Section 5- Economic Development

Question 1

Indicators of living standards

Answer 1

The number of patients per doctor Enrolment in tertiary education
Adult literacy rate
Average food intake per person

MAIN- 
GDP per head
Composite- 
HDI (Human Development Index)
GPI (Genuine Progress Indicator)

Question 2

Define Human Development Index (HDI)

Answer 2

a measure of living standards which takes into account income, education and life expectancy.

Question 3

Define Genuine Progress Indicator (GPI)

Answer 3

a measure of living standards which takes into account a variety of indicators including income, leisure time, distribution of income and environmental standards.

Question 4

Reasons why GDP is not the most accurate indicator?

Answer 4

1. Real GDP is an average- Not everyone may benefit from a rise in the average income level.
2. Higher output will obviously mean that more goods and services are being produced, but not all of these may add to people’s living standards- an increase in the output and consumption of tobacco
3. Increases in real GDP per head figures may understate the products available to people due to undeclared economic activity and non-marketed output.
4. May overstate it if the quality of output is falling.
5. Living standards are also influenced by other factors besides the material goods and services produced. If output rises but working conditions deteriorate, the number of working hours increases, or pollution increases, people may not feel better off.
6. Does not take into account differences in the distribution of income, the size of the informal economy, working hours and conditions, the composition and quality of output and environmental conditions between countries.
7. Countries measure their output in terms of their own currency initially. The comparison, on the other hand, requires to be done in a common unit. There is a risk
   that if an unadjusted currency is used, the comparison may be distorted. This is because the value of a currency can change on an hour to hour basis.

Question 5

Advantage of real GDP

Answer 5

Takes into account differences in population size

Incorporates adjustments for inflation

Question 6

Define Purchasing power parity

Answer 6

an exchange rate based on the ratio of the price of a basket of products in different countries.

Question 7

Advantages of HDI

Answer 7

1. Wider measure than real GDP per head- Includes GDP per head, life expectancy at birth, mean years of schooling and expected years of schooling.
2. Countries are categorised into very high human development, high human development, medium human development and low human development.
3. Shows that economic growth and human progress may not always match.

Question 8

Disadvantages of HDI

Answer 8

Leaves out political freedom, the environment, differences in life expectancy and education, differences in income between males and females and between those living in rural and urban areas

Question 9

Explain GPI

Answer 9

It starts with GDP.
It then adjusts for income distribution- the GPI rises when the poor receive a higher proportion of income and it falls when income becomes more unevenly distributed.
Makes a number of deductions (items which reduce living standards now or in the future) and additions (items which are thought to make a positive contribution to current or future living standards)

Question 10

Causes of differences in living standards

Answer 10

Differences in income
Differences in wealth
Differences in education
Differences in healthcare systems
Differences in levels of pollution 
Differences in working hours

Question 11

Causes of differences in income

Answer 11

Uneven holdings of wealth- Some wealthy households can live off the income their wealth generates
Differences in the composition of households Differences in the opportunity and ability to earn an income

Question 12

Causes of differences in wealth

Answer 12

Differences in the assets inherited by people
Their savings- Wealth creates wealth
Entrepreneurial skills

Question 13

Causes of differences in wages

Answer 13

Their skills
Qualifications
Number of hours for which they work

Question 14

Define absolute poverty

Answer 14

a condition where people’s income is too low to enable them to meet their basic needs.

Question 15

Define Relative poverty

Answer 15

a condition where people are poor in comparison to others in the country. Their income is too low to enable them to enjoy the average standard of living in their country.

Question 16

Define Vicious circle of poverty

Answer 16

a situation where people become trapped in poverty.

Question 17

Causes of poverty

Answer 17

Unemployment
Being in low-paid work
Falling ill
Growing old

Question 18

Possible government policy measures to reduce poverty

Answer 18

1. Improving the quantity and quality of education
2. Promoting economic growth- increasing government expenditure or reducing the rate of interest
   ; demand –>jobs–>employment–>output–>higher living standards
3. Introducing or raising a national minimum wage.
4. Encouraging more multinational companies to set up in the country - employment opportunities
5. Providing benefits or more generous state benefits- for elderly, sick, and unemployed people
6. Land reform- Those who rent or lease land may be reluctant to improve the fertility of the land. In such circumstances, making ownership of land more equal may increase output and living standards.

