Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Development Questions May sessions, 2006 - 2011 Syllabus Year, Paper May 2006 – Paper 1 May 2006 – Paper 1 HL / SL May 2006 – Paper 3, Q1 Question 4. (a) Explain how an increase in the quantity and quality of a nation’s factors of production can promote economic development. [10 marks] 4 (b) Evaluate the impact of globalization on the economic development of developing countries. [15 marks] (c) Using a production possibility curve diagram, explain the impact on economic growth of any delay in dealing with the HIV/AIDS epidemic in countries such as South Africa. [4 marks] Student Outline Response • definition of factors of production • definition of economic development Candidates may respond to this in terms of measures of development such as HDI etc. • explanation of an increase in the quantity of productive factors • the impact of an increase in the quantity of resources on productive capacity, economic growth and, possibly economic development • explanation of an increase in the quality of productive factors • the impact of specific examples of an increase in the quality of factor inputs, e.g. the use of improved health and education programmes, on economic development • reward the use of appropriate diagrams • reward the use of appropriate growth models A definition of globalisation Answers may include: • features of developing countries • evaluate the impact of (in terms of positives and negative – free trade – FDI by MNCs – liberalisation of capital markets – greater labour mobility – the transfer of knowledge and technology – income and wealth inequality – increased industrialisation and urbanisation – greater tourism – protection in developed countries A PPC diagram showing an inward shift in the PPC due to a decrease in the quantity or the quality of labour due to HIV/AIDS. The axes must be labelled with some type of competing uses, e.g. consumer goods and capital goods. A maximum of [3 marks] may be awarded if the axes are inappropriately labelled. 1 May 2006 – Paper 3, Q1 (d) Using information from the text and your knowledge of economics, evaluate the role of a multinational corporation in assisting the economic development of a less developed economy. [8 marks] Answers must include: An examination of the role of MNCs in development. Answers should not focus on the negative alone but evaluate the benefits that MNCs can bring as well as the problems Items covered may include: MNCs provide a source of • capital • technology • employment • tax revenue • export earnings • demand for local marketed goods • possible multiplier effects Further emphasis: The points above must be related to development. For example, if tax revenue is earned, it can lead to development if the revenues are used for developmental prospects, e.g. improved education/literacy, redistribution of income, reduction of absolute poverty. May retard development through • transfer pricing • inappropriate use and exploitation of resources • negative externalities • threat to sustainable development • establishment of a dual economy/rural-urban migration/income inequality • driving local enterprises out of business • use of inappropriate technology • excessive profit repatriation. Evaluations should consider both the positive and the negative impact that MNC’s can have in promoting development. Possible reference to the material provided such as: • the redistribution of resources from the developed to the less developed economies through price discrimination • improvement in the level of human capital through the availability of pharmaceuticals. Candidates who incorrectly label diagrams cannot be rewarded with full marks. Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. 2 If there is no direct reference to the data, then candidates may not be rewarded beyond Level 2. Effective evaluation may be to: • consider short run versus long run consequences • examine the impact on different stakeholders • discuss advantages and disadvantages • prioritize the arguments May 2006 – Paper 3, Q4 (b) Using an appropriate diagram, explain why a knowledge of comparative advantage is important for a developing country. [4 marks] To draw an appropriate diagram illustrating comparative advantage and an explanation that the country should specialise in the production of the product in which it has a lower opportunity cost and thus a comparative advantage May 2006 – Paper 3, Q4 (c) Using an appropriate diagram, explain how a knowledge of income elasticity of demand (YED) is useful for exporters in a less developed country such as Thailand. [4 marks] An explanation of any plausible application of YED to developing countries. (e.g. developing countries could produce goods that have low income elasticity or high income elasticity depending on the nature of the good.) A diagram showing low income elasticity (i.e. a fairly steep upward-sloping line on a diagram with income on the y-axis and demand on the x-axis) or high income elasticity (a flatter line) is required to get full marks. (Candidates may draw diagrams illustrating price elasticity of demand, but these are not correct.) May 2006 – Paper 3, Q5 (c) Using an appropriate diagram, explain how the availability of a safe water supply may improve living standards in less developed countries. [4 marks] For drawing an appropriately labelled diagram and an explanation of how water as a resource can encourage economic development. May 2006 – Paper 3, Q4 (d) Using information from the text and your knowledge of economics, evaluate