Economic growth and development

Question 1

What are the problems of using GDP per capita as a measure of development

Answer 1

Takes no account of income distribution of the economy
Doesn’t address the broader concept of development in relation to education and freedom from oppression

Question 2

What does HDI measure

Answer 2

GDP per capita
Average years of schooling
Life expectancy at birth

Question 3

Purchasing power parity (PPP)

Answer 3

Compares the relative value of currencies.

Question 4

How is PPP measured

Answer 4

Measuring the purchasing power of different countries currencies to buy the same basket of goods and services

Question 5

Characteristics of LEDCs

Answer 5

Low HDI
Poor human capital
Primary sector dominant
Savings gap

Question 6

Human capital

Answer 6

Quality and productivity of labour

Question 7

Barriers to development

Answer 7

Poor human capital, poor infrastructure, crime and corruption, primary dependency, savings gap

Question 8

Harrod-Domar model

Answer 8

Explains how growth has occurred and how it may again in the future

Question 9

What does the Harrod-Domar Model suggest are the two main factors that the rate of growth depend on

Answer 9

The level of national savings
Productivity of capital investment (capital-output ratio)

Question 10

What are the two types of policies to promote development

Answer 10

Market based policies
Interventionist policies

Question 11

Examples of market based policies to promote development

Answer 11

Trade liberalisation
Cutting corporation tax

Question 12

What is trade liberalisation

Answer 12

Opening up markets to foreign imports and exports as well as FDI

Question 13

What are the benefits of trade liberalisation

Answer 13

SR and LR growth
MNC’s setting up in LEDC’s
Increased government tax revenue

Question 14

Downsides of trade liberalisation

Answer 14

Deteriorating terms of trade as the value of primary commodities falls.
This reduction in earnings limits the ability of LEDC’s to develop a more profitable manufacturing sector

Question 15

How can cutting corporation tax lead to development

Answer 15

Encourages business investment and FDI leading to LR growth.

Question 16

Examples of interventionist policies to increase development

Answer 16

Import substitution Industrialisation
Increased government spending e.g. education, health, infrastructure

Question 17

What is import substitution industrialisation (ISI)

Answer 17

Governments increasing tariffs on imports into an LEDC to stem this leakage from the circular flow. Allowing for them to be substituted for domestically produced goods in order to boost AD.

Question 18

Drawbacks of ISI

Answer 18

Unpopular policy as it has been largely unsuccessful
Businesses become inefficient as they are protected against foreign competition
Consumers lack choice, hence reducing utility

Question 19

`What is offical development assistance (ODA) also known as

Answer 19

Aid

Question 20

What is ODA

Answer 20

Resource flows to developing countries, provided by official organisations e.g. UK government

Question 21

Tied Aid

Answer 21

Aid that is required to be used for a specific purpose

Question 22

Untied Aid

Answer 22

Aid that can be used in any way

Question 23

Benefits of Aid

Answer 23

Can help plug the savings gap
Provide the necessary funds to pursue growth and development