Evaluate measures of economic activity and explain growth, recessions and fluctuations using national-income evidence and assumptions.
The following table presents national income statistics for selected variables related to Country Z for 2012 and is expressed in millions of dollars.
Calculate the gross domestic product (GDP) for Country Z in 2012.
The population of country Z is 420000 . Calculate per capita GDP for Country Z in 2012.
Countries may calculate GDP using the output approach, the income approach or the expenditure approach. Outline the difference between the expenditure approach and the income approach.
Economists have suggested that it is important to calculate "green GDP". Outline the meaning of the term "green GDP".
The data in Table 2 refer to Kanyaland, a small, open, developing economy in 2019. All data are in billions of Kanyaland dollars (K$).
Table 2
Using the data in Table 2, calculate factor income sent (paid) abroad in 2019.
Assume that the level of GDP in Kanyaland in 2009 was K$455 billion and government expenditures were billion. For each additional Kanyaland dollar earned as income, it had been estimated that was spent on domestic goods and services, was saved, was paid in taxes and was spent on imported goods and services.
In many developing countries GNI figures are lower than GDP figures. Outline how this may be due to the high levels of foreign direct investment (FDI) in developing countries.
Read the extracts and answer the questions that follow.
Text D - Overview of Malawi
(1) Malawi is a landlocked country in southern Africa. Its development plans contain 169 targets, based on the Sustainable Development Goals. Ineffective institutions and inequalities, however, make it difficult to reach every target. Although poverty in urban areas has declined, the level of absolute poverty has been increasing in rural areas where 85 % of the population lives. Causes of poverty include land degradation ( 80 % of the land is eroded or lacks nutrients), poor healthcare and rapid population growth. There is also a lack of human capital, which is often due to the difficulties that households have in obtaining loans for education or training. Approximately 75 % of households do not have access to formal banking services.
(2) Aid agencies are providing assistance. The World Bank's Human Capital Project will increase investment and encourage reforms, such as promoting the education of teenage girls. In 2020, the World Bank also approved US million ( 50 % as a loan and 50 % as a grant) for a government project. This project aims to increase sustainable land management practices and build water-related infrastructure, such as small dams and irrigation schemes.
(3) The government has encouraged the establishment of microfinance groups that act as rural banks. They provide some finance and guidance for programmes that introduce new types of crops and techniques in order to improve agricultural efficiency.
(4) Although 2019 was a difficult year due to drought, insect infestations, and a tropical cyclone, Malawi's real gross domestic product (GDP) grew by 4.5 %. There is a large budget deficit and the amount of government debt (at approximately 60 % of GDP) is considered to be too high. Therefore, the government has announced plans to reduce its spending. Inflation had been forecast to increase to 14 % in 2020. Due to the planned contractionary fiscal policies, however, inflation may fall below 10\% from 2021 onwards.
(5) Export revenues account for over 30 % of GDP. Malawi aims to increase its exports of cotton, nuts, tea and sugar. Rising exports and lower fuel import prices could reduce the current account deficit. Despite the persistent trade deficit, Malawi is resisting calls for further trade protection. It has signed bilateral trade agreements with both South Africa and Zimbabwe. Tariffs are gradually being reduced, while other indirect and direct taxes are being raised.
Text E - Agricultural Production
(1) Approximately 80 % of the labour force is employed in agriculture, with few job opportunities available in manufacturing and services. Agricultural productivity is low for many reasons. The government promotes manufacturing industries and cultivation of crops for export by large-scale farms. However, small-scale and subsistence farmers have received little support in the past. Farmers use less fertilizer and irrigation than is typical in other countries. Only 3 % of cultivated land is irrigated, compared to the global average of 21 %. Other challenges are the inadequate road and rail links to markets and the limited availability of electricity and fuel.
(2) Maize is the most important staple food in Malawi. The government uses price controls when trying to ensure that maize is available at affordable prices for low-income households. However, the maximum price set by the government is often too low to persuade farmers to supply the maize or to provide them with sufficient revenue. In 2020 , the maximum price was raised from 250 to 310 kwacha per kilogram. Even at the higher price, shortages remain.
(3) The government is planning to invest in commercial agriculture to improve productivity and promote diversification. The 2020 budget includes subsidies on fertilizer for 4.3 million small-scale farmers, which could possibly double maize output but may also pollute waterways. The support given to farmers will improve the nutrition of Malawians and stimulate the rural economy.
Text F - Tobacco Exports
Tobacco is Malawi's major export, providing over 50 % of foreign currency earnings. Due to lower global demand and the purchasing policies of multinational tobacco firms, prices paid to farmers in Malawi are low and falling. To reduce costs, farmers resort to using child labour. Following allegations of labour exploitation, the United States has restricted tobacco imports from Malawi. There is concern that other importing countries might also impose restrictions.
Table 3: Economic data for Malawi
* 2018 figure
Table 4: Development data for Malawi
* 2016 figure
Using information from Table 3, calculate real GDP (at 2010 prices) in 2019 using the price deflator.