the Diagrams that might be used could include: • a PPC, with the observation that the provision of safe quantity may result in improved health and life expectancy, thus would result in an outwards shift in the PPC • a positive externalities diagram, showing how the provision of safe water would result in an increase in the quantity of water • a modified poverty cycle diagram showing how safe water may result in higher human capital and thus higher incomes. • a demand and supply diagram showing that if there is increased availability of water (increase in supply), then there will be a fall in the price of water, allowing more people to buy it. Answers may include: • an explanation that externalities are benefits or costs of consumption/production, and clean water is under-provided 3 externalities to be considered in determining whether water should be supplied and sold by the private sector. [8 marks] Although the questions refers to externalities, candidates are to be rewarded for analysing the consequences of the provision of water by the private sector. To reach top marks, this should include appropriate economic analysis, rather than just description. Positive consequences of consuming clean water: • healthy workforce that is more productive, with greater life expectancy • higher production, more employment, income and higher standard of living in the long run • saving in the costs of purifying and boiling water for human consumption in households • fewer water-borne illnesses Negative consequences: • the social and economic upheaval/inequity as a cost of implementing the policy • the costs of strikes and demonstrations • regardless of the quality of the water, the price will increase, leading to inequity. • Profit maximising companies may be able to exploit monopoly power and the inelasticity of demand of water to charge prices well above marginal costs • profit repatriation resulting from privatisation of water supply and concessions to foreign firms. • Larger gains for foreign firms (such as European banks, business service firms) than for the people in developing countries Candidates might evaluate the possibility of continued provision of water by the public sector, which, due to insufficient financial resources would mean that there is unlikely to be an improvement in the quality of water, but, more people would have access to it. Candidates who incorrectly label diagrams cannot be rewarded with full marks. Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. If there is no direct reference to the data, then candidates may not be rewarded beyond Level 2. May 2007, Paper 1 HL / SL 4. (a) Explain the various types of aid which a developing country might Answers may include: definition of a developing country definition of aid 4 receive. [10 marks] May 2007, Paper 1 HL /SL 4 (b) “Aid is an ineffective means of promoting the development of poorer countries.” Evaluate this statement. [15 marks] Paper 2, May 2007 5. Distinguish between an outward-orientated growth strategy and an inwardorientated growth strategy. bilateral and multilateral aid grant aid and loans official and unofficial aid tied and untied aid debt cancellation Answers may include: definition of development arguments against the statement, which may include whether aid – bridges the savings gap – bridges the foreign exchange gap – finances provision of merit goods and infrastructure projects in recipient countries – is used as a transition strategy arguments in favour of the statement, which may include whether aid – interferes with market forces and encourages reliance on “handouts” – is used to promote the exports of donor countries – finances military expenditure – is used for political purposes – is conditional on the implementation of free market/supply side policies e.g. privatisation – increases indebtedness – is less effective than trade related development, e.g. through fair trade schemes Examiners should be aware that candidates may take a different approach, which if appropriate, should be rewarded. Effective evaluation may be to: consider short run versus long run consequences examine the impact on different stakeholders discuss advantages and disadvantages prioritize the arguments Answers may include: Characteristics of outward-oriented strategies: emphasis on comparative advantage specialization encouragement of free trade emphasis on supply-side policies to improve the flexibility of markets e.g. reduction of regulations on labour and business development/encouragement of markets such as capital markets 5 exchange rate policies: use of floating rates encourages Foreign Direct Investment Characteristics of inward-oriented strategies: emphasis on government intervention to regulate markets import substitution the infant industry argument encouragement of domestic industries through constraints on imports: – subsidies – tariffs – quotas – other regulations exchange rate policies: use of fixed/managed rates Paper 3, May 2007 5 (c) Identify and explain two possible consequences of an “ineffective taxation structure” (paragraph 3). [4 marks] An explanation of the possible consequences of an ineffective taxation structure may include: loss of government revenue from an inability to tax economic activity in informal markets inability of a government to provide merit and public goods higher taxes charged to the formal sector to compensate for forgone taxes in the informal markets increased tendency towards tax avoidance/evasion the negative effect on income distribution due to the reliance on indirect taxes