Economic Development

Question 1

What is economic growth?

Answer 1

An increase in the size of a country’s GDP

Question 2

What is economic development?

Answer 2

When living standards and people’s general welfare change over time

Question 3

What are national income figures?

Answer 3

Figures that take into account the whole population, such as real GDP per capita or real GNI (Gross National Income).

Question 4

What do national income figures indicate?

Answer 4

Standards of living within a country

Question 5

What are some downsides to using national income figures to compare countries?

Answer 5

• Purchasing power parity is not taken into account
• Doesn’t tell us about quality of life
• Ignores economic welfare brought about by hidden economies

Question 6

What is the Genuine Progress Indicator (GPI)?

Answer 6

An economic indicator that uses GDP, but also takes into account negative effects of growth, such as pollution, and things that affect quality of life

Question 7

What is the Human Development Index(HDI)?

Answer 7

An attempt to describe people’s welfare and a country’s economic development

Question 8

What does the HDI take into account?

Answer 8

• Health
• Education Level
• Standard of Living

Question 9

What are the causes of inequality?

Answer 9

• Wage and Tax levels
• Unemployment levels
• education levels
• property ownership & inheritance laws
• level of government benefits

Question 10

Why does poor infrastructure make it difficult for countries to grow?

Answer 10

• Energy supplies may be unreliable so firms can’t operate efficiently
• Poor transport links mean that goods and services cannot be transported easily
• If phone and internet services are scarce, it is hard for firms to coordinate their operations and communicate with customers

Question 11

How does a fast growing population lead to difficulties in attracting FDI?

Answer 11

Fast growing population means lots of children, lots of pressure on the education system, poor families not sending children to school. Low education standards mean less productive workforce. Less productive workforce will find it hard to attract FDI

Question 12

How does disease affect an economy?

Answer 12

Can result in lower productivity and put a strain on country’s healthcare system

Question 13

What is the savings gap?

Answer 13

The gap between the level of domestic savings in an economy and the investment needed to grow

Question 14

What is capital flight?

Answer 14

When people start to hold their savings abroad

Question 15

What is a foreign exchange gap?

Answer 15

Capital outflows from a country are greater than capital inflows

Question 16

What is primary product dependency?

Answer 16

When a countries raw materials are the main source of their foreign exchange earnings and revenue

Question 17

What are the disadvantages of primary product dependency?

Answer 17

• Demand for these products is price inelastic
• Supply is price inelastic, plants take time to grow
• Agricultural products are easily damaged in natural disasters

Question 18

How does corruption affect an economy?

Answer 18

The country’s resources are diverted away from their most productive use by government officials for their own personal gain, so governments and private firms become less efficient

Question 19

What are the main strategies used to help countries develop?

Answer 19

• Aid and debt relief
• structural change (development of agricultural, industrial and tourism sectors).

Question 20

What is Aid?

Answer 20

The transferring of resources from one country to another

Question 21

What are the different types of Aid?

Answer 21

• Bilateral Aid - one country to another
• Multilateral Aid - more than one country to one country, through an intermediate agency
• Tied Aid - Aid sent on a condition that the money is spent in a particular way

Question 22

What are the advantages of Aid?

Answer 22

• Reduces absolute poverty
• Improvements in health and education, which increase human capital
• Fills the savings and foreign exchange gap
• Can result in a positive multiplier effect

Question 23

What are the disadvantages of Aid?

Answer 23

• Conditions on the way aid is used means that resources are not used in the most efficient way
• Aid can be misused by corrupt governments

Question 24

What is debt relief?

Answer 24

When countries cancel out some debts owed to them by other countries

Question 25

What are the advantages of debt relief?

Answer 25

• Frees up money for improving infrastructure and public services
• Money saved by the country can be used to invest in capital goods to grow the economy
• Lower debts mean they can participate more in global trade

Question 26

What are the disadvantages of debt relief?

Answer 26

• Cancelling debts may mean that there is a risk of moral hazard and dependency culture
• Cancelling debts in countries run by corrupt government officials means that even more money will be misused

Question 27

What does development of the agricultural industry result in?

Answer 27

An increase in national income, which means more money for other sectors to be invested in

Question 28

What does development of the industrial sector result in?

Answer 28

Higher profits in industries, which can lead to more money invested in capital goods, leading to greater productivity gains

Question 29

What does development of the tourism industry result in?

Answer 29

• More FDI
• Increased employment

Question 30

What is an inward looking policy?

Answer 30

Ones that seek to protect domestic industries until they are ready to compete internationally

Question 31

What are the short term aims of inward looking policies?

Answer 31

• Create jobs
• Reduce poverty
• Improve balance of payments

Question 32

What are the long term aims of inward looking policies?

Answer 32

• Growth in domestic industries
• Firms benefit from economies of scale

Question 33

What is an outward looking policy?

Answer 33

Policies that emphasise free trade, deregulation and foreign investment