5. Economic Development

Question 1

Poverty

Answer 1

When people cannot sustain a basic standard of living. Poverty is an inability to meet basic needs because food, clean drinking water, proper sanitation, shelter, education, healthcare and other social services are inaccessible.

Absolute / relative

Question 2

Relative poverty

Answer 2

When people cannot sustain the same standard of living as others in the same society.

Household income is lower than the average income in a particular country

(More common than absolute in MEDC’s)

Classification of relative poverty changes from country to country.

Question 3

Absolute poverty

Answer 3

When people earn at or below 1.90 USD per day and cannot fulfill the most basic needs necessary for survival.

Common in LEDC’s

Question 4

Inequality

Answer 4

The unfair situation in society where some people have more opportunities, money, etc. than others.

Question 5

Causes of poverty - Unemployment

Answer 5

• No job = no income
• People in poverty may be unable to find a job bc of lack of skills/ poor health
• People in poverty may receive some unemployment benefits –> usually low relative to average income.

Question 6

Causes of poverty - Low wages

Answer 6

• Low skill jobs with high suppl = lower wages
• Lower wages = people spend most of their wages on needs –> unable to save money

Question 7

Causes of poverty - Illness

Answer 7

• Poor health reduces labour productivity which reduces income.
• High healthcare costs may occur.
• If one person in a household becomes ill/ injured –> rest of the household = negatively affected.

Question 8

Causes of poverty - Age

Answer 8

• In later life –> reduced working hours/ retire due to health issues / retirement options.
• If continue to work –> may earn lower wages.
• In some countries pension benefits barely cover minimum needs.
• (In some LEDC’s, pension benefits don’t exist)

Question 9

Causes of poverty list

Answer 9

Unemployment
Low wages
Illness
Age
Population growth
Poor infrastructure
Dependence on commodity exports
Lack of foreign direct investment (FDI)
High public debt

Question 10

Causes of poverty - Population growth

Answer 10

• In LEDC’s –> lack of sex education + contraception –> increase in population rates
• Bigger populations –> supply of goods and services must be shared between more people over time
• Eg. more people competing for one job oppurtunity.

Question 11

Causes of poverty - Poor infrastructure

Answer 11

• Road, rail, air and communication networks tend to be poor in many LEDC’s.
• Limits a country’s ability to create income and wealth bc transportation costs are high and sharing information is very difficult.
• Some industries may not be able to occur bc infrastructure isn’t there.

Eg. lack of water –> difficult to establish farms

Question 12

Causes of poverty - Dependence on commodity exports

Answer 12

• LIC’s rely on production + exportation of commodities (Basic goods and materials widely used –> agriculture, energy and minerals)
• Price of these exports on international market = vulnerable due to international market conditions + exchange rate fluctuations.
• Overspecialisation = fall in market prices = poverty in country

Question 13

Causes of poverty - Lack of foreign direct investment (FDI)

Answer 13

• FDI = long-term investment in a country by foreign firms.
• Eg. Firms setting up factories and expanding their operations in the new country / purchasing at least a 10% share of a foreign company.
• FDI can increase employment, income levels and savings, which would reduce poverty.
• Poor infrastructure does not attract FDI.

Question 14

Foreign direct investment

Answer 14

Foreign capital injected into a domestic economy to purchase tools and services used to produce goods and services.

Question 15

Public debt

Answer 15

The total amount of money borrowed by the government of a country over a period of time and which must be repaid.

Question 16

Cuases of poverty - High public debt

Answer 16

• Public debt is the total amount of money borrowed by governments over a period of time and must be repaid.
• LIC’s usually have high levels of public debt bc governments borrow more to fund public sector expenditure. (incomes are low so tax revenue = low)
• Debt + interest has to be repaid.
• Public debt = indirect debt on taxpayer bc public debt is paid by tax money.
• Governments increase taxes to repay public debt –> reducing disposable income + living standards.
• Repayments of public debt –> less spending on education, healthcare + infrastructure –> diminishes those services that help reduce poverty.

