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Economics A2 Level > Global Topic Unit 3- Economic Development > Flashcards

Global Topic Unit 3- Economic Development Flashcards

1
Q

a) what do LEDC’s stand for?
b) example countries
c) what does it mean?

A

a) Less economically developed countries
b) Thailand and African countries

c) relatively poor countries
- Low standard of living
- High poverty rate
- Low economic growth
- High levels of corruption and instability
- Export primary sector goods such as cotton, fruit and coffee

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2
Q

a) what do MEDC’s stand for?
b) example countries
c) what does it mean?

A

a) most economically developed countries
b) United States and the U.K.

c) High GDP
- Good standard of living
- Low levels of poverty
- Good infrastructure and access to good education and healthcare
- Export tertiary services e.g. financial services and high value goods

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3
Q

a) what do MIC’s stand for?
b) example countries
c) what does it mean?

A

a) middle income countries
b) India and China

c) rapidly growing gdp
- Standards of living growing with reduction in poverty levels
- They are becoming significant global players in trade especially for manufacturing

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4
Q

Characteristics of a developing country for:

A) society

A

A) Depth of hunger, incidence of malnutrition- developing: lack of agriculture and poverty and failing services. Developed: more money spent on improved public services such as healthcare to help malnourished

Gender equality- Developing: lack of education and speech. Developed: more stable environment, less unemployment and gender gap decreases

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5
Q

Characteristics of a developing country for:

B) education

A

B) Vulnerable employment rates: Developing- poor standards of living, a lack of knowledge, not many children going to school. Developed: better resources so more jobs created. More taxes so more money to be spent providing services.

Primary/secondary figures- Developing: low literacy rates, high unemployment. Developed: more taxes spent, better resources on improved education

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6
Q

Characteristics of a developing country for:

C) economy

A

C) levels of economic growth- developing: low gdp, failing services. Developed: growing gdp, less unemployment

Roads and infrastructure- Developing: poor roads and infrastructure due to a lack of taxes and government funding. Developed: more resources, better standards of living, improved infrastructure due to more money being spent

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7
Q

Characteristics of a developing country for:

D) technology

A

D) internet access- developing: trading with other countries would be nearly impossible due to not many ways to communicate, some institutions may be open for corruption. Developed: easier to trade- more money into the country so better and improved services so higher living age

Access to bank accounts- developing: not much consumer spending due to people not being able to save- less disposable income. Developed: more consumer spending

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8
Q

Characteristics of a developing country for:

E) History

A

E) geographical location- developing: could cause poverty and low amounts of trade if a county is for away from the sea- reduced jobs. Developed: more knowledge and accessibility to find other areas sd ways to trade with the use of the internet.

Incidence of war- developing: poverty, mass unemployment, huge pressure on health services. Developed: services in place to help with a war, like funding and people with the required skills necessary

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9
Q

Characteristics of a developing country for:

F) Health

A

F) access to clean water- developing: high chance of proportion getting a disease. People in tropical countries on average have 5 diseases at any one time. Developed: less risk of disease, improved sanitation and higher standards of living.

Infant mortality rate- developing: a lot of unskilled people not having the right knowledge necessary. Developed: higher employment and better health services so IMR would hopefully be reduced.

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10
Q

What is economic growth?

A

Economic growth is concerned with an increase in an economy’s productive capacity or real output over a period of time. It can be ‘actual’ or ‘potential’ economic growth.

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11
Q

What is GNP?

A

Gross National Product- GNP= GDP + income from abroad. Includes the value of all goods and services produced by nationals both within the country and those located abroad.

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12
Q

What does actual growth refer to?

A

This refers to the amount that output (GDP/GNP) actually grew in any given year. Short-term growth

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13
Q

What is GDP?

A

Gross Domestic Product- A measure of total output of goods and services in a country by businesses

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14
Q

What is potential growth?

A

Improvement in the productive potential of the economy in future. Long-term growth. The rate of growth in potential output if all resources were being used most efficiently.

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15
Q

What is the human development index?

A

It ranks countries based on a selection of criteria. A country scores a higher HDI when the lifespan is higher, the education level is higher and the GDP per capita is higher than others.

Higher HDI means more developed

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16
Q

What do the following graphs look like?

a) Actual PPF
b) Actual LRAS
c) Potential PPF
d) Potential LRAS

A

Look at notes

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17
Q

Give 3 examples of how geographic location affects a countries wealth

A
  1. Lack of animals
  2. Disease
  3. Tropical countries- lack of soil
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18
Q

How do you work out GNI?

