Chapter 35: Economic development

Question 1

Economic development

Answer 1

Improvement in economic welfare including improved living standards, reduceing poverty, expanding the range of economic and social choices, and increasing freedom and self esteem

Question 2

Causes of differences in economic development

Answer 2

• Different in incomes per head
• Differences in saving due to differences in income
• Differences in investment
• Differences in population growth
• Differences in education and healthcare
• Differnces in the size of primary, secondary, tertiary sectors
• Differences in the concentration of a narrow range of exports
• Differences in productivity

Question 3

The cycle

Answer 3

Countries with low income have a low saving rate. Most resources are used to produce consumer goods instead of capital goods which keep productivity low, keeping income low.

Question 4

Governments seek to achieve economic development

Higher real GDP

Answer 4

If it consists of both capital and consumer goods the country can enjoy more goods and resources

Question 5

Governments seek to achieve economic development

Higher living standards

Answer 5

• Important for the distribution of income not to become unequal
• Reduced poverty
• People who enjoy better standards of living are likely to be more productive and lower the country’s average costs making it more internationally competitive

Question 6

Governments seek to achieve economic development

Expansion of the range of social and economic choices

Answer 6

• Increasing freedom and self esteem
• Increasing access to education, healthcare, and participation in the political process
• Improves quality of living and enhances future economic performance
• Creates virtuous cycle

Question 7

Problems facing economies with relatively low economic development

Answer 7

• High growth of population
• High levels of international debt
• Reliance on the export of primary products (primary products fall in price)
• Lack of investment in human capital and capital goods (holds back productivity, new technology, and international competitiveness)
• Emigration of key workers
• Trade restrictions on their products
• Unbalanced economies

Question 8

Measures to promote economic development

Import substitution

Answer 8

• Protection of new domestic industries against foreign competition
• ALlows the induestires to grow
• Imports can be replaced domestically
• Can increase domestic output, raise employment, and improve the country’s trade balance

Risk:
- Short term: May raise prices and reduce choice and hence lower economic welfare
- Countries may retaliate and the domestic industries may become reliant on protection without seeking to increase their efficiency and competitiveness

Question 9

Measures to promote economic development

Promoting exports by exposing domestic firms to market forces

Answer 9

• Firms will be forced to become efficient without govenrment support
• Success depends on firms being able to compete with foriegn firms

Question 10

Measures to promote economic development

Improving infrastructure, capital stock, education, training, and healthcare

Answer 10

• Countries may lack tax revenue to do this so may seek to attract MNCs, loand from abroad or foreign aid

Question 11

Measures to promote economic development

MNCs

Answer 11

• Promote development
• Increase employment, wages, train and educate workers, bring in new technology, and improve infrastructure
• May pay workers less than in their home countrys and have poorer working conditions
• As long as the wages are higher and the conditions are better than those generally operating in the host country the MNC is positive contribution
• MNC may deplete non renewable resources, cause pollution, and put pressure on the government to pursure policies which have detrimental effect on development

Question 12

Measures to promote economic development

Borrowing from abroad

Answer 12

• Can work if funds are used in a way which raises productivity and generates enough income to repay the loans
• Interest can be high which makes some projects unviable
• Risk taht projects may not be successful as expected

Question 13

Measures to promote economic development

Foreign aid

Answer 13

• Potential to increase development but can create economic and political dependency
• Can postpone necessary reforms and bring in inappropriate technology
• Risk that aid may be used for non profitable projects and there may be corruption in its use
• Foreign aid may be given out of a desire to help wpeople, win political support, and gain commercial advantage