Download Economics for Today 2nd edition Irvin B. Tucker

Chapter 30
Growth and the LessDeveloped Countries
• Key Concepts
• Summary
• Practice Quiz
• Internet Exercises
©2002 South-Western College Publishing
1
What is one way to
compare the wellbeing of one country
to another?
GDP per capita
2
What is GDP per capita?
The value of final goods
produced (GDP) divided
by the total population
3
What are industrially
advanced countries ?
High-income nations
that have market
economies based on
large stocks of
technologically
advanced capital and
well-educated labor
4
Who are the IACs?
The United States,
Canada, Australia, New
Zealand, Japan, and most
of the countries of
Western Europe
5
What are lessdeveloped countries?
Economies based on
agriculture which are
lacking large stocks of
technologically
advanced capital and
well-educated labor
6
Who are the LDCs?
Most countries of Africa,
Asia, and Latin America
7
What are problems
in comparing
GDPS per capita?
• Measurement errors
• Income distribution
• Fluctuations in exchange rates
• Differences in living standards
8
Is GDP per capita
correlated with
other measures of
quality of life?
Yes
9
What are quality of
life indicators?
• Life expectancy
• Adult literacy
• Daily calorie supply
• Energy consumption
per capita
10
What factors come
together to produce a
country’s growth?
• Natural resources
• Investment in capital
• Investment in human capital
• Low population growth
• Infrastructure
11
80
70
60
50
40
30
20
10
Exhibit 4
Economics Growth
Manufactured Goods
Q
PPC2
PPC1
Agricultural Goods
100
200
300
Q
400 500
12
Economics
Growth
Growth in resources or
technological advance
13
What is infrastructure?
Capital goods usually
provided by the
government, including
highways, bridges,
waste and water
systems, and airports
14
What is a major
problem for LDCs?
They find themselves in
a vicious cycle of
poverty
15
What is the vicious
circle of poverty?
The trap in which countries
are poor because they
cannot afford to save and
invest, but they cannot
save and invest because
they are poor
16
What are the political
factors favorable for
economic growth?
• Law and order
• Infrastructure
• International trade
17
Economic growth and development
Natural
resources
endowment
Human
resources
development
Capital
investment
Technological
Political
progress
environment
18
What is foreign aid?
The transfer of money
or resources from one
government to another
for which no
repayment is required
19
What is the Agency for
International
Development?
AID is the agency of
the U.S. State
Department that is in
charge of U.S. aid to
foreign countries
20
What is the
World Bank?
The lending agency that
makes long-term lowinterest loans and
provides technical
assistance to lessdeveloped countries
21
What is the
International Monetary
Fund (IMF)?
The lending agency that
makes short-term
conditional low-interest
loans to developing
countries
22
What is the New
International Economic
Order (NIEO)?
A series of proposals made
by LDCs calling for
changes that would
accelerate the economic
growth and development
of the LDCs
23
Key Concepts
24
Key Concepts
• What is GDP per capita?
• What are industrially advanced countries
(IACS)?
• What are less-developed countries (LDCS)?
• What are quality of life indicators?
• What factors come together to produce a
country’s well being?
25
Key Concepts cont.
• What is the vicious circle of poverty?
• What are the political factors favorable for
economic growth?
• What is foreign aid?
• What is aid?
• What is the World Bank?
• What is the IMF?
• What is the NIEO?
26
Summary
27
GDP per capita provides a
general index of a country’s
standard of living. Countries with
low GDP per capita and slow
growth in GDP per capita are less
able to satisfy basic needs for
food, shelter, clothing, education,
and health.
28
Industrially advanced countries
(IACs) are countries in which GDP
per capita is high and output is
produced by technologically
advanced capital. Countries that
earn high income without
widespread industrial development,
such as the oil-rich Arab countries,
are not included in the IAC list.
29
Less-developed countries
(LDCs) are countries with low
production per person. In these
countries, output is produced
without large amounts of
technologically advanced capital
and well-educated labor. The
LDCs account for about threefourths of the world’s population.
30
The Four Tigers of the Pacific
Rim are Hong Kong, Singapore,
South Korea, and Taiwan. These
newly industrialized countries
have achieved high growth rates
and standards of living
approaching those of many of
the IACs.
31
GDP per capita comparisons are
subject to four problems: (1) the
accuracy of LDC data is
questionable, (2) GDP per capita
ignores the degree of income
distribution, (3) changes in
exchange rates affect gaps
between countries, and (4) there is
no adjustment for the cost-of-living
differences between countries.
32
Economic growth and economic
development are related, but
somewhat different, concepts.
Economic growth is measured
quantitatively by GDP per capita,
while economic development is a
broader concept.
33
In addition to GDP per capita,
economic development includes
quality-of-life measures, such as life
expectancy at birth, adult literacy
rate, and per capita energy
consumption.
34
Economic growth and development
are the result of a complex process
that is determined by five major
factors: (1) natural resources, (2)
human resources, (3) capital, (4)
technological progress, and (5) the
political environment. There is no
single correct strategy for economic
development, and a lack of strength
in one or more of the five areas
does not prevent growth.
35
The vicious circle of poverty is a
trap in which the LDC is too poor to
save and therefore it cannot invest
and shift its production possibilities
curve outward. As a result, the LDC
remains poor.
36
One way for a poor country to gain
savings, invest, and grow is to use
funds from external sources, such
as foreign private investment,
foreign aid, and foreign loans.
Borrowing by many LDCs led to the
debt crises of the 1980s, which was
resolved by writing off and
restructuring the loans.
37
Low income
Low productivity
Low savings
Low investment
38
Chapter 30 Quiz
©2002 South-Western College Publishing
39
1. An LDC is defined as a country
a. without large stocks of advanced
capital.
b. without well-educated labor.
c. with a low GDP per capita.
d. that is described by all of the above.
D. LDCs are economies based on
agriculture such as most countries of
Africa, Asia, and Latin America. They
have a low level of capital, a low level
of education, and low standard of
living.
40
2. According to the definition given in
the text, which of the following is not
an LDC?
a. India.
b. Egypt.
c. China.
d. Ireland.
e. None of the above.
D. Interestingly, Israel, Portugal, and
Greece are listed as LDCs measured
primarily by annual GDP per capita.
41
3. Which of the following is true when
comparing GDPs per capita between
nations?
a. The GDP per capita is subject to
greater measurement errors for LDCs
compared to IACs.
b. The GDP per capita does not measure
income distribution.
c. The GDP is subject to fluctuations
from changes in exchange rates.
d. All of the above.
D. United Arab Emirates, for example,
has a high GDP per capita, but is not
a IAC because of a lack of
widespread industrial development. 42
4. LDCs are characterized
by
a. high life expectancy.
b. high adult literacy.
c. high malnutrition
d. all of the above.
e. none of the above.
E. All of the above are characteristics of
industrially advanced countries (IACs).
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5. According to the classification in the
text, which of the following is not an
LDC?
a. Hong Kong
b. Israel.
c. Argentina.
d. Greece.
A. Hong Kong has a technologically
advanced infrastructure and a well
educated labor force.
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6. When the government fixes the
exchange rate above market exchange
rates,
a. international trade falls.
b. the infrastructure improves.
c. real GDP per capita rises.
d. the vicious circle of poverty is broken.
A. When the exchange rate of a country
increases it becomes more expensive
for foreigners to buy goods and
services from that country.
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7. Which of the following statements is
true?
a. IDC is a country with a low GDP per
capita, low levels of capital, and
uneducated workers.
b. The vicious circle of poverty exists
because GDP must rise before people
can save and invest.
c. LDCs are characterized by rapid
population growth and low levels of
investment in human capital.
d. All of the above are true.
D. All of the above statements are true
statements.
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8. An outward shift of the
production possibilities curve
represents
a. economic growth.
b. a decline in economic
development.
c. a decrease in human capital.
d. a decrease in resources.
A.
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Capital Goods
(quantity per year)
The Effect of External Financing on LDCs
Kb
B
Ka
PPC1
PPC2
Ca
Consumer Goods
(quantity per year)
48
9. Which of the following problems do LDCs
face?
a. Low per capita income and high GDP
growth rate.
b. Low population growth and low per
capita income.
c. Rapid population growth and low
human capital.
d. Low per capita income and high saving
rate.
C. Investment in human capital generally
results in increases in GDP per capita.
49
10. Which of the following best defines
the vicious circle of poverty?
a. The GDP per capita must rise before
people can save and invest.
b. People cannot save while capital
accumulates.
c. Increased GDP per capita relates to
lower population growth.
d. Poverty, saving, and investment are
related like a circle.
A. The vicious circle of poverty is the trap
in which countries are poor because they
cannot afford to invest and save, but they
cannot save and invest because they are
50
poor.
11. Which of the following is
infrastructure?
a. International Harvester tractor
plant.
b. Waste and water system provided
by government.
c. USAir airplane.
d. Service of postal workers.
B. Infrastructure refers to capital goods
usually provided by the government,
including highways, bridges, and
airports.
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12. Economic growth and development
in LDCs are low because many of
them lack
a. capital investment.
b. technological progress.
c. a favorable political environment.
d. all of the above.
e. none of the above.
D. Economic growth and development
involve a complex process that is
determined by several interrelated
forces.
52
Economic growth and development
Natural
resources
endowment
Human
resources
development
Capital
investment
Technological
Political
progress
environment
53
13. Which of the following makes short-term
conditional low-interest loans to
developing countries?
a. Agency for International Development
(AID).
b. World Bank.
c. International Monetary Fund (IMF).
d. New International Economic Order
(NIEO).
C. AID is the agency of the U.S. State
Department that is in charge of U.S. aid
to foreign countries. The World Bank
makes long-term low-interest loans to
LDCs. NIEO is a series of proposals
made by LDCs to improve their
54
economic growth.
14. Which of the following argues that IACs
should help LDCs by imposing lower trade
barriers on poor countries than on rich
countries?
a. The Agency for International
Development (AID)
b. The World Bank.
c. International Monetary Fund (IMF).
d. New International Economic Order
(NIEO).
D. The NIEO has made a series of
proposals to help improve LDCs
economic growth. Lower trade barriers
is one of these proposals.
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END
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