Define poverty trap .

A poverty trap (or poverty cycle) is a self-reinforcing situation in which low wages prevent the saving, investment and human capital development needed to escape poverty.

What is the major cause of poverty in the poverty trap?

The major cause of poverty is low wages , which lie at the intersection of economic growth and human development.

True or False? Poverty is caused only by a lack of economic growth.

False. The poverty trap shows poverty is caused by a lack of both economic growth and human development .

Define human capital .

Human capital refers to the education, skills and healthcare of a workforce; low levels of it reduce productivity.

Low wages are usually the result of unemployment, a lack of skills, or a based economy.

Low wages are usually the result of unemployment, a lack of skills, or a primary sector based economy.

Why does low saving lead to low investment in the poverty trap?

Because savings drive investment , so with low savings banks have less money available to lend for investment.

Low levels of investment hold back productivity and .

Low levels of investment hold back productivity and economic growth .

Why is it hard for people on low wages to save?

It is hard to save because low wages mean any income is spent on necessities .

True or False? People on low wages can easily access education and healthcare.

False. Education and healthcare cost money , so with low wages they are not easily accessible.

Low productivity results in , so the poverty cycle continues.

Low productivity results in low wages , so the poverty cycle continues.

What effect does low human capital have on productivity?

Low levels of human capital reduce productivity , which in turn leads to low wages.

Define capital flight .

Capital flight occurs when money or assets rapidly leave a country, reducing the funds available for investment and lowering growth.

Why are the prices of primary commodities often volatile?

Because the demand and supply of commodities are inelastic , so small changes in demand or supply cause large changes in price.

True or False? Primary products have a high income elasticity of demand.

False. Primary products have a low income elasticity of demand (YED) , so as world income rises their demand increases less than proportionally.

A progressive tax system redistributes income from higher to lower earners and reduces income .

A progressive tax system redistributes income from higher to lower earners and reduces income inequality .

How does a strong legal system promote economic growth?

A strong legal system builds confidence and certainty, attracting overseas investment and making business easier to conduct.

Define the informal economy .

The informal economy is the part of the economy where workers' wages are not taxed, reducing government tax revenue for infrastructure and public goods.

How can rising income inequality reduce economic growth?

A smaller medium-income band consumes less, which lowers aggregate demand and reduces economic growth.

Money intended for investment is often siphoned off by corrupt , reducing the level of investment.

Money intended for investment is often siphoned off by corrupt politicians , reducing the level of investment.

What can trigger capital flight from a country?

Capital flight can be triggered by political upheaval, economic sanctions, war, or changes to government policy .

Define human capital .

Human capital is the education, skills and health of a workforce; higher levels raise productivity, output and economic growth.

True or False? Gender inequality has no effect on economic growth.

False. Gender inequality raises income inequality and reduces the incentive for women to work , causing a loss of productivity and lower growth.

Why does high indebtedness hold back development?

Debt repayments reduce the money available for investment and for spending on merit and public goods, lowering potential growth.

Landlocked countries find it harder and more expensive to import and their products.

Landlocked countries find it harder and more expensive to import and export their products.

What is the aim of the World Trade Organisation (WTO)?

The WTO aims to increase trade liberalisation so as to improve market access for all countries.

Why do property rights matter for growth in developing countries?

Property is often the main household asset used to secure loans , so a lack of property rights prevents borrowing and income generation.

Why is context important when evaluating a country's barriers to development?

Because each country is unique with a different combination of prominent barriers, so context determines how significant a barrier is.

IBEconomicsDPSLFlashcards4. The Global Economy4.9 Barriers to Economic Growth & Development

4.9 Barriers to Economic Growth & Development (DP IB Economics: SL): Flashcards

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Front4.9.1 Poverty Traps
Define poverty trap.

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Cards in this collection (27)

Define poverty trap.
A poverty trap (or poverty cycle) is a self-reinforcing situation in which low wages prevent the saving, investment and human capital development needed to escape poverty.
What is the major cause of poverty in the poverty trap?
The major cause of poverty is low wages, which lie at the intersection of economic growth and human development.
True or False?
Poverty is caused only by a lack of economic growth.
False.
The poverty trap shows poverty is caused by a lack of both economic growth and human development.
Define human capital.
Human capital refers to the education, skills and healthcare of a workforce; low levels of it reduce productivity.
Low wages are usually the result of unemployment, a lack of skills, or a based economy.
Low wages are usually the result of unemployment, a lack of skills, or a primary sector based economy.
Why does low saving lead to low investment in the poverty trap?
Because savings drive investment, so with low savings banks have less money available to lend for investment.
Low levels of investment hold back productivity and .
Low levels of investment hold back productivity and economic growth.
Why is it hard for people on low wages to save?
It is hard to save because low wages mean any income is spent on necessities.
True or False?
People on low wages can easily access education and healthcare.
False.
Education and healthcare cost money, so with low wages they are not easily accessible.
Low productivity results in , so the poverty cycle continues.
Low productivity results in low wages, so the poverty cycle continues.
What effect does low human capital have on productivity?
Low levels of human capital reduce productivity, which in turn leads to low wages.
Define capital flight.
Capital flight occurs when money or assets rapidly leave a country, reducing the funds available for investment and lowering growth.
Why are the prices of primary commodities often volatile?
Because the demand and supply of commodities are inelastic, so small changes in demand or supply cause large changes in price.
True or False?
Primary products have a high income elasticity of demand.
False.
Primary products have a low income elasticity of demand (YED), so as world income rises their demand increases less than proportionally.
A progressive tax system redistributes income from higher to lower earners and reduces income .
A progressive tax system redistributes income from higher to lower earners and reduces income inequality.
How does a strong legal system promote economic growth?
A strong legal system builds confidence and certainty, attracting overseas investment and making business easier to conduct.
Define the informal economy.
The informal economy is the part of the economy where workers' wages are not taxed, reducing government tax revenue for infrastructure and public goods.
How can rising income inequality reduce economic growth?
A smaller medium-income band consumes less, which lowers aggregate demand and reduces economic growth.
Money intended for investment is often siphoned off by corrupt , reducing the level of investment.
Money intended for investment is often siphoned off by corrupt politicians, reducing the level of investment.
What can trigger capital flight from a country?
Capital flight can be triggered by political upheaval, economic sanctions, war, or changes to government policy.
Define human capital.
Human capital is the education, skills and health of a workforce; higher levels raise productivity, output and economic growth.
True or False?
Gender inequality has no effect on economic growth.
False.
Gender inequality raises income inequality and reduces the incentive for women to work, causing a loss of productivity and lower growth.
Why does high indebtedness hold back development?
Debt repayments reduce the money available for investment and for spending on merit and public goods, lowering potential growth.
Landlocked countries find it harder and more expensive to import and their products.
Landlocked countries find it harder and more expensive to import and export their products.
What is the aim of the World Trade Organisation (WTO)?
The WTO aims to increase trade liberalisation so as to improve market access for all countries.
Why do property rights matter for growth in developing countries?
Property is often the main household asset used to secure loans, so a lack of property rights prevents borrowing and income generation.
Why is context important when evaluating a country's barriers to development?
Because each country is unique with a different combination of prominent barriers, so context determines how significant a barrier is.

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