ^ income

Question 28

What are the positives of FDI?

Answer 28

More training
Domestic economy improves
More jobs

Question 29

What are the negatives of FDI?

Answer 29

Profits go to other firm/country
Pollution

Question 30

What is the effect of FDI in SR?

Answer 30

Investor loses
Invested gains

Question 31

What are the effects of FDI in LR?

Answer 31

Investor gains
Invested loses.

Question 32

How are stakeholders affected by FDI?

Answer 32

Government = ^GDP ^Tax ^Spending
Consumers = more stuff = lower prices
Producers = profits go to other country