Growing economies 4.1.1

Question 1

What is economic growth?

Answer 1

An increase in a country’s productive capacity.

Question 2

What are emerging economies?

Answer 2

The economies with rapid growth, and significant risk.

Question 3

What are BRIC economies?

Answer 3

The economies of Brazil, Russia, India and China, are at a similar stage of economic development.

Question 4

What are the opportunities for businesses in emerging economies?

Answer 4

• Tend to enjoy a relatively high rate of economic growth compared to more mature developed economies like the UK, US, and Japan in Europe.
• Many emerging economies have seen the rapid growth of the middle class with rising disposable incomes that might stimulate demand for products of businesses located in developed economies.
• Emerging economies may be a suitable location for international operations – either as a location for production and/or to sell into the domestic market.

Question 5

What are the threats to businesses in emerging economies?

Answer 5

• Many domestic businesses based in emerging economies are expanding into developed economies.
• Doing business in emerging economies is not straightforward. An increased risk of intellectual property theft, restrictions on the methods of doing business and competitive challenges from established domestic businesses are threats that need to be overcome.

Question 6

What do the MINT emerging economies stand for?

Answer 6

Mexico, Indonesia, Nigeria, Turkey

Question 7

What do the BRICS emerging economies stand for?

Answer 7

Brazil, Russia, India, China, South Africa

Question 8

What are the trade opportunities of economic growth?

Answer 8

Individuals:
- As an economy grows more people become employed leading to higher disposable income. The goods and services that are demanded can be produced domestically or imported abroad.

Firms:
- Growing consumption is good for firms.
- Access to raw materials.
- The greater movement of goods and services between countries.
- As economies get wealthier, the UK will start to produce even more highly differentiated products to meet global demand. This will lead to changes in employment patterns as businesses will demand more highly skilled workers.
- Opportunities for cheaper production and therefore cheaper unit costs
- Greater investment opportunities such as Foreign Direct Investment (FDI)

Question 9

What are employment patterns of economic growth?

Answer 9

Individuals:
- Gives them disposable income allowing them to buy goods and services.
- Increased economic growth leads to improvements in the standard of living for consumers.
- As real wages increase, labour can substitute work for leisure and see dramatic changes in their level of income.
- Increased incomes allow workers more free time and the ability to retire, and enjoy the quality of their life, at an earlier age.

Firms:
- Could encourage FDI in countries where unemployment is high so firms have people to manufacture goods. You may not want to export to an area of high unemployment.

Question 10

What is GDP per capita?

Answer 10

GDP divided by population.

Question 11

What is GDP?

Answer 11

The total value of goods and services produced by a country.

Question 12

How is GDP calculated?

Answer 12

National income/ Population

Question 13

What is purchasing power parity?

Answer 13

The rate of conversion of one country’s currency to purchase the same goods.

Question 14

What is the literacy rate?

Answer 14

This refers to the percentage of adults who can read and write. Investment in human capital raises the average level of literacy in an economy and could also have large economic returns if the average level of skills such as literacy increases in that economy.

Question 15

Why are literacy rates important?

Answer 15

Key indicators when making a strategic decision such as employing people in a country. You want to invest in productive employees.

Developing the skills and qualifications of the workforce can lead to significant benefits for an economy in terms of growth and development:

• There is a close correlation between increased production capacity and the development of human capital as the workforce improves.
• Educational achievement and the development of cognitive skills will allow individuals to operate capital goods within a country.
• A highly skilled labour force will lead to increased capacity utilisation within the economy as the workforce are better able to use the current capital equipment.
• It will also lead to physical capital development as human capital utilises its skills to increase production capacity.

Question 16

What are the 3 components of HDI?

Answer 16

Life expectancy, mean years of schooling, gross national income.

Question 17

What is HDI?

Answer 17

A collection of statistics that are combined into an index, ranking countries according to their human development.

Question 18

What’s the issue with using these measurements?

Answer 18

The problems with using these measurements to measure economic growth include the fact that they all consider the average of the population without taking into account that there may be large imbalances in the country such as poverty and deprivation not being taken into account and that in certain countries the data is not always reliable.

Question 19

Compare the growth rate of the UK economy to emerging economies & explain why:

Answer 19

1. The growth rate of the UK is higher in comparison, with an average of 2.8% growth.
2. This is due to the UK having a strong and growing service sector whereas the world’s emerging economies produce most of the manufactured goods that are globally consumed.