which are regressive an inefficient tax structure is likely to enhance the opportunity for corruption/bribery excessive regulatory/administrative costs – inefficiency 5 (d) Using information from the text and your knowledge of economics, evaluate how institutional and political factors can impact upon economic development. [8 marks] Institutional and political factors mentioned in the text include: under-use of formal banking system may prevent saving lack of property rights may inhibit entrepreneurial activity excessive bureaucracy/red tape may increase costs of doing business corruption may increase costs of doing business ineffective tax system limits ability of governments to generate revenue. Candidates must show an understanding of how the factors impact upon development. Many of the points are more obviously linked 6 to economic growth, so this distinction should be made. May 2008, Paper 1, HL / SL 4. (a) Explain how development might be measured. [10 marks] Answers should include: • definition of development • measures of development. The measures may include: • use of GDP/GNP figures • Lorentz curve and Gini coefficient as a measurement of potential access • alternative methods of measurement, e.g. health, education/literacy, quality of life, environmental indicators, stock of asset indicators, political freedoms, composite indices, e.g. HDI. Candidates who are able to fully explain at least two measures, can access the top mark band. Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. May 2008, Paper 1 HL / SL 4 (b) Evaluate the view that the most effective way that a government could improve the welfare of its citizens is through the pursuit of faster economic growth. [15 marks] Answers may include: • definition of growth • explanation of the concept of welfare • links between faster growth and welfare • policies necessary to achieve faster growth • implications of implementation of specific policy measures • growth and the ability of the government to increase its spending on welfare enhancing programmes • links between growth and employment • growth and externalities • growth and income distribution • growth and sustainability • possible conflicts between growth and other goals such as price stability, a satisfactory balance of payments, low unemployment • possible opportunity costs • importance of development, as opposed to growth only, in improving living standards 7 • alternatives to economic growth e.g. policies to redistribute income and wealth. Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. Effective evaluation may be to: • consider short-term versus long-term consequences • examine the impact on different stakeholders • discuss advantages and disadvantages • prioritize the arguments. May 2008, Paper 2 6. “Indebtedness, nonconvertible currencies and capital flight are all significant barriers to economic development.” Explain two of these three factors. Answers may include: • explanation of indebtedness, non-convertible currencies, capital flight (two of them) • explanation of economic development • indebtedness means income may be diverted to interest and capital repayments and may not, therefore, be available for economic development expenditures (i.e. development is an opportunity cost of indebtedness) • indebtedness may inhibit access to further loans, which could be used to facilitate economic development • indebtedness could lead to a loss of economic freedom e.g. through the imposition of structural reforms by the IMF • a non-convertible currency reduces the ability of a nation to earn net foreign currency through trade because the eventual gains from exports will be used to pay for its imports • non-convertible currencies are a deterrent for inward capital investment • non-convertible currencies make it difficult to import capital goods necessary for development • non-convertible currencies produce incentives for capital flight • capital flight may occur due to an unstable financial system, corruption or MNCs repatriating profits • capital flight reduces the tax base that could have been used for development projects 8 • capital flight creates uncertainty and lack of confidence in the economy • capital flight puts downward pressure on the exchange rate • capital flight can be contagious and affect other countries. Definitions of key economic terms alone up to [3 marks]. A maximum of [6 marks] can be awarded for an explanation of one factor and its effect on development. Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. Paper 3, May 2008 Paper 3, May 2008 5(a) Define the following terms indicated in bold in the text: (i) tied aid (Text box2) (ii) infrastructure (Text box4) . [2marks] [2marks] 2 Precise definition An explanation that it is aid granted on the condition that it is used to buy goods or services from the donor country. 5(d) Using information from the text and your knowledge of economics, evaluate the significance of debt relief to fight poverty in Less Developed Countries (LDCs) in Africa. [8 marks] To move beyond level 2 [5 marks] students must make a link between debt relief and poverty reduction. 