Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Macroeconomics > Factors of Development > Flashcards

Factors of Development Flashcards

1
Q

Terms of Trade Index Formula

A

(Average export index / Average import index) x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does a rise in Terms of Trade mean

A

A country needs to export less to import the same amount as in the base year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What does a fall in Terms of Trade mean

A

The country needs to export more to import the same amount as before

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a primary product

A

Products that do not undergo a manufacturing process - they are taking directly from the earth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Which economies depend on primary products

A

Developing countries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Downsides to falling terms of trade

A

Imports becomes more expensive

Country must export more to afford a given basket of imports

If demand for X and M is inelastic - Net trade will fall - leads to a decrease in economic growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What happens to economies dependent on primary products when terms of trade deteriorate over time

A

Living standards fall
Economic growth fall
Harder to import capital goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is a commodity

A

A basic good which is interchangeable with another product of the same type

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Why do demand for commodities tend to be price inelastic

A

They tend to be necessities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Why does supply for commodities tend to be price inelastic

A

It takes time to grow or extract them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What happens when an economy is dependent on primary products and export prices are volatile

A

Changes in firms revenue are also volatile

This large degree of uncertainty makes investment unattractive - lower investment limits growth and development

There’s increased volatility in economic growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What happens when an economy is dependent on primary products and MEDCs use protectionist measures to support domestic agriculture

A

Agricultural producers in LEDCs struggle to compete

Harder to pursue to export led growth in these sectors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does a tariff lead to for LEDCs

A

A reduction in demand which leads to lower export revenues for LEDCs in these markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the three methods of calculating GDP

A

Measuring output in an economy
Measuring income in an economy
Measuring expenditure in an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the savings ratio

A

Proportion of the income that is saved

Expressed as a percentage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Why do LEDCs have low savings ratios

A

Most people have low incomes and have to spend most if not all of their incomes to survive

The financial system is likely to be weaker than MEDCs and retail banks may be far away for people living in remote areas - makes saving hard

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What does the Harrod-Domar model state

A

Economic Growth is dependent on the savings ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Boxes in the Harrod Domar model with order

A

Savings Ratio -> Investment -> Capital Stock -> Output -> Income 🔄

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How does the Harrod-Domar model explain why investment tends to be low in LEDCs

A

Savings ratio tends to be low in LEDCs which limits the amount of investment the financial sector can provide to firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does the Harrod-Domar model suggest LEDCs need to do to develop

A

Improved their savings ratio which leads too greater investment

This would cause an improvement in economic growth and incomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the Savings Gap

A

The difference between savings and the level of saving needed to achieve a higher growth rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Equation for rate of growth of GDP using Harrod Domar Model

A

Rate of growth of GDP = Savings Ratio / Capital Output Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Capital Output ratio equation

A

Value of capital equipment / Annual output

24
Q

What is the capital output ratio

A

Amount of capital needed in the economy to produce a given quantity of goods

25
How can the rate of growth in an economy be increased according to the Harrod Domar model
Increased level of savings Reducing the capital output ratio
26
What difficulties are there in closing the savings gap
There is a low level of MPS and a high level low MPC Lack of a sound financial system Capital Flight Weakness in human capital - inefficient use
27
What is capital flight
When a large amounts of financial capital leaves a country due to an event(s) that makes investors lose confident in an economy
28
Potential solutions for a low savings ratio
Borrow from abroad Reform financial sector Microfinance Aid
29
Why are foreign currencies important for economic development in LEDCs
In the initial stages of industrialisation importing capital goods is vital for success Foreign currency is also important for importing raw materials unavailable domestically
30
Why might some LEDCs face a shortage of financial currency
LEDCs often don’t export enough to earn the foreign currency required to import their desired level of imports
31
Causes of a foreign currency gap
Relatively low export earnings High oil prices Underperforming agricultural sector Large foreign debt
32
Solutions of a foreign currency gap
Debt relief from IMF and World Bank Aid for development Development of primary sector Development of tourism
33
What type of capital is the capital in capital flight
Financial
34
Why does capital flight negatively impact economic growth and development
Less money available for investment Capital flight leads to a depreciation of the exchange rate because inward investment falls and outward investment rises Currency speculators sell the currency to make profit from then movements Foreign currency gap occurs Inflation increases as rise of depreciation of exchange rates raises import prices FDI becomes less attractive to foreign investors
35
Define Demography
The composition of a human population
36
What is the dependency ratio
Number of dependents in a population divided by the number of working age people
37
Relationship between working population and the productive capacity of an economy
Larger the working population - the greater the productive capacity of the economy
38
Why does an ageing population limit economic growth
Large sections of society must now be supported either privately or publicly Reduces size of workforce and limits government finances that could be used in more productive ways
39
How can high birth rates help an LEDC develop Eval?
High birth rates result in increases in the working age population over time There needs to be an effective development strategy to ensure there is a sufficient amount of jobs
40
Define Principal
Value of the original loan
41
What is a country's debt service ratio
The ratio of its debt service payments to its export earnings
42
Debt Service Ratio Formula
Debt service payments (principal + interest) / export earnings
43
When is debt sustainable
When someone can meet its current and future debt service obligations in full, without use of debt relief, rescheduling or accumulation of debts
44
High debt service ratios hinder economic growth chains of analysis
High debt burden -> Large amount of government spending used to service debt -> Less available to spend in other areas -> infrastructure, labour force is weaker -> weaker economic growth
45
Why will a rising debt service ratio limit government spending in other areas
More government expenditure must be focused towards the debt service ratio - limits the amount government can spend in other areas
46
How can currency speculation cause a currency to depreciate plus eval
Speculation is a major factor in short term movements in an exchange rate If currency speculators believe the value of a currency will fall - they will sell the currency This increases the supply of the currency on the market which causes a depreciation of the exchange rate Eval High interest rate could attract hot money Relatively low inflation may increase demands which increases the value of a currency
47
How does a lack of access to credit and banking hinder development
Firms - Less likely to be able to obtain loans to finance their business operations Individuals - Discourages savings due to insecurity of cash
48
What does a country's infrastructure play a role in
Determining the efficiency and quality firms produce at
49
Define Collateral
An asset that a lender accepts as security for extending a loan
50
What is a home equity loan
A type of loan in which the borrower uses the equity of his or her home as collateral
51
Property Rights in LEDCs
Weak legal systems and poor record-keeping means land and other assets may not be fully established - documentation for land may not exist - restricts ability to obtain loans - harder to invest - limits economic growth
52
Define Governance
How a country is run and whether authorities manage scarce resource well
53
Define Corruption
Abuse of entrusted power of private gain
54
What does war result in
Death and Destruction - Causes deterioration in the FOP and a countries infrastructure - economy is likely to get smaller and development is made harder
55
Impact of Political Instability
Increases uncertainty - makes it less likely that firms will invest and entrepreneurs will set up new business - deters domestic investment and FDI which hinders economic growth
56
Importance of a geography of a country
Plays a role in economic growth and development - rivers and flat land can help with transport - good weather conditions help with agriculture - ineffective government policies means a country wastes its natural advantages

Macroeconomics (45 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions