IB Economics HL 3.4 Economics of Inequality and Poverty Question Bank

The following information provides a simplified version of the calculation of a consumer price index (CPI).

In Country A, the rate of inflation is measured by the calculation of a CPI. The index is calculated using the five products which are purchased by citizens of Country A as representative of a "typical basket of goods".

The weighting given to each product is based on the quantities of each product purchased by the average household in Country A per week.

Assume that 2015 is the base year for the purpose of calculating the CPI.

The data in Table 2 refer to Kanyaland, a small, open, developing economy in 2019. All data are in billions of Kanyaland dollars (K$).

Study the extract and data below and answer the questions that follow.
Economic Growth in Cote d'Ivoire (Ivory Coast)

(1) The Cote d'Ivoire economy remained strong in 2015. Economic growth held steady at around 9 % per year, supported by public and private investment, rapid growth in building and public works and growth in the finance sector.

(2) However, Cote d'Ivoire must now tackle the challenge of sharing the benefits of the growth, considering that this sound performance is not being reflected in a significant decline in the relative poverty rate. Many people are caught in a poverty trap (poverty cycle).

(3) The mining, finance and communications sectors are making a significant contribution to economic growth. However, they generate few jobs and have little direct impact on the vast majority of households. Before the 2014-2015 period, the agricultural sector was less productive than other sectors, despite the fact it employs the majority of Cote d'lvoire's poor people. The recent improvement in this sector is expected to lead to a sharp fall in rural poverty, mainly because of the 17 % increase in the world market price of cocoa in October 2015. Cote d'Ivoire is the world's top exporter of cocoa and raw cashew nuts, as well as being a net exporter of oil.

(4) Cote d'Ivoire has a large working-age population, which is expected to double over the next 15 years. There is currently an unemployment rate of just 7 %. This relatively low unemployment rate is partly explained by the use of statistical categories that are not adapted to the situation in Africa and hides the vast amount of underemployment in the country. It can also be attributed to the fact that being unemployed in Cote d'lvoire is not an option as unemployment benefits are not available there. Most people work long hours without earning an income that allows them to enjoy a decent standard of living.

(5) The World Bank recommends improvements in the agricultural and mining sectors to increase efficiency as well as a structural change of the labor market to allow for a gradual transfer of workers to non-agricultural jobs. There is also a need to encourage workers to move from the large informal sector to the formal sector. To achieve these changes, productivity in the employment categories of "non-agricultural employment" and "agricultural and mining employment" need to be increased through the following actions:
Non-agricultural employment
- support young entrepreneurs, including women, through training
- promote apprenticeships
- encourage new businesses by improving administrative procedures and reducing excessive bureaucracy
- make access to credit easier by providing more information
- increase the provision of micro-credit
- improve partnerships between government departments and businesses.
Agricultural and mining employment
- facilitate the emergence of economies of scale for small farmers
- promote access to, and the use of, new technologies by farmers to help lower their production and transaction costs
- encourage foreign direct investment.

[Sources: adapted from "The Might of the Elephant: Benefiting from Strong Growth to Create Better Jobs", 17 December 2015; www.worldbank.org and http://hdr.undp.org]