2 Precise definition Any one of the following: • physical capital typically provided by the government to make economic activity possible • physical capital that provides positive externalities • essential facilities and services that add to the capital stock of a nation. • explanation of the term debt relief • explanation of poverty. Positive impacts may include: • a reduction in the opportunity cost of debt servicing in terms of expenditure on health, education and infrastructure, all of could promote economic development and growth and therefore alleviate poverty • balance of payments effects (less debt servicing) • bridges the savings gap and the foreign exchange gap, making 9 investment in human and physical capital more likely and thereby contributing to a reduction in poverty • reduction in the transfer of human capital (brain drain), and the transfer of domestic savings (capital flight), both of which can contribute to economic development and the reduction of poverty. Negative impacts may include: • incompetent governments can run up more debt (Text box 1) • corruption not likely to be eliminated • misuse of the extra funds available (Text box 1) • disadvantages associated with the conditions attached to debt relief and/or tied aid. As part of an evaluation, candidates may look at alternative means of fighting poverty such as export-led growth (Text box 3), the removal of protectionist policies, and “improved investment relationships” (Text box 2). Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. Do not award more than [5 marks] if the answer does not contain reference to the information provided. Effective evaluation may be to: • consider short-term versus long-term consequences • examine the impact on different stakeholders • discuss advantages and disadvantages • prioritize the arguments. May 2009, Paper 1 Q4 4. (a) Institutional and political factors such as an ineffective taxation structure, political instability and an unequal distribution of income, as well as social and cultural factors such as gender issues and tradition, may all act as barriers to economic development. Explain how any three of these factors may act as barriers to economic development. [10 marks] Answers should include: a definition of economic development a basic explanation of the significance of three of the above as barriers to economic development e.g.: – ineffective tax systems make it difficult to raise money for public services – political instability leads to civil unrest which deters FDI – unequal distribution of income leads to poverty – gender issues such as discrimination against women. If a candidate uses a barrier that is not on the list above, give credit based on the validity of the response. Answers may include a more detailed explanation of the significance of three of the above for economic development. 10 (b) Evaluate the view that, in terms of achieving economic development in less developed countries, interventionist strategies, with a role for the government, are preferable to marketled strategies. [15 marks] Answers may include: definitions of economic development and LDCs an explanation of interventionist strategies, e.g. in terms of the state playing an active role in the management of the economy, economic planning, import and exchange controls, nationalization of industries an explanation of market-led strategies, e.g. in terms of a belief in the free operation of markets, a minimum role for the state in economic affairs, trade liberalization, privatization, foreign direct investment (FDI) use of PPC diagrams to illustrate development advantages of interventionist strategies, e.g. in terms of greater diversity of economic activity, supply-side improvements as a result of investment in health care and education and training, protectionism allowing existing industries breathing space to grow and infant industries to achieve economies of scale, a more equal distribution of income and wealth, less inequality between rural and urban sectors, higher levels of employment disadvantages of interventionist strategies in terms of possible growth of the public sector and government spending, inability to benefit from the gains from free trade, inefficient resource allocation, growth of inefficient monopolies, drawbacks of planning, possible bias against exports advantages of market-led strategies, e.g. in terms of more efficient resource allocation along the lines of comparative advantage, benefits of MNCs, benefits of free trade, flexible labour and capital markets, greater consumer choice, a reduction in government budget deficits disadvantages of market-led strategies, e.g. in terms of market failure, increased likelihood of structural unemployment, problems 11 associated with MNCs, greater wealth and income inequality, problems of capital outflows (e.g. profit repatriation) and a general vulnerability with regard to external fluctuations and shocks. May 2009, Paper 3, Q5 (d) Using the information from the text/data and your knowledge of economics, evaluate the role of micro-credit as an instrument of economic development in Venezuela. [8 marks] Responses may include: a definition of economic development a definition of micro-credit the poverty cycle may be broken micro-credit stimulates economic activity (paragraph economic growth and this may lead to economic development it can contribute to a reallocation of resources (paragraph it encourages innovation and develops new markets it promotes a culture of entrepreneurship it helps families generate income (paragraph increased standards of living it empowers women (paragraph it reduces poverty and contributes to a more equitable distribution of income it rebuilds the confidence of people (paragraph it stimulates appropriate use of technology it is an investment in human capital (human resources) it involves minimal state invention it is not enough, on its own, to have a significant impact on the economic development of a nation (paragraph it adds to individual debt it is often provided at above market rates in order for the schemes to be self-supporting it will not succeed unless the appropriate infrastructure is in place and appropriate information is made available to the recipients it arguably, does not help the “poorest of the poor” of a nation. Answers that make no reference to the text cannot be rewarded beyond level 2. 