Econ Theme 4 - Emerging + developing economies 2

Question 1

Poor education

Answer 1

poor education -> low human capital -> low productivity
-> LRAS left -> limit real GDP -> limit economic development

FUTHERMORE…
citizens take low level paying jobs -> low income tax revenue -> gov. have no money to invest in development

e.g. President of Madagascar wanted to rid trace of French Empire so banned French teachers and Malagasy was going to be used, but even with training, teachers weren’t ready producing generation children called the lost generation
GNI feel from $460 - $240 (1980-1990)

Question 2

Improving Education

Answer 2

Madagascar government trained more teachers and built more schools in remote areas
chain of reasoning

Question 3

Improving education EVAL

Answer 3

• In Madagascar it’s common for children to work.
• children now going to school in remote areas mean families income decrease in SR
• consumption will decrease
• AD decreases
• real GDP decreases
• less income tax revenue
  FUTHERMORE…
• even in long run, if the standard of education is poor then students will leave school with low levels of human capital
• will not make them more productive.
• economic growth will be limited.

Question 4

Poor infrastructure

Answer 4

Poor infrastructure -> less productive firms -> left shift of LRAS -> low real GDP -> constraining development
FUTHERMORE..
Lowe productivity -> higher costs -> shift SRAS to the left -> firms will have higher prices -> less competitive -> less profit -> lower corporation tax revenue -> lower gov. spending

e.g. India has poor infrastructure, dirt roads, poor transports, frequent blackouts, vital delays to India businesses

Question 5

Improving Infrastructure

Answer 5

Promote FDI -> increase business profit -> increase investment -> increase corporation tax revenue

-India is investing in high speed bullet trains to increase productivity

India lowered corporation tax + reduced wage costs (easier to fire workers in small businesses) encouraging FDI
- in 2015 $31billion in FDI

Question 6

Improving infrastructure EVAL

Answer 6

• reducing wage costs by lowering minimum wage -> lower incomes -> lower consumption -> lower AD -> reduction in real GDP
• lower corporation tax which reduces their tax revenue

Question 7

Poor Health

Answer 7

poor healthcare
poor sex education
-> workers fall ill ->take sick days -> lowers productivity -> LRAS shifts lefts -> constraining development

-> lowers productivity -> less output -> less profit -> lower corporation tax revenue -> less gov spending on development

-> workers fall ill -> can’t work -> no income -> children have to work in their place -> children have low human capital

e.g. Kenya affected the worse by HIV/AIDS because leaders claimed it didn’t exist in their country so didn’t use resources to combat it
1.6 million ppl have HIV infection