Question 19

Controversy over unemployment benefits

Answer 19

Yes, it’ll enable them to avoid absolute poverty if there is a lack of jobs as it will not only raise the living standards of the unemployed but may also reduce unemployment by increasing aggregate demand.

But, if jobs are available, and the unemployed are not filling them because they receive a higher income on benefits, raising benefits will reduce the incentive to work

Question 20

Measures to raise living standards

Answer 20

1. Improving education and training will enhance the knowledge and earning potential of the people, and their ability to participate in the political system of the country.
2. Reducing unemployment, as already mentioned, also raises living standards by increasing the quantity of available goods and services.
3. Improving healthcare
4. Increasing and improving the housing stock
5. Improving the working conditions
6. Reducing pollution

Question 21

Government policies on the distribution of income and wealth

Answer 21

1. Taxation (Progressive taxes)
2. The provision of cash benefits
3. The provision of free state education and healthcare
4. Using labor and macroeconomic policies

Question 22

Size of a country’s population can grow as a result of

Answer 22

1. Birth rate exceeds the death rate

2. Net immigration

Question 23

Define Emigration

Answer 23

the act of leaving the country to live in another country

Question 24

Define Birth rate

Answer 24

the number of births in a year per 1000 population in a year

Question 25

Define Death rate

Answer 25

the number of deaths in a year per 1000 population in a year.

Question 26

Define Net immigration

Answer 26

more people coming to live in the country than people leaving the country to live elsewhere.

Question 27

Define Infant mortality rate

Answer 27

the number of deaths per 1000 live births in a year.

Question 28

Define Net migration

Answer 28

the difference between immigration and emigration.

Question 29

The birth rate is influenced by

Answer 29

the average age of the population the number of women in the population women’s fertility rate (that is, the average number of children per woman)

