4.3.3 Strategies influencing growth and development Quiz: Pearson Edexcel Economics A, Unit 4

The 20 questions

1. Which is a market-orientated strategy for promoting growth and development?

   • Managed exchange rates, which use intervention to hold the currency at a chosen level against other currencies
   • Trade liberalisation, which reduces tariffs and quotas to open markets and encourage competition and efficiency
   • Protectionism, which raises tariffs and quotas to shield domestic firms from competition from imports
   • Buffer stock schemes, which hold stocks of a commodity to stabilise its price in world markets over time

2. What is the likely effect of trade liberalisation on a developing economy?

   • Greater competition and access to imports and export markets, which may raise efficiency and growth over time
   • A fall in efficiency, because open markets always allow foreign firms to drive all domestic firms out of business
   • A permanent fall in exports, because trade barriers are the only way to encourage exports from developing economies
   • A rise in the price of all goods, because open trade always raises prices by removing competition in every market

3. Which is an example of a market-orientated strategy that aims to attract investment into a developing country?

   • Banning all foreign ownership of domestic firms, so that the profits from investment remain entirely in the country
   • Imposing high tariffs on imported capital goods, so that foreign firms are discouraged from setting up operations
   • Establishing state-owned firms in every sector, so that all investment is made directly by the government
   • Promotion of foreign direct investment through tax incentives and a stable regulatory environment

4. What is the aim of microfinance schemes?

   • To give large loans to multinational companies, which can then build factories in developing countries
   • To buy shares in foreign companies on behalf of poor households, so that their wealth is diversified abroad
   • To provide free grants to government ministries, so that public spending on infrastructure can be increased
   • To give small loans to poor households and small businesses that lack access to formal banking, so they can invest

5. Which is an interventionist strategy for development?

   • Privatising state-owned firms, so that private owners can manage them without government involvement
   • Removing government subsidies entirely, so that markets alone decide which industries survive and grow
   • Allowing exchange rates to float freely, with no intervention by the central bank in currency markets at all
   • Developing human capital through government spending on education and training

6. What is a buffer stock scheme and why is it used?

   • A scheme that sells all commodity stocks at a fixed price, so that producers receive a guaranteed profit each year
   • A scheme where stocks of a commodity are bought when prices are low and sold when they are high, to stabilise prices
   • A scheme that taxes exports of commodities to build reserves that can be used to pay off national debt
   • A scheme that holds stocks of manufactured goods so that factories can continue production during a strike

7. Which is an interventionist strategy that aims to build up domestic industry?

   • Protectionism, which uses tariffs or quotas to shelter infant domestic industries from foreign competition
   • Trade liberalisation, which removes tariffs so that domestic producers face the full force of foreign competition
   • Privatisation of all industries, so that private firms take over state enterprises without any government support
   • Floating exchange rates, which allow the market to determine the price of the currency with no intervention at all

8. What is the Lewis model of development?

   • A model in which the agricultural sector grows faster than industry, so that the economy never industrialises
   • A model in which surplus labour in the traditional sector moves to a modern industrial sector at a near-constant wage
   • A model in which all workers in the economy receive the same wage, regardless of the sector in which they work
   • A model in which exchange rates are fixed and capital flows freely, with no constraint on growth from savings

9. Which is a key assumption of the Lewis model?

   • Wages are set equal to the marginal product of labour in the traditional sector, which rises with output each period
   • Labour supply is perfectly inelastic in every sector, so the wage rises whenever industry expands its output
   • There is no traditional sector, so all workers are already employed in modern industry in the economy
   • Unlimited supplies of labour are available from the traditional sector at a roughly constant subsistence wage

10. Which strategy is most associated with developing tourism as a route to growth?

    • Closing all airports and ports, so that exports can be managed and tourist spending is avoided in the economy
    • Using tourist receipts as an export earning, while building the infrastructure and services that visitors need
    • Banning all foreign visitors so that the domestic population can enjoy the country's natural resources without disruption
    • Charging tourists a fixed tax on every good they buy, which discourages visitors and raises domestic revenue

