Market Orientated Stategies

Question 1

What (6)

Answer 1

Trade liberalisation
Promotion of FDI
Removal of government subsidies
Floating exchange rate systems
Micro finance schemes
Privatisation

Question 2

What is trade liberisation (3)

Answer 2

Open market up to competition
Removes laws and barriers that stop trade
Allows specialisation = uk = finance

Question 3

Example of trade liberisation (4)

Answer 3

Chinas economy has grown faster than India’s in past 40 years
Reason = China has greater integration into global economy
Individuals have higher incomes etc = export led industries
Now less reliant on exports

Question 4

Trad liberisation good (5)

Answer 4

Comparative advantage
Economies of scale
Consumer choice
FDI = if firms are free to I/E there more Linley to invest
Innovation= faster spread of tech

Question 5

Problems with trade liberisation (4)

Answer 5

Will have protection measures = tariffs = welfare loss
Example = us car manufacturers in Detroit when tariff put on steel = higher prices couldn’t cope
Inefficiency
Retaliation

Question 6

What FDI (2+)

Answer 6

Multi-Nationals have the financial muscle to make major projects a reality
Can close the savings gap in a developing country or its foreign currency gap

Question 7

Why FDI a thing (3)

Answer 7

Developing country may have natural resources waiting to exploited
Lacks the large amount of savings needed to provide the investment for capital
Sometimes the only option = invite MNC to make investment

Question 8

Example - FDI (2)

Answer 8

French gov invest in nuclear power plant in uk
China large investors in Africa

Question 9

Problems with FDI (3)

Answer 9

MNC drive out local firms out of business
May only be limited demand for local components – the rest will be imported
MNCs will repatriate profits out of the country = try to reduce their tax liability through transfer pricing

Question 10

Removal of government subsidies - what (3)

Answer 10

Subsidising essential items = food or fuel
Effective way of minimising absolute poverty
Scarce resources allocated effectively

Question 11

Problems with subsisted (3+)

Answer 11

Poorly targeted - how to stop wealthy taking advantage
Example = Fuel subsidies reduce cost of public transport BUT also benefit owners of private cars = wealthiest people in society
Opportunity cost

Question 12

Removing subsidies effect on supply and demand and price (3)

Answer 12

Leads to inward shift in supply = increase price
Subsidies good is likely to be an essential good = demand will be inelastic
Increase in price therefore likely to be large = sharp increase in the cost of living

Question 13

Vested interest in subsidy (3)

Answer 13

So many people = vested interest in the subsidy = removal is never an easy option
Criminal gangs buy subsidised items and sell them for vast profits in neighbouring countries
The best time to remove subsidy = when market price falls close to the subsidised price of the item

Question 14

Floating exchange rates - what (2)

Answer 14

A freely floating currency does not require any intervention from the government
Gov has to raise IR to support the domestic currency = choke off consumer spending or investment

Question 15

Problems with floating exchange rate

Answer 15

The exchange rate can lead to imbalances in a country’s balance of payments

Question 16

Specific good and bad floating ER (2)

Answer 16

SPICED = exports fall and imports to rise = deficit
WpIDEC = exports rise and imports fall = surplus = excessive demand = inflation

Question 17

Micro finance how did it start (2)

Answer 17

Microfinance is centuries old but arose in its modern form in the 1970s
Mohammed Yunus = economics professor in Bangladesh = began providing
very small loans to poor Bangladeshi women living in rural areas

Question 18

Part 2 what is micro finance (3+)

Answer 18

Women used loans to expand their businesses
Buying more stock or employing an additional staff member
Provision of working capital to people with no alternative sources of finance = raise themselves out of poverty

Question 19

What’s microfinance defined as

Answer 19

Provision of financial services to the unbanked

Question 20

What do micro finance offer (4++)

Answer 20

Micro-insurance and money transfer services
Traditional banks have been unwilling to provide these services to the unsalaried and those working in the informal sectors
Muhammad Yunus and the Grameen Bank = joint winners of the 2006 Nobel Peace Prize
Grameen Bank has now disbursed US$6.6bn

Question 21

How many don’t use firmal financial sercvces

Answer 21

70% of adults in the developing world do not use formal financial services

Question 22

What - peivafisation

Answer 22

Governments start to sell off state-owned enterprises to the private sector

Question 23

Negatives to micro finance (2)

Answer 23

Business sunsuccessful
Loans are very very smal

Question 24

Why - privatisation (3)

Answer 24

State owned businesses have no incentive to cut costs
If a firm is not operating at lowest possible costs = not productively efficient
Private firms have to be allocativly efficiency = meet demand + supply whereas state don’t because they have monopoly

Question 25

Problems with privatisation (3++)

Answer 25

State-owned firm = monopoly privatisation is not going to stop it being a monopoly when under private control
The privatised monopoly will be just as inefficient as it was when under state ownership = not productive or allocative efficient
Developing countries = corruption = easy way for politicians or government officials to get rich is to sell a state-owned company to a family member or friend at a price which is well below market value