IB Economics SL 4.8 Measuring Development Questions

Study the extract below and answer the questions that follow.
Micro-credit conflict of interest

(1) The idea of giving small loans to poor people, especially women, was hailed as the key to achieving economic development for even the poorest citizens. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize in 2006.

(2) The practice has grown so popular, helping establish small businesses such as tailors and hairdressers, that some are now concerned over the direction it has taken. Attracted by the prospect of profits from even the smallest of loans, some banks now dominate micro-credit, with some charging interest rates of over 100 %.

(3) The key question facing the industry remains how much money investors should make from lending to poor people, mostly women, often at hidden interest rates. "Micro-credit should be seen as an opportunity to help people out of poverty, not as an opportunity to make money out of poor people," Yunus said. "Interest rates should be 10 to 15 % above the cost of raising the money and anything beyond that is exploitation. Most micro-credit lenders would fail this test."

(4) How much interest and profit are acceptable and what constitutes exploitation? The interest rates that draw the most concern include those in Nigeria and Mexico, where the demand for small loans from a large population cannot be met by existing lenders. One Mexican lender charges an annual rate of 125 %. The average in Mexico is about 70 %, compared with a global average of about 37 % in interest and fees.
5 There is debate over whether micro-credit loans actually lift people out of poverty. Some researchers conclude that not every poor person is an entrepreneur in waiting but the loans do help relieve some of the worst aspects of poverty.

(6) The micro-credit industry has outgrown its charitable beginning. Despite a promise to put the money back into development, analysts say the high interest rates and healthy profits of the largest micro-credit institutions pushed up interest rates across Mexico.

Define the following terms indicated in bold in the text:

economic development (paragraph (1))

Study the extract and data below and answer the questions that follow.
Cambodia encouraged to review international partnerships

(1) The United States (US) Secretary of State has urged Cambodians to pursue a variety of economic partnerships throughout Asia-Pacific and not become over-reliant on China. She said that Cambodia should look for partnerships that cut across regional geographic lines.

(2) Both China and the US are working to extend their influence in Cambodia. Nearly 400 Chinese companies have invested billions of dollars in Cambodia, including key infrastructure projects such as hydropower dams and coal-power plants. While acknowledging the attraction of Chinese investment, the Secretary of State said: "One of the challenges for Cambodia is the construction of dams on the Upper Mekong river". China has been criticised by environmental groups over the building of a series of hydropower projects on the Mekong river. Concerns over the project include a possible loss of water quality and a loss of biodiversity.

(3) The Secretary of State also indicated that the US was willing to cooperate with Cambodia to resolve an outstanding debt of about US $\$ 445$ million that the country owes to the US.

(4) The Cambodian Foreign Minister had asked the Secretary of State at a meeting to help his country convert the debt into development aid. She said she was ready to explore creative ways Cambodia could be relieved of the debt, possibly by agreeing to preserve key environmental areas or investing in education. In this way, the debt repayment would be treated as development aid.

2011 Human Development Report, United Nations Development Programme.]

Explain why life expectancy at birth (see Table) is one of the indicators used to measure economic development.

Study the following extract and answer the questions that follow.
Burundi

(1) Burundi is a small landlocked African country. Densely populated, it has a population of approximately 10.6 million inhabitants. The economy is dominated by subsistence agriculture, which employs 90 % of the population, though cultivatable land is extremely scarce. More than a decade of conflict led to the destruction of much of the country's physical, social and human capital. However, substantial improvements have occurred since the conflict ended in 2006, thanks largely to the success of measures implemented to reduce the excessive control of the military.

(2) Even though Burundi is enjoying its first decade of sustained economic growth, poverty remains widespread. Burundi's ranking on the Human Development Index (HDI) increased by 2.5 % per year between 2005 and 2013 as education and health outcomes have significantly improved over the period, yet the country still ranks low at 180th out of 187 countries in 2013. Per capita gross national income more than doubled between 2005 (US$130) and 2013 (US$280).

(3) Burundi is making the transition from a post-conflict economy to a stable and growing economy. Economic reforms and institution building are ongoing. After significant improvements to achieve peace and security, the country's development program is shifting gradually towards modernizing public finance. However, the government has limited "fiscal space" because tax collection is very hard to carry out and tax receipts are low.

(4) With its limited resources, the government is attempting to strengthen basic social services and upgrade infrastructure and institutions, particularly in the energy, mining, and agricultural sectors. This has been accompanied by increasing participation of the private sector. The goal now is to grow a more stable, competitive and diversified economy with enhanced opportunities for employment and improved standards of living.

(5) Over the last decade, annual economic growth in Burundi has been between 4 % and 5 %. Inflation continues to decline reaching 3.9 % in July 2016, down from 24 % in March 2012, reflecting a careful monetary policy helped by a recent decrease in the prices of imports, especially oil, which is an essential commodity.

(6) Burundi's main exports are agricultural; coffee and tea account for 90 % of foreign exchange earnings, and exports are a relatively small share of Gross Domestic Product (GDP). overview. Licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported license.
https://creativecommons.org/licenses/by-sa/3.0.]

List two components of the Human Development Index (HDI) (paragraph 2).

Study the extract below and answer the questions that follow.
Urban farms to feed Cuban cities

(1) The Cuban government has launched a project to surround its cities and towns with thousands of organic farms to make the growing of fruit, vegetables and the raising of livestock low cost and environmentally friendly.

(2) The government hopes this new approach to urban farming will make food cheaper and more abundant. It is also hoped that transport and fuel costs will be reduced and that urban dwellers will be encouraged to leave their city jobs and work in the farming sector. The farms are mostly privately-owned with some cooperatives, and more land has been leased to them. These private farmers and cooperatives own about 40 % of Cuba's farmland and produce about 70 % of food grown.

(3) In the past farmers had to purchase their subsidized resources from the government. However, they can now purchase their own seed, equipment and other materials directly from suppliers. They can choose what they want to grow. Farmers are also allowed to sell some of their produce to licensed government sellers or sell directly to consumers at roadside stands. Farmers can also vary the price of the products they sell. These changes allow for greater reliance on the price mechanism and for a more efficient allocation of resources.

(4) However, the Cuban government still plays a major role in production and support of the rest of the agricultural economy. It continues to hold a monopoly over essential foods such as rice, beans, pork and bananas by controlling the production, distribution and land use for these foods. Prices for these commodities are set by the government, which also provides infrastructure, schooling and overall direction to the economy. Nevertheless, poor planning and corruption continue to be obstacles to economic development.

(5) Not all urban farmers can see the long term benefits of this and are concerned about greater competition between producers and the possibility of rising input prices which may result if subsidies end. However, they are encouraged that the reforms allow them to make more decisions about what to produce and how to sell. They believe that more food will be available for sale and consumption. Foreign and local experts welcome the project and expect that as the market mechanism becomes more important, economic growth and economic development will be stimulated.

Explain the relationship between economic growth and economic development.