Longer Questions

Question 1

Explain what is meant by international flows of income

Answer 1

These are flows of money into a developing country from abroad and can take four different forms:
Foreign Direct Investment (investment in capital by a corportion from a different country)
Remittances (money sent back home by migrants, usucally to extended family)
Official Development Assistance (foreign aid in the form of grants/loans)
Debt/Portfolio Investment (purchase of fincancial assets)

Question 2

Explain what is meant by economic development

Answer 2

The process of improving people’s well-being and quality of life.
Improvment in material standards of living such as the ability to purchase life sustaining goods like food etc.
AND improvement in non-material living standards such as access to schooling, healthcare and life expectancy.

Question 3

How do Sen and Todaro expand on economic development?

Answer 3

They stress the importance of reducing income inequality, poverty and ability for individuals to make free economic and political choices without coercison as further constitutes of development.

Question 4

Explain how developing countries dependent on primary commodities benefit from an increase in global growth

Answer 4

Global growth will increase demand for primary commodities, boosting the exporting potential of developing countries. This will increase revenues for exports in the AD equation boosting economic growth and incomes in the developing country.
Furthermore, as demand for commodities increases so do their prices, leading to an improvement in the developing country’s terms of trade. This means a given basket of exports can now buy more imports improving material and non-material living standards for individuals in he developing country.

Question 5

Evaluate the extent to which a tight labour market will be inflationary.

Answer 5

TIGHT LABOUR MARKET - more jobs than workers
INFLATIONARY
-Rising levels of employment means an increase in disposible income. This causing consumption to increase resulting in demand pull inflationary pressures.
-Scarcity of labour increases the bargaining power of labour, causing wages to rise resulting in a fall in SRAS. This will result in cost push inflationary pressure.
-Shortages cause employers to hire less-qualified workers, lowering productivity levels and raising production costs, lowering SRAS levels and resulting in cost push inflationary pressure.

EVALUATION

• Dependent on felxibility of labour market and strength of employment contracts
• Dependent on relative strength of trade union movement
• Dependent on the amount of spare capacity in economy
• Dependent on whether the tightness in the is confined to particular industries in which the case the scale of the impact may be limited.