Question 17

Policies to alleviate poverty and redistribute income - List

Answer 17

Reducing unemployment
Progressive taxation
Providing state benefits
Improving education
Introducing or increasing the minimum wage

Question 18

Policies for reducing poverty - Reducing unemployment

Answer 18

• Gov. reduce poverty by reducing unemployment.
• Done by expansionary fiscal / monetary policies
• Increases consumer spending + investment expenditure in economy
  –> increase total demand in economy –> creates jobs + reduces unemployment.

Question 19

Policies for reducing poverty - Progressive taxation

Answer 19

• Reduces income inequality bc people with higher incomes pay greater overall % of their income in tax.
• Tax revenue used by government to support people with low incomes
• Redistributes income + wealth in society –> reduces poverty.

Question 20

Policies for reducing poverty - Providing state benefits

Answer 20

• Tax revenue used to provide income support + welfare payments to unemployed peoples / people with low incomes.
• State benefits include old age pensions, disability pensions, unemployment benefits, single parent allowance, maternity benefits or child allowances, and student grants.

(Known as transfer payments + help redistribute income + reduce poverty by ensuring every citizen has access to basic necessities)

Question 21

Transfer payments

Answer 21

Transferring income from those who work and pay taxes towards those who cannot work and need assistance.

(Also known as state benefits)

Question 22

Policies for reducing poverty - Improving education

Answer 22

• Improving the quality and quantity of education available to people in the economy –> increases their job prospects and earning potential.
• Improving education will improve human capital and the productive capacity of the country, which will create economic growth and lower poverty.

Question 23

Policies for reducing poverty - Introducing or increasing the minimum wage

Answer 23

• The minimum wage = the minimum legal wage rate that an employer must pay their employee.
• Introducing or increasing the minimum wage raises the wages of low-income (and usually unskilled) workers, which reduces poverty in a country.

Question 24

Economic development

Answer 24

Occurs when increases in income and output per capita are accompanied by improvements in the living standards of the population.

Question 25

Economic development achieved by…

Answer 25

• Increasing incomes and output
• Redistributing income so that the gap between the very rich and very poor is reduced
• Reducing unemployment
• Increasing the provision of essential goods and services such as food, shelter, education and healthcare.

Question 26

How to measure economic development

Answer 26

• Real GDP per capita
  –> Does not take into account living standards within the country.
• HDI
  –> Composite index of living standards

Question 27

HDI

Answer 27

Human Development Index

Number 0-1 –> higher the number = the more developed the country.

A measure of living standards which takes into account income, life expectancy and education.

Three key dimensions taken into account to make HDI index…

• A decent standard of living, measured by GDP per capita.
• A long and healthy life, measured as life expectancy at birth.
• Access to knowledge, measured by mean and expected years of schooling.

Question 28

Factors causing different rates of economic development - List

Answer 28

Productivity
Differences in income
Population growth
Size of the primary, secondary and tertiary sectors
Education and Healthcare
Differences in saving and investment

Question 29

Factors causing different rates of economic development - Productivity

Answer 29

Low-income countries tend to have lower productivity due to a lack of investment in technology and automated production systems.

Question 30

Factors causing different rates of economic development - Differences in income

Answer 30

• Countries with a higher GDP per capita tend to have higher economic development bc people can afford a better standard of living.
• There is a positive relationship between economic growth and development.
• Economic growth stimulated by higher incomes.

(This doesn’t mean everyone in the country are enjoying a higher standard of living bc income may not be shared equally among society)

Question 31

Factors causing different rates of economic development - Population growth

Answer 31

• Rapid population growth can limit increases in real GDP per capita as this needs to be matched with an increase in per capita income and output to sustain the standard of living per head of population.
• Eg, if the population is growing by 5% but income and output increase by 4%, then real GDP per capita will fall.
• High population growth will also increase the dependency ratio of a country.
• Also means available goods and services have to be shared among more people.

