2018 Paper 2 Flashcards
(5 cards)
a)
With reference to the information provided, explain the distinction between absolute poverty and relative poverty. (5)
Inemerging economies, a billion people have been taken out of absolute poverty [Ap]. Absolute poverty occurs when a person lacks the basic necessities to survive [K] and their income is below $1.90 per day in PPP terms [An
In many advanced economies, low wages, insecure employment, stateless corporations, and striking inequalities [Ap] contribute to relative poverty. In these countries, relative poverty exists when a person’s income is below 60% of the national median income
With reference to the information provided and your own knowledge, examine two factors that might explain the differing rates of decline in absolute poverty in East Asia and Sub-Saharan Africa.(8)
Extract B states that there are 780 million illiterate adults worldwide [Ap].
Lower levels of education [K1 in Sub-Saharan Africa result in a less skilled workforce, lower productivity and therefore a slower rate of decline of absolute poverty than in East Asia [An]
Figure 1 shows that the proportion of people in absolute poverty in Sub-Saharan Africa fell from 55% in 1990 to approximately 40% in 2012, whereas in East Asia it fell from 61% to 3% [Ap].
Higher levels of infrastructure [K] make it easier and cheaper to move raw materials, workers and goods across the country, increasing economic growth and reducing absolute poverty [Ani
However, some countries like South Africa have higher education levels than other countries in Sub-Saharan Africa [El and simply building infrastructure without a stable government may have a limited effect on absolute poverty. Factors vary across each region
c) With reference to Extract A, discuss two macroeconomic policies, apart from protectionism, that a government could use to reduce the negative effects of globalisation. (12)
One macroeconomic policy to reduce the negative effects of globalisation is expansionary fiscal policy [K].
Governments can increase spending on welfare and public services or cut taxes to boost disposable incomes, reducing inequality caused by globalisation [An]. In the UK, customers have been paying £1.4 billion more for energy due to limited competition, meaning higher disposable income from tax cuts could help offset rising living costs [Ap]. Level 3 KAA
However, expansionary fiscal policy can worsen the budget deficit [E]. If tax cuts are not matched by higher revenues, or if increased government spending is funded through borrowing, this may lead to higher national debt, limiting future policy options
Another policy is supply-side investment in education and skills training [K]. Globalisation often leads to structural unemployment, as workers in traditional industries struggle to compete with lower-cost foreign labour. Investing in education and retraining programmes could help workers transition to higher-skilled jobs, reducing the risk of long-term unemployment [An]. The UK government’s move to install smart meters and improve consumer awareness reflects the importance of adapting to economic changes [Ap].
Level 3 KAA
However, supply-side policies have long implementation times and high costs [E]. Education and training reforms take years to improve workforce productivity, meaning they do not provide immediate relief to workers impacted by globalisation [E].
Additionally, funding such programmes requires public investment, which could divert resources from other essential areas
Assess the view that ‘some level of inequality is desirable to maintain an appropriate incentive structure in the economy’ (10)
Some inequality is desirable to provide a greater incentive to work [K]. The existence of inequality rewards higher earners, so there is more incentive to work longer hours or to spend longer in education to acquire higher skills [An].
Therefore inequality can “reflect different levels of talent and effort”
[Ap].This increases the productive capacity of the economy and leads to long-run growth, which is beneficial for achieving macroeconomic objectives [An] Level 3 KAA
Another reason is it encourages risk taking [K]. Entrepreneurs can keep the rewards for their efforts. This helps them to organise the other factors of production by meeting consumers’ wants and needs [An]. This leads to improved living standards, job creation and higher incomes for many workers [An]. It could also lead to a
“brain gain” as global entrepreneurs relocate to countries where there is more inequality so that they can keep a greater share of the profits they generate
Another reason is it encourages risk taking [K]. Entrepreneurs can keep the rewards for their efforts. This helps them to organise the other factors of production by meeting consumers’ wants and needs [An]. This leads to improved living standards, job creation and higher incomes for many workers [An]. It could also lead to a
“brain gain” as global entrepreneurs relocate to countries where there is more inequality so that they can keep a greater share of the profits they generate [An] Level 3 KAA
However, inequality leads to people suffering “malnutrition and death in childhood” [Ap]. This severely limits economic growth and raises healthcare costs [E]. The poor have
“lower chances of receiving key healthcare” [Ap] so they are more likely to be supported by the state through higher welfare benefits [E]. With lower incomes they may struggle to afford necessities such as housing and food, so their standards of living will be lower
e) Discuss the role of the financial sector in the growth and development of developing countries. (15)
The financial sector plays a crucial role in facilitating economic growth and development in developing countries
[K]. One key function is facilitating savings, as financial institutions provide a secure place for individuals and businesses to store money [K]. This increases the funds available for lending, allowing firms to invest in capital, infrastructure, and technology, ultimately boosting economic growth [An]. In many developing nations, lack of access to financial services has hindered investment, but initiatives such as microfinance have provided small loans to entrepreneurs, helping them expand businesses and increase incomes
However, for the financial sector to be effective, a clear rule of law and strong regulatory framework must exist [E]. In some developing countries, weak governance can lead to corruption in banking, reducing trust in financial institutions and discouraging savings and investment [E]. Additionally, market failures in financial services, such as high-interest rates and lack of consumer protection, can prevent low-income individuals from accessing loans and benefiting from financial services
Another important function of the financial sector is promoting lending and investment [K]. Banks enable businesses to borrow capital for expansion, leading to job creation and higher productivity [An]. The Harrod-Domar model suggests that
investment is key to economic growth, and a well-developed financial sector increases the funds available for this investment [K]. Financial markets also allow firms to raise funds through equity markets, helping them grow and compete in global markets [An]. in developing economies, financial institutions also support currency exchange, enabling firms to import cheaper materials and export to larger markets, further driving development
However, a lack of financial literacy may limit the effectiveness of financial services [E]. Many individuals in developing nations may lack knowledge about saving, borrowing, and investing, preventing them from making the best use of financial opportunities [E]. Furthermore, other factors such as education, healthcare, and infrastructure may play a greater role in development, as without these, financial sector growth alone may not lead to widespread economic improvement
