4.10 Economic Growth & Development Strategies (DP IB Economics: HL): Flashcards

Diversification reduces the problems associated with over-specialisation, such as price volatility in a dominant export commodity.

False.

Social enterprises tend to be small and very localised, so it can be difficult for them to generate economies of scale or to compete internationally.

Market-based policies create the conditions for private individuals and firms to pursue economic activity with the aim of maximising output and profit.

Trade liberalisation is the removal of barriers to international trade such as tariffs and quotas.

Privatisation encourages new private firms to enter the market and compete with former government firms, thereby increasing total supply in the economy.

Deregulation is the process of removing government controls or laws from markets in order to increase competition.

One advantage of trade liberalisation is that more trade increases output, employment and incomes.

False.

Prices may actually rise if privatisation results in a firm providing a monopoly service, such as rail travel.

A disadvantage of deregulation is that it may increase the quantity of negative externalities in an economy.

Interventionist policies are put in place by governments to correct the failings of the free market and promote the welfare and development of citizens.

A progressive tax system redistributes income from those with higher incomes to those with lower incomes, reducing income inequality.

Transfer payments are payments usually given to the poorest and most vulnerable people in society, including unemployment and disability payments, pensions and heating discounts.

Minimum wages are set above the free market rate, and firms are not allowed to pay anyone less than the legal rate.

True.

Higher costs of production for firms may cause output to fall, leading to increased unemployment.

Merit goods are goods that are beneficial to society but are under-provided in a market.

Governments subsidise merit goods to lower the price and/or increase provision, since these goods are otherwise under-provided by the market.

Education programmes help break the poverty trap by increasing human capital, which raises productivity and output.

Government-provided health and education programmes are free at the point of consumption but are paid for with tax revenue.

False.

Education programmes take a long time before there is an increase in productivity.

Access to energy can raise productivity because time previously spent looking for heating fuel can now be used more productively.

Inward FDI occurs when investment by foreign firms results in more than a 10% share of ownership of domestic firms.

Inward FDI has the potential to raise household income, which helps to break the poverty cycle.

FDI can be a major source of finance in less economically developed countries, providing funds that may otherwise be unavailable domestically.

A disadvantage of FDI is that profits tend to be moved off-shore or returned to the multinational's home country, so less is reinvested in the host nation.

False.

Multinational firms often pay very little tax to host nations, using sophisticated corporate practices such as transfer pricing to reduce their tax liability.

Multinationals may use their own workers for management roles and employ local unskilled labour only for manual tasks, so workers develop few new skills.

Foreign aid is assistance offered to developing nations in forms such as humanitarian/development aid, debt relief, Official Development Assistance and NGOs.

The two most common forms of humanitarian aid are grants and soft loans.

True.

Critics argue that aid breeds dependency, corruption and disincentivises individual responsibility.

Debt relief reduces or removes the repayment of debt, lowering the opportunity cost of debt repayments for a developing nation.

Once debt is forgiven, many developing nations borrow more money and the cycle of indebtedness starts again.

Official Development Assistance (ODA) is aid that can be bilateral (donor government to recipient government) or provided through a multilateral development agency.

The United Nations has set a target for more economically developed countries to spend 0.7% of their GDP on ODA.

A non-governmental organisation (NGO) is a typically voluntary, community-based organisation that does not aim to make a profit but seeks to meet a need or provide a service.

NGO aid often comes with fewer conditions or expectations than ODA.

Multilateral organisations are made up of member governments from around the world who pool their resources to fund large-scale development programmes.

The World Bank provides loans to developing countries to aid their development, including the development of infrastructure.

The IMF provides member countries with currency to help deal with balance of payments problems.

True.

The IMF monitors national, regional and global economic and financial developments through a formal system known as surveillance.

Sound institutions, free from corruption and well-established, help a country to progress in human development.

Microfinance provides small but meaningful loans to poor households to help them start a business, and has been successful in breaking the poverty trap in some LEDCs.

The Grameen Bank pioneered the use of microfinance in Bangladesh.

Microfinance loans can be targeted at women, helping to raise their income and improve human capital.

Mobile banking allows customers to conduct financial transactions more easily and facilitates a flow of finance in more remote areas.

The more certain the legal protection of property rights, the easier it is for households to access loans.

False.

Property rights can lead to property monopolies as wealthier individuals buy multiple properties, which may raise housing or rental prices.

Gender inequality reduces the incentive for women to enter the workforce, resulting in a smaller production possibility curve and a loss of efficiency.

Increasing women's empowerment incentivises young girls to study harder, which helps to close existing education gaps between genders.

Corruption reduces investment, limits economic growth and distorts the pattern of government spending, holding back economic development.

True.

Tackling corruption creates more confidence in the economy, so foreign direct investment increases.

Reducing corruption raises national output and therefore tax revenue, enabling the government to provide more services, merit goods and public goods.

Market-orientated approaches aim to reduce government intervention and free up private-sector economic activity so that national output (real GDP) increases.

Multinational corporations prefer to invest where markets are more open with less regulation and government intervention, raising inward FDI.

A more competitive environment lowers costs and generates innovation, making foreign firms more likely to invest.

A con of market-orientated approaches is increased market failure, as reduced government intervention raises the amount of negative externalities.

A dual economy exists where an LEDC has both a large informal sector and a thriving formal sector based around multinational corporations, which contributes to growing income inequality.

False.

Market-orientated approaches can increase inequality, as the benefits become concentrated among those who own assets and factors of production.

Government intervention provides services, merit goods and public goods that enhance the lives of a country's citizens.

Governments can regulate the disparity between rich and poor through policies such as progressive taxation.

A pro of government intervention is stable economic growth, as intervention can even out the swings in the business cycle.

Government capture occurs when powerful business people or large corporations build such strong relationships with government ministers that they end up controlling resources through their influence.

True.

Because the government focuses on services rather than profit, intervention can generate inefficiencies and large, overstaffed organisations.

Short government terms and two-party systems can cause wild fluctuations of policy, which create instability.

The prevalence of undernourishment is the percentage of the population whose food intake is insufficient to meet dietary energy requirements for a minimum of one year.

Dietary energy requirements are the amount of dietary energy required by an individual to maintain body functions, health and normal activity.

Undernourishment causes productivity to fall, so improved nourishment can be assumed to raise health and productivity.

Access to banking measures the percentage of adults aged 15 and over who report having an account at a financial institution or who have used a mobile money service in the past 12 months.

Access to banking increases the ability to make transactions that improve the standard of living, for example remote vendors receiving payment by mobile phone.

True.

Access to banking in Armenia moved from around 20% to 50% of the population between 2014 and 2018.

Overall there was a positive downward trend in Armenia's intentional homicide rate, despite erratic year-to-year movement.

Intentional homicides are unlawful killings purposely inflicted as a result of domestic disputes and interpersonal violence, measured per 100,000 people and excluding killings in armed conflict.

In Ecuador, the prevalence of undernourishment has been increasing slowly but steadily since 2011.

False.

Ecuador's progress in access to banking was slow and the increasing trend was starting to flatten in the final years.

Since 2018 there has been a concerning upward trend in Ecuador's intentional homicide rate, after reaching its lowest recorded value.

Since 2015, Armenia's undernourishment indicator has shown a slight increase, interrupting its earlier good progress.