Question 32

Factors causing different rates of economic development - Size of primary, secondary and tertiary sector

Answer 32

• Economies can be categorised depending on the rate of employment in the different production sectors
• Primary sector = production/extraction of raw materials.
• In LEDC’s more people work in primary sector.
• eg. subsistence farming
• Secondary sector = conversion of natural resources into finished products.
• Eg. Oil refineries, bakeries/food processing, textile producing mills.
• In developing countries, secondary sector activity develops in terms of output and employment.
• Tertiary sector = making goods manufactured + providing a
• Eg. healthcare, education, finance, retail.
• Main sector in MEDC’s
• As an economy develops –> shift from dependence on primary (agriculture) and secondary (manufacturing) sector production, towards tertiary (services) output.

Question 33

Factors causing different rates of economic development - Education and Healthcare

Answer 33

• Access to high-quality education and healthcare will increase people’s incomes and living standards.
• People will become more skilled and healthier, which increases productivity, output as well as incomes, and raises people’s living standards.
• This leads to economic development.

Question 34

Factors causing different rates of economic development - Differences in saving and investment

Answer 34

• Banks accept deposits of money and savings from their customers, and make loans from this money.
• Many people in LIC’s cannot afford to save –> therefore there is little money available to borrow, leading to a lack of investment.
• People in MIC’s have some disposable income –> afford to save money –> allows businesses to borrow money to pay for investments –> increases output + employment
• The more money people save, the more investments businesses can make, which leads to economic development.

Question 35

Indicators

Answer 35

Used to assess progress in the living standards of a country.

Question 36

Living standards

Answer 36

Refers to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class or geographic area.

Question 37

Issues with using Real GDP to measure living standards

Answer 37

• Doesn’t take into account what people can buy with their income. (Average prices may be hgiher/lower in different countries) –> Lower incomes might actually be as good as high incomes in another country.
• Higher output (real GDP per capita) may be due to increases in no. of working hours + worse working conditions –> lower standards of living.
• Increases in real GDP per head may be due to increases in the production of weapons and military equipment, which may actually reduce the quality of people’s lives.
• Real GDP per head also excludes unpaid work that people do for charities or voluntary organisations, which then understates the total output and well-being of the country.
• Exchange rate fluctuates often –> difficult to comapare real GDP per head between countries.
• If exchange rate changes, a country may suddenly have a large real gdp per head. (not ude to production output)

Question 38

Real GDP per head

Answer 38

Measures the average income per person in a country.

A higher output in a country means that more goods and services are being produced by each person.

This would suggest that income and living standards are increasing, but this may not be the case.

Question 39

Advantages of HDI

Answer 39

• Composite index (covers a range of indicators)
• Considers both economic and social developments within a country.
• The HDI is also relatively quick and simple to use as a measure of progress.
• Easy to compare countries using it.
• Shows us that while countries may not have made progress in terms of real GDP, they may have improved in terms of life expectancy and education.

Question 40

Limitations of HDI

Answer 40

• HDI assumes that income is distributed evenly within the country. (may be differences in income between social groups / genders/ ages)
• HDI ignores human rights + gender inequalities –> can have a considerable impact on people’s well being.
• HDI also doesn’t measure factors like range of working conditions / severity of environmental impacts (eg. resource depletion + pollution)

Question 41

Factors affecting the comparison of living standards

Answer 41

Investment in infrastructure - Can imporve job prospects/ incomes bc more attractive to businesses

Distribution of income within a household - Full-time workers vs part-time, one vs two people working affects living standards.

The general price level - Cost of living could be higher in an area/country –> could increase wages tho.

Education - More education = highly skilled = higher wages/ earning potential –> increased standard of living.

Healthcare - Better healthcare = increases productive capacity –> increases wages.

Wealth - Increases wealth (eg. inheritance / savings) –> increases living standards.

Question 42

Factors affecting population growth

Answer 42

Birth rates

Death rates

Net migration

Question 43

Birth rate

Answer 43

Measures the total number of live births per 1000 of the population in a year.

Influenced by fertility rate, contraception, female employment, customs and religion.

Question 44

Death rate

Answer 44

Measures the total number of deaths per 1000 of the population in a year.