A

GNI= total income/ population

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19
Q

How does economic growth improve development of a country?

A

If a country’s GDP/GNP is increasing then:

  • Higher employment
  • Consumed spending increased due to there being more choice of goods and services (increased purchasing power)- increase quality of life e.g. home appliances, healthier food- life expectancy increases- more people can work- less risk of disease- less strain on healthcare
  • Size of GDP growth need to be relative to population growth
  • Distribution of income- does state intervene, is money being spent
  • Allocation of government spending- health, military, capital etc.
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20
Q

Economic development includes changes in social structures and attitudes. It focuses on quality of life. How is economic development measured?

A
  1. The economic structure of the economy- primary (farming), secondary (factories), tertiary (shops)
  2. The Human Development Index e.g. life expectancy, GDP, education level
  3. Indirect indicators e.g. access to internet
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21
Q

Name another indirect indicator of economic development

A
  1. Street lights- more street lights= more developed
  2. Purchasing power parity (PPP)
  3. Labour productivity
  4. The terms of trade of a country
  5. Human Poverty Index (HPI)
  6. Price levels and inflation
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22
Q

What is the purchasing power parity formula?

A

PPP= cost of good x in currency 1/ cost of good x in currency 2

23
Q

What are the UN Millennium Development Goals ?

A
  1. Eradicate extreme poverty and hunger
  2. Achieve universal primary education
  3. Promote gender equality and empower women
  4. Reduce child mortality
  5. Improve maternal health
  6. Combat HIV/ Aids, malaria and other diseases
  7. Ensure environmental sustainability
  8. Develop a global partnership for development
24
Q

What is the Big Mac Index

A

The Big Mac Index looks at the implied PPP exchange rates between counties and the actual exchange rates, and uses this data to see if a currency is under or over-valued against the US dollar.

25
Q

What are the Solutions to economic development ?

A
  1. Liberalisation
  2. Debt relief
  3. Industrialisation
  4. Import and export substitution
  5. FDI and MNC investment
  6. International Aid
  7. The Washington Consensus
26
Q

Review of Millennium Goals

A
  1. Poverty rate- 1 in 8 people still go hungry
  2. 1 in 10 primary school kids are not in the classroom
  3. HIV and malaria declined by 40%
27
Q

What is liberalisation?

A

A live from a command (planned) economy towards a more free-market based system.

28
Q

What are some Obstacles to developed ?

A
  1. Resource curse
  2. Low levels of health and education
  3. Poor infrastructure
  4. Access to resources and raw materials
  5. Geographical issues e.g. landlocked
29
Q

Definition of purchasing power parity?

A

PPP theory compares value of different currencies through a ‘basket of goods’ approach- comparing what one unit of goods costs in one currency compared to another.

30
Q

What is Dutch disease?

A

When you have a natural resource that gets exported- currency strengthens (SPICED)

32
Q

What is the difference between a command and marker economy?

A

Market economy- determined by consumers’ preferences, producers seeking profits and purchasing power

Command economy- determined by the government- choices are limited

33
Q

How do you liberalise an economy?

A

By the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities.

34
Q

What is debt relief?

A

Debt relief can involve partial or total debt cancellation from the country/ source they borrowed money from, this allowing them to reduce/elongate repayments which can be better spent on improving society. Debt relief breaks the cycle of debt and allows LEDCs to use funds that would have been spent on capital repayments to invest and alleviate poverty

35
Q

Why may LEDC’s fine liberalisation hard?

A
  1. Sudden privatisation can cause issues- monopolies
  2. Marker failure (externalities)- LEDC’s don’t have public goods e.g. street lights
  3. Inequality- not many high paid companies due to primary sector- not much money going into the economy
36
Q

What is industrialisation ?

A

Industrialisation is the process by which an economy is transformed from primary agriculture to one based on the manufacturing of goods.

Industrialisation can help developed of an LEDC as it may motivate a country to develop its human capital (workforce) with more skills, employment opportunities, wealth (multiplier effect occurs).

37
Q

What are the limitations of industrialisation ?

A

-Increased pollution and negative externalities. China can be exploited for their cheaper land and labour with MNC’s moving to other countries when resources run out of labour prices go up. Children working rather than education, limited tertiary sector, low skilled jobs to make products for the western MNC’s.

