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

True.

Diversification reduces over-specialisation; for example, in 2019 copper made up 71% of Zambia's exports, leaving its GDP heavily exposed to copper price swings.

Diversifying reduces risk because if one product fails, others may still be successful.

A social enterprise focuses on meeting specific social objectives, such as worker welfare, profit sharing, or providing employees with equal ownership of the business.

They tend to be small and localised, making it difficult to generate economies of scale or 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.

It can cause structural unemployment as inefficient industries die out when global competition intensifies.

Privatisation is the sale of government firms to private enterprise, encouraging new firms to enter the market and increasing total supply.

False.

Prices may actually rise where a privatised firm provides a monopoly service, such as rail travel.

Deregulation removes government controls and laws from markets in order to increase competition.

Deregulation 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 higher-income earners to lower-income earners.

It may become a disincentive to work.

Transfer payments are payments given to the poorest and most vulnerable people, such as unemployment and disability payments, pensions and heating discounts.

The money received generates consumption, which increases aggregate demand.

False.

A minimum wage is set above the free market rate, and firms are not allowed to pay anyone less than the legal rate.

Higher costs of production 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.

Education and health programmes are free at the point of consumption but paid for with tax revenue.

Education breaks the poverty trap by increasing human capital, which raises productivity and output.

False.

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

Infrastructure includes energy, transport, telecommunications, clean water and sanitation.

Each requires government expenditure and therefore carries an opportunity cost.

Inward FDI occurs when investment by foreign firms gives them a share of ownership in domestic firms, with the potential to generate economic growth.

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

It can be a major source of finance for less economically developed countries.

Higher profits from increased national output generate higher tax revenue for the government.

False.

Profits tend to be moved off-shore or returned to the home country, so less is reinvested in the host nation.

Multinationals may reserve management roles for their own workers and hire local labour only for unskilled manual tasks.

A firm that brings its own workers and sends profits home benefits the host less than one that hires locally and reinvests profits.

Four forms are humanitarian/development aid, debt relief, official development assistance (ODA) and NGOs.

Humanitarian aid, commonly given as grants and soft loans, is particularly helpful in response to large-scale one-off events such as earthquakes or tsunamis.

True.

Critics argue that aid can breed dependency, corruption and disincentivise individual responsibility.

Debt relief removes or reduces debt repayments, cutting the opportunity cost of those repayments for a developing country.

It led to the restructuring of loans to make them more affordable.

Debt has been written off for the most heavily indebted poor countries (HIPC).

Newly available funds can breed corruption, and some nations simply borrow more, restarting the cycle.

ODA is aid that can be bilateral, from a donor government to a recipient government, or provided through a multilateral development agency such as the United Nations.

The UN target is for more economically developed countries to spend 0.7% of their GDP on ODA.

Bilateral ODA flows from one donor government to a recipient government, while multilateral ODA is channelled through an agency such as the United Nations.

A non-governmental organisation (NGO) is a 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 that pool their resources to fund large-scale development programmes.

It provides reconstruction and development loans, including for infrastructure, and encourages economic reform and trade liberalisation.

Its main aim is to facilitate a stable global financial system.

True.

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

Surveillance is the formal system through which the IMF monitors country policies and national, regional and global economic and financial developments.

Microfinance is the provision of small but meaningful loans to poor households to help them start a business.

The Grameen Bank pioneered the use of microfinance in Bangladesh, which then saw significant gains in economic development.

False.

Some microfinance organisations, such as Kiva, have been criticised for taking high management fees and salaries.

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

Financial institutions enable individuals and firms to borrow money, which can be used for investment or to generate growth.

A lack of financial institutions prevents borrowing for investment and causes the poverty trap to continue.

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

False.

Issuing 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.

Increased opportunity incentivises young girls to study harder, which helps to close existing education gaps between genders.

Corruption reduces investment, limits economic growth, and affects the pattern of government spending.

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

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

Multinational corporations prefer economies that are more open with less regulation, which raises foreign direct investment.

Trade liberalisation is the removal of barriers to international trade, such as tariffs and quotas, which increases economic growth and raises household income.

False.

With less government intervention, the amount of negative externalities, in both production and consumption, tends to increase.

A dual economy develops when an LEDC has both a large informal sector and a thriving formal sector based around multinational corporations.

Less government intervention allows resources to be allocated by the market forces of demand and supply, improving efficiency.

The benefits of free markets become concentrated in the hands of a few, as those with assets buy up the factors of production.

Government intervention is government action, such as providing services, merit goods and public goods, to enhance the lives of a country's citizens.

Investment in energy, transport, health and telecommunications infrastructure improves the standard of living.

Governments can reduce income inequality between rich and poor through policies such as progressive taxation.

True.

Government intervention can even out the swings in the business cycle, supporting stable economic growth.

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

Governments focus on services rather than profit, which can cause poor resource allocation and large, overstaffed organisations.

Investment in education increases skills, leading to higher productivity in an economy.

Prevalence of undernourishment is the percentage of the population whose food intake is insufficient to meet dietary energy requirements for at least one year.

Undernourishment causes productivity to fall, so with more nourishment health and productivity are assumed to improve.

Armenia has made good progress, with undernourishment falling substantially since 2001, though there has been a slight increase since 2015.

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 lets remote vendors selling agricultural products receive payment by mobile phone, improving their standard of living.

Access to banking improved significantly, from around 20% to 50% of the population, though it remained below target.

Intentional homicides are the number of unlawful killings per 100,000 people, purposely inflicted through domestic disputes and interpersonal violence.

False.

Intentional homicides cover unlawful killings from domestic disputes and interpersonal violence, and exclude killings such as those in armed conflict.

The trend has been erratic but overall downward, showing a positive improvement, despite a peak around 2008-09.

After good progress up to 2011, undernourishment has been rising slowly but steadily, worsening health and productivity.

False.

It initially rose to a peak around 2007 and then fell to a low in 2018, but has shown a concerning upward trend since 2018.

Progress has been slow, with only a small improvement that was flattening, leaving it below target.