CAIE IGCSE Economics 5 Economic Development Topic Practice

There are several policy measures a central bank or government can use to reduce unemployment. One policy measure a government could use to reduce unemployment is to increase its spending on building houses. The Federal Reserve, the central bank of the US, has two main aims. One is to maintain price stability and the other is to achieve full employment. Some central banks also have economic growth as a target, but none have HDI value as a target.

Discuss whether or not an increase in a country's economic growth rate will increase its HDI value.

What best describes relative poverty?

The Central African country Chad has a triangle-shaped population pyramid and a high level of poverty. It regularly has an overall deficit on the current account of its balance of payments. Chad usually has a surplus on its secondary income. However, its trade in goods, trade in services and primary income are all usually in deficit. Some economists suggest that the Chadian Government should impose import quotas to reduce its trade in goods deficit.

Read the source material carefully before answering Question 1.
Source material: Changes in the Malawian economy

Malawi is a low-income East African country. It is often affected by natural disasters including droughts, floods and storms. In January 2022, Malawi was hit by Storm Ana. This damaged agricultural crops, factories, forests and power stations.

More than three-quarters of Malawi's labour force are employed in agriculture. Two of the country's main crops are tea and sugar. The quantity of tea offered for sale is affected by weather conditions, government subsidies and the price of fertilisers. The global market for sugar has been affected by health reports which identified the possible harmful effects of consuming too much sugar.

Three of the priorities of the Malawian Government are to develop new industries, raise education standards and develop more sustainable sources of energy. The proportion of Malawian children who finish their primary education ( 5-11 years of age) is relatively low. Table 1.1 shows GDP per head and the percentage of children who complete primary education in selected countries in 2022.

Only a small proportion of Malawi's population has access to electricity. Most households rely on wood and charcoal for cooking and heating. Using wood as a fuel contributes to the destruction of the country's forests and reduces air quality. The country does, however, get 3000 hours of sunshine a year. This means it could develop solar energy. There would be an initial cost to install solar panels and to reduce the risk of storm damage. Solar energy plants (also known as solar farms) can take up a large area and create visual pollution. However, a successful solar energy industry could decrease Malawi's imports of fuel and might affect its exchange rate.

Malawi's foreign exchange rate fell in 2022. The country's currency, the kwacha, bought fewer US dollars. This depreciation affected Malawi's current account of the balance of payment, its inflation rate and its economic growth rate. Some economists suggested that the Malawian Government should stop the kwacha falling further in value.

Analyse the relationship between GDP per head and the percentage of children who complete primary education.