38
Q

What problems may occur from lenders allowing debt relief for LEDCs ?

A

Debt relief alone does now lead to economic development

  • It encourages irresponsible borrowing in the belief debts will never have to be repaid- poor financial planning
  • Some argue that poverty exists everywhere and that governments should tackle relative poverty in their domestic country before diverting resources to help others by cancelling debts.
39
Q

What is import substitution?

A

Import substitution- once labour intensive industries have been established, governments may then decide to follow an ‘import substitution’ policy. Replacing some agricultural or industrial imports to encourage local production for local consumption, rather than producing for export markets

40
Q

How can debt relief help development of an LEDC?

A

It can be tied to conditions that will encourage development e.g. low levels of corruption to support good governance. Effective debt relief programs can create bigger export markets for developing nations and may cut the link between poverty, disease and terrorism.

41
Q

How can import substitution help development of an LEDC?

A

Import substitution generates employment, reduces foreign exchange demand, stimulates innovation and makes the country self-reliant in critical areas such as food, defence and advanced technology.

42
Q

What is foreign direct investment (FDI)

A

It is the net transfer of funds to purchase and acquire physical capital, such as factories and machines e.g. Nissan a Japanese form building a car factory in the U.K.

43
Q

What are the limitations of export substitution ?

A

Focussing on exporting might lead to over-dependency on the economic cycles of trade partner countries and vulnerability to external economic and political shocks.

Rapid export-led growth might lead to demand pull inflation and higher interest rates

Export led growth might be unsustainable if it contributes extraction of natural resources beyond what is required for long term balanced growth to be maintained

44
Q

What is export substitution?

A

Export substitution involves the substitution of production for exports in place of production for the domestic market.

45
Q

Evaluation of FDI?

A

FDI is not guaranteed to help an LEDC due to:

  • Possible displacement of domestic industry
  • Profit repatriation- back to home country
  • Possible capital flights- money/assets leave if any issue in the country
  • Exploitation of natural resources
  • Brain drain
  • Some MNCs May exploit local workers, providing poor pay and conditions
  • Multiplier effect is lessened-money will be sent away
  • Capital intensive
46
Q

How can FDI help development ?

A

In an LEDC because it causes higher profits and a stronger position and market access in global markets. Reduced technological barriers to movement of goods, services and factors of production.

47
Q

Evaluation- supper FDI

A
  • Bring jobs- leading to a higher level of disposable income-increase consumption (shift ad)
  • Bring skills- reduce occupational immobility- act as a supply side policy- increase quality of labour- explanation along the ad curve
48
Q

What is international aid?

A

Any form of needed assistance by one country or multilateral institution to another. Aid is most commonly provided as official developmental assistance (ODA), which targets poverty reduction and the promotion of public welfare and economic development

49
Q

Why is international not guaranteed to help an LEDC develop?

A

However giving aid to countries can have issues:

  • Aid can increase the dependency of LEDC’s on donour countries
  • Aid May not reach the people who need it most
  • Infrastructure projects of FDI May end up benefiting employers more than employees
  • Aid can be used put political or economic pressure on the receiving country- political bribe for support or resources
50
Q

How can international aid help development of an LEDC?

A

International aid helps the development of an LEDC as it is targeted towards those in greatest need. When conditions are put in place that will allow aid to be used effectively.

51
Q

What is the Washington Consensus and what does it outline and encourage?

A

The Washington Consensus refers to a set of broadly free market economic ideas. Essentially the Washington census advocates free trade, floating exchange rates, free markets and macroeconomic stability.

52
Q

How can the Washington Census lead to development within the LEDCs?

A
  • Low government borrowing
  • redirection of public spending from subsidies toward broad-based provision health care and infrastructure investments
  • Tax reform
  • Competitive exchange rages
  • Trade liberalisation
  • Encourage foreign direct investment
  • Privatisation of state enterprises and deregulation to make ‘doing business’ easier
  • Legal security for property rights e.g. copyright
53
Q

How are priced determined in a free market economy?

A

Prices are determined in a free market economy as the price mechanism allocated resources fo where they produce the most utility. The profit motive encourages firms to operate at lowest unit cost (productive efficient).

54
Q

What are the limitations of liberalisation?

A
  1. Inequality- wealthy will get richer due to the ability to inherit wealth
  2. Market failure negative externalities- overconsumption of demerit goods
  3. Instability of markers due to the invisible hand concept

Economics A2 Level (11 decks)

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