11. What is a Fairtrade scheme designed to do?

    • Ban imports of agricultural goods from developing countries to protect domestic farmers in developed economies
    • Set the lowest possible price for exports so that buyers in rich countries can obtain goods very cheaply
    • Subsidise manufactured goods from developed countries so that they can compete with primary products in world markets
    • Pay producers in developing countries a minimum price and premium to improve their income and stability

12. Which is a limitation of aid as a development strategy?

    • Aid always eliminates poverty within a single year, because the money is always used in full for the poorest people
    • Aid always raises the level of savings in the recipient country, which automatically funds all future investment
    • Aid is never spent on development projects, since donors insist that all funds are held in foreign bank accounts
    • Aid can create dependency and may be tied to donor interests, so its long-run impact may be limited

13. What is debt relief?

    • Borrowing more from foreign lenders at higher rates, so that the country can pay off its older debts in full
    • Increasing the interest a developing country must pay on its debt, which forces it to raise taxes and savings
    • Converting all debts into shares in domestic companies, which gives foreign creditors control over the economy
    • Cancelling or reducing a developing country's debt repayments so that its resources can be used for development

14. Which international institution provides loans to developing countries for projects such as infrastructure and education?

    • The World Trade Organisation, which provides emergency loans to any country whose exports fall by more than 10 per cent
    • The World Bank, which provides loans and technical help for development projects
    • The International Labour Organisation, which lends money to governments for building roads and power stations
    • The Organisation for Economic Co-operation and Development, which sets tariffs for trade between developing countries

15. What is the main role of the International Monetary Fund (IMF) in supporting developing countries?

    • Financing long-term infrastructure projects through grants that do not need to be repaid by the borrower
    • Setting tariffs on imports for all developing countries, so that trade barriers are harmonised worldwide
    • Providing short-term loans and policy advice to countries facing balance of payments or currency crises
    • Guaranteeing the exchange rate of every developing country against the US dollar at a fixed rate permanently

16. What is the role of non-governmental organisations (NGOs) in development?

    • Setting the monetary policy of developing countries, which is their main function in the global economy
    • Delivering aid, advocacy and projects, often working with communities and funded by donations or grants
    • Collecting taxes on behalf of governments in developing economies, so that public revenue is maximised
    • Regulating international trade by setting tariffs and quotas, which replaces the role of the WTO

17. Which is an evaluation of market-orientated strategies compared with interventionist strategies?

    • Market strategies always fail in developing economies, so interventionist strategies are always superior in every case
    • Market strategies can raise efficiency, but they may leave weak markets, poor groups and infrastructure needs unaddressed
    • Both approaches are identical in their effects on growth, so the choice between them has no practical significance
    • Interventionist strategies are never effective, since government intervention always reduces growth in every country

18. A developing country adopts a floating exchange rate and removes import tariffs. Which strategy category do these measures belong to?

    • Protectionist strategies, since the removal of tariffs is always intended to protect domestic industries from foreign firms
    • Market-orientated strategies, since they rely on market prices and open trade rather than direct control
    • Interventionist strategies, since removing tariffs and floating exchange rates are both forms of direct government control
    • Other strategies such as aid and debt relief, since they involve transfers of resources from richer countries

19. What is the aim of privatisation as a market-orientated strategy?

    • To set up new state-owned firms in every sector, so that the government can direct investment directly
    • To transfer state-owned firms to private ownership, so that efficiency may rise and the state's burden falls
    • To nationalise all private firms, so that the government controls prices and output in every industry each year
    • To ban all private ownership of land, so that resources are used for public benefit under state control

20. Which strategy is most likely to raise concerns at the World Trade Organisation?

    • Investment in education that raises the skills of the domestic workforce over several years
    • Protectionist tariffs that restrict imports from trading partners in ways that break agreed trade rules
    • Floating exchange rates that allow the currency to move freely in response to market forces
    • Trade liberalisation that reduces tariffs on imports and widens market access for trading partners

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