Question 30

The death rate is influenced by

Answer 30

``` nutrition housing conditions medical care lifestyles working conditions involvement or non-involvement in military action ```

Question 31

Reasons for high birth rate

Answer 31

1. Young average aged population in which women marry young 2. Infant mortality rate is high 3. Women are not well-educated 4. Most women do not work 5. Cheap to bring up children 6. Lack or disapproval of family planning 7. Government cash incentives to have children 8. Lack of government help to care for the sick and elderly

Question 32

Reasons for low death rate

Answer 32

1. Healthy diets 2. Good housing facilities 3. Access to high quality medical care 5. Do not smoke or consume excess alcohol 6. Exercise regularly 7. Enjoy good working conditions 8. Country is at peace with other countries

Question 33

Influences of net migration

Answer 33

1. Relative living standards at home and abroad 2. Persecution of particular groups 3. Extent of control on the movement of people

Question 34

Define Population pyramid

Answer 34

a diagram showing the age and gender structure of a country’s population

Question 35

The population pyramid of a country with relatively low development would show

Answer 35

A high birth rate A high death rate Large proportion of young people Small percentage of people reaching older age groups

Question 36

Dependency ratio definiton+ formula

Answer 36

The proportion of the population that has to be supported by the labour force. (Number in dependent age groups/ Number in the labour force) × 100

Question 37

Define optimum population

Answer 37

the size of population which maximises the country’s output per head.

Question 38

Advantages of increase in population

Answer 38

1. If the population is below the optimum size, the country will be able to make better use of its resources. 2. The size of markets will increase 3. Expanding industries can recruit new workers to the labour force. 4. Extra demand will be generated. This is likely to stimulate investment and this may lead to the introduction of new technology. 5. A rise in the labour force now due to net immigration and in the future, caused by a rise in the birth rate

Question 39

Disadvantages of increase in population

Answer 39

1. Famine, if agricultural productivity is low 2. Restrictions on improvements in living standards 3. Overcrowding- put pressure on housing and social capital and cause traffic congestion 4. Environmental pressure 5. Pressure on employment opportunities 6. Balance of payment pressures. More dependants in the population may result in a rise in imports and some products may need to be diverted from the export to the home market.

Question 40

Ways of reducing the birth rate

Answer 40

1. Reduce immigration 2. Improvement of the educational and employment opportunities for women 3. Better information and increased availability of family planning services 4. Improvement of healthcare and nutrition 5. Pension and sickness insurance schemes 6. Raise the cost of having children by raising the school leaving age 7. Provide incentives for families who restrict the number of children

Question 41

The consequences of an ageing population

Answer 41

1. A rise in the dependency ratio 2. A change in the labor force- less mobile 3. Higher demand for healthcare. 4. Greater need for welfare services- opportunity cost 5. Rise in cost of state and private pensions. 6. Change in the pattern of demand

Question 42

Ways of coping with an ageing population

Answer 42

1. Raise the retirement age 2. Encouraging or making it compulsory for workers to save for their retirement 3. Issue more work permits to encourage immigration of younger skilled workers 4. Raise the productivity of workers by means of education and training

Question 43

Internal immigration advantages + disadvantages

Answer 43

Supply growing industries Better allocation of resources Increase living standards in rural areas by sending back money to their relatives If the most productive leave, 'brain drain' No guarantee that enough jobs will be available in urban areas and a number of external costs, including overcrowding, increased pressure on social capital and congestion may occur as a result of the rapid expansion of cities.

Question 44

The effects of net emigration

Answer 44

1. The size of the working population is likely to be reduced. 2. The remaining labour force will have a greater burden of dependency. 3. The average age of the labour force will increase. This may make it less mobile. 4. The gender distribution of the population may be affected 5. There may be a shortage of skilled workers 6. There may be under-utilisation of resources 7. Those who emigrate may send money home to help their relatives. This money is called workers’ remittances.

Question 45

Define Economic development:

Answer 45

an improvement in economic welfare

Question 46

A country with high economic development would have

Answer 46

High living standards High proportion of workers employed in the tertiary sector High levels of productivity High levels of investment.

Question 47

Causes of differences in economic development between countries

Answer 47

1. Differences in incomes per head 2. Differences in saving due to differences in income per head 3. Differences in investment 4. Differences in population growth 5. Differences in education and healthcare 6. Differences in the size of the primary, secondary and tertiary sectors.

Question 47

Causes of differences in economic development between countries

Answer 47

1. Differences in incomes per head 2. Differences in saving due to differences in income per head 3. Differences in investment 4. Differences in population growth 5. Differences in education and healthcare 6. Differences in the size of the primary, secondary and tertiary sectors. 7. Differences in the concentration on a narrow range of exports (most of which are primary products) 8. Differences in productivity

Question 48

Why do governments seek to achieve economic development

Answer 48

They want higher real GDP, higher living standards for their citizens and expansion of the range of economic and social choices.

Question 49

How does a reduction in poverty bring benefits to both, the poor and to the wider society?

Answer 49

Gives them access to basic necessities, improves their mental and physical health, and raises their expectations. People who enjoy better living standards are likely to be more productive, which in turn should lower the country’s average costs and make the country more internationally competitive. A reduction in poverty may also reduce pollution. As people become better off, they are more likely to have access to sanitation and environmentally friendly forms of heating.

Question 50

How can a country economically develop?

Answer 50

More investment, improved education, training and healthcare can raise not only real GDP but also the quality of people’s lives, their life expectancy and their choices.

Question 51

The problems facing economies with relatively low economic development

Answer 51

1. High growth of population 2. High levels of international debt 3. Reliance on the export of primary products 4. Lack of investment in human capital and capital goods 5. Emigration of key workers 6. Trade restrictions on their products 7. Unbalanced economies

Question 52

Advantages/ Disadvantages of Import substitution-

Answer 52

When domestic products replace imports If successful, the strategy can increase domestic output, raise employment and improve the country’s trade in goods and services balance. In the short term, however, it may raise prices and reduce choice and hence lower economic welfare. Other countries may also retaliate and the domestic industries may become reliant on protection without seeking to increase their efficiency and competitiveness.

Question 53

Measures to promote economic development

Answer 53

1. Import substitution 2. Promote exports by exposing domestic firms to market forces 3. Improve the country’s infrastructure, capital stock, education, training and healthcare systems 4. Attract multinational companies (MNCs)

Question 54

Advantages + Disadvantages of MNCs

Answer 54

They can increase employment and wages, train and educate workers, bring in new technology and improve infrastructures. MNCs may pay workers in poor countries less than that in their home countries and may provide them with poorer working conditions. MNCs may deplete non-renewable resources, cause pollution and put pressure on host governments to pursue policies which have a detrimental effect on development such as reducing health and safety regulations.

Question 55

The vicious cycle of poverty for countries

Answer 55

``` Low income ↓ Low savings ↓ Low investments ↓ Low productivity ```