12 Candidates must relate the points in the answer to the concept of economic development, as stated in the question. May 2010, Paper 1, Question 4 4. (a) Explain the difference between economic growth and economic development, and how each of these may be measured. [10 marks] Answers should include: a definition of economic growth a definition of economic development an explanation that economic growth is a quantitative concept whereas economic development is more qualitative an explanation that economic growth is measured by the increase in real national income over a period of time, whereas economic development, in addition to the latter, could also include a whole variety of other measures such as schooling, life expectancy, provision of healthcare, income distribution, political freedoms etc. (just a few examples would suffice). Answers may include: a production possibility diagram to illustrate the difference between economic growth and economic development a mention of specific indices such as the HDI or HPI. Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. May 2010, Paper 1, Question 4 (b) Evaluate the view that the best way that developed countries can help the growth and development process of very poor, highly indebted countries is through a general cancellation of debts. [15 marks] Answers may include: a definition of developing, highly indebted countries examples of such countries arguments for debt cancellation in terms of the problems of debt e.g. the opportunity cost of debt repayments, the impact on development, the gearing of the economy towards exports, the potentially serious implications of the problem on absolute poverty arguments against debt cancellation, e.g. the danger of moral hazard, debt forgiveness and the creation of a dependency culture, the rewarding of irresponsible governments and penalizing of committed ones, debt as one of just many causes of poverty in developing countries 13 alternatives to debt cancellation such as aid or trade agreements the role of the IMF and World Bank, e.g. through structural adjustment programmes an overall assessment as to how the highly indebted countries can best be helped: debt write-offs versus effective aid and by industrialized countries lifting trade barriers. Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. Effective evaluation may be to: consider short-term versus long-term consequences examine the impact on different stakeholders discuss advantages and disadvantages prioritize the arguments. May 2010, Paper 2, Q6 May 2010, Paper 3, Question 4 6. Explain the difference between outward-oriented growth strategies and inward-oriented growth strategies. (d) Using information from the text/data and Candidates may include: an explanation that an outward-oriented growth strategy relies on increasing exports as the basis of growth, while an inward-oriented growth strategy relies on protection and increased self-reliance an explanation that outward-oriented growth strategies are based on free trade whereas inward-oriented growth strategies are based on import substitution an explanation that outward-oriented growth strategies are based on market liberalization whereas inwardoriented growth strategies based on government intervention to regulate domestic industries and protect infant industries an explanation of the advantages and disadvantages of outward-oriented growth strategies and inward-oriented growth strategies. Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded. Responses may include: explanations of diversification and specialization. 14 your knowledge of economics, evaluate diversiication as a policy option for improving export performance in Vietnam. [8 marks] Arguments in favour of diversification (and against specialization): avoids long-term declines in commodity terms of trade avoids extreme agricultural price fluctuations (paragraph avoids developed country barriers to trade (agricultural subsidies) reduces vulnerability to “shocks” such as extreme weather conditions (paragraph takes advantage of possibilities offered by “craft industries” and tourism (paragraph diversification into manufacturing provides opportunities for increased employment, use of new technologies and development of skills diversification allows countries to achieve economic transformation (paragraph over very long term must diversify into production that will not be affected by rising sea levels (paragraph by diversifying, countries may produce a good or service in which they might have a comparative advantage. Arguments against diversification (and in favour of specialization): specialization according to comparative advantage increases productive efficiency and the quantity of output produced specialization and trade according to comparative advantage allow countries to consume at a point outside their PPC specialization according to comparative advantage improves the global allocation of resources specialization allows countries to take advantage of economies of scale specialization allows farmers to take advantage of increases in food prices (paragraph diversification implies structural change and so may lead to structural unemployment. 15