Influenced by factors such as disease, income levels, living standards and nutrition.

The natural rate of increase in a population is when the birth rate exceeds the death rate. This is when the number of babies being born is greater than the number of people dying.

Question 45

Net migration

Answer 45

The difference between emigration (people leaving the country) and immigration (the number of people entering the country).

People from all over the world are migrating to other countries, but most migrants are moving to only a select number of countries in search of better opportunities.

Question 46

Immigration

Answer 46

Entering a country to live or work.

Question 47

Emigration

Answer 47

Relocation of a person from their homecountry to live and or work in another.

Question 48

Reasons for different rates of population growth in different countries

Answer 48

Birth rates

• Higher in countries with high fertility rate, high infant mortality, less educated women (marry younger), lack of family planning + contraception. (LEDC’s.
• Lower in countries where the cost of raising and educating children is expensive (where education is compulsory up to a certain age) + where women prioritise careers (have children later in life –> decreasing birth rates)

Death rates

• Country likely to have lower death rate if most people have a healthy diet, regular exercise, proper sanitation, good housing facilities, access to good-quality healthcare and education, and good working conditions.
• Countries with no war = lower death rate.

Net migration

• People emigrate from their home country for reasons such as better job opportunities, a better lifestyle, warmer climates, lower taxes or to seek refuge from conflict
• Eg. Syrian refugee crisis.

Question 49

Effect of age distributions in a country

Answer 49

• The age distribution of a population refers to the number of people (or percentage of population) in each age group.
• HIC’s have falling birth and death rates –> increase in the average age of the population –> Ageing population –> many older dependents
• An ageing population increases the pressure on the working population to support pension payments, healthcare costs and welfare services such as retirement homes.
• Eg. Japan
• LIC’s have higher death rates + higher brith rates –> death rates slowly falling bc increased healthcare –> increased younger dependents.
• Large proportion of population = too young to work –> depend on those working to fund maternity clinics, nurseries and schools.

Question 50

Dependency ratio (+ what are dependents?)

Answer 50

Dependency ratio = Dependent population / The number of people working

The dependent population will include the very young, school children, students, stay-at-home parents, the unemployed and old-age pensioners.

Question 51

Gender distribution in a population

Answer 51

Gender distribution refers to the number of males and females in a country’s population.

Question 52

Population pyramids in HIC’s

Answer 52

The pyramid for high-income countries usually bulges (increases) in the middle due to their ageing populations, as birth rates at the bottom and death rates at the top are low

Question 53

Population pyramids in LIC’s

Answer 53

Low-income countries have wide bases due to high birth rates and narrow tops as life expectancy is low.

Question 54

Optimum population

Answer 54

The size of population where the output of goods and services per head of population is maximised.

• Country = underpopulated –> Not enough human resources (labour) to make the best use of its resources –> GDP per head is lower than the optimum.
• Governments may encourage immigration to increase the population.
• Country = overpopulated –> shortage of land, capital and technical knowledge relative to the number of workers.
• In this case the government would seek to reduce the population size or increase investment to reach the optimum level.

Question 55

Why is the optimum population difficult to determine?

Answer 55

• Needs to be a balance between population and resources.
• For example, a country with a very large geographical area and a small population may still be overpopulated if there is a shortage of capital and technical knowledge relative to the number of workers.
• Also the quantity and quality of resources change all the time, which makes it difficult to determine the actual optimum population.

Question 56

Affect population type has on consumers

Answer 56

• Types of goods/ services bought depend on population age –> eg. toys vs healthcare/retirement.

Question 57

Affect population type has on firms

Answer 57

Ageing population –> decreases labour supply

High birth rates / net immigration increases it

Question 58

Affect population type has on the government

Answer 58

High population = more taxes but also more government spending necessary.

Ageing population –> less taxes but more spending in healthcare needed / retirement benefits

Young dependent –> less taxes but more funding in schools needed etc.

Question 59

Affect population type has on the economy

Answer 59

Population growth = increases demand for scarce resources –> can increase importation of products bc of lack of resources –> can also cause inflationary pressure.