AQA A-level Economics: Economic growth and development (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover the content point “Economic growth and development” in the AQA A-level Economics (7136) specification, version 1.3 (29 June 2022), numbered 3.2.6.5 on the AQA website. All countries and figures are invented. Read the study guide and revision notes first, and see the course hub, the checklist and the free diagnostics.

Questions

1. Distinguish between economic growth and economic development. [3]

2. In illustrative Country P, real GDP rises by 4% and population rises by 1.5% in a year. Calculate the growth rate of real GDP per capita, to two decimal places. [3]

3. The three dimension indices for Country Q are health 0.70, education 0.55 and income 0.60.

(a) Calculate an HDI-style value using a geometric mean, to three decimal places. [2] (b) Explain why a geometric mean is used rather than a simple average. [2]

4. Explain two characteristics that are common in less-developed economies. [4]

5. A firm in Country R plans a project costing 800 that earns 96 a year. Officials demand informal payments of 24 a year. The firm can earn 11% elsewhere.

(a) Calculate the return before the payments. [1] (b) Calculate the return after the payments. [2] (c) Explain what this shows about the effect of corruption on growth. [2]

6. Country S has GDP of 40,000m and wants growth of 5%. Its capital-output ratio is 3.5 and domestic saving is 12% of GDP.

(a) Calculate the investment needed, as a share of GDP and in millions. [2] (b) Calculate the shortfall in millions. [2] (c) If 20% of any aid is lost to leakage, calculate the aid needed to close the shortfall. [2]

7. A trainee in Country T pays 3,000 in total costs for a course (fees and lost earnings). Afterwards, earnings are 450 a year higher.

(a) Calculate the simple annual return and the payback period. [3] (b) Explain why a government might subsidise training even when the return is high. [2]

8. Compare market-based and interventionist strategies for promoting growth in a low-income economy. [6]

9. In Country U, one commodity is 60% of export revenue and exports are 20% of GDP. The commodity’s world price falls 25%, with the volume exported unchanged.

(a) Calculate the fall in total export revenue. [2] (b) Calculate the direct effect on GDP, as a percentage of GDP. [2] (c) Explain two policies that could reduce the economy’s vulnerability. [4]

10. Evaluate the view that aid is the most effective way to promote development. [9]

11. Farmers in Country V sell a crop in the city for 50 a unit. Transport costs 12 a unit. A new road cuts this to 5. Price elasticity of supply is 1.2.

(a) Calculate the percentage change in the farm-gate price and in output, to one decimal place. [3] (b) Explain why the private sector may under-provide such a road. [3]

Answers

1. Economic growth is a rise in the value of real output across time, tracked through real GDP or real GDP per head [1]. Development means a broader gain in how people live, taking in health, schooling, poverty and personal freedoms [1]. An economy can grow while health, education and the position of the poor change little, for example when growth is concentrated in one mining sector [1]. [3] Examiner insight: Answers gain credit when both terms are defined and the difference is shown with a contrast; two definitions with no link between them are weaker.

2. Per capita growth is approximately real GDP growth divided by population growth [1]. 1.04 / 1.015 = 1.02463 [1]. 2.46% [1]. [3] Examiner insight: Subtracting gives 2.5%, which is close but not the figure asked for to two decimal places; show the ratio method when precision is requested.

3. (a) Product = 0.70 x 0.55 x 0.60 = 0.231 [1]. Cube root = 0.614 [1]. (b) A geometric mean is lower when the dimensions are unbalanced [1], so a high value in one dimension cannot fully make up for a low value in another [1]. [4] Examiner insight: Part (b) is rewarded for the effect of imbalance. Saying only “it is more accurate” gives little to credit.

4. Any two, each explained. Low productivity agriculture: a large share of workers in farming, where output per worker is low, keeps average incomes low [1] and limits tax revenue and saving [1]. Dependence on a few primary exports: export earnings are volatile as commodity prices change [1], which makes investment and government budgets unstable [1]. [4] Examiner insight: Each characteristic needs a consequence. A bare list of features earns less than two that are developed.

5. (a) 96 / 800 = 12% [1]. (b) Net income = 96 - 24 = 72 [1]. 72 / 800 = 9% [1]. (c) The net return of 9% is below the alternative of 11%, so the firm does not invest [1]. Corruption acts like a tax on investment, lowering capital formation and future productive capacity and growth [1]. [5] Examiner insight: Compare the net return with the alternative explicitly; the conclusion that the project is not built is the point of the calculation.

6. (a) Investment share = 5 x 3.5 = 17.5% of GDP [1]. 0.175 x 40,000 = 7,000m [1]. (b) Saving = 0.12 x 40,000 = 4,800m [1]. Shortfall = 7,000 - 4,800 = 2,200m [1]. (c) Only 80% of aid arrives, so aid needed = 2,200 / 0.8 [1] = 2,750m [1]. [6] Examiner insight: Dividing by 0.8 rather than multiplying by 1.2 is the usual slip; check that 80% of your answer returns the shortfall.

7. (a) Return = 450 / 3,000 = 15% a year [1]. Payback = 3,000 / 450 = 6.67 years [1], about 6.7 years [1]. (b) Individuals may be unable to borrow or afford fees and lost earnings, so they under-invest [1]. Training also gives external benefits such as higher productivity for other workers and better health, which are not reflected in private returns [1]. [5] Examiner insight: A strong answer links the subsidy to a market failure (credit constraints or externalities), not just to the idea that education is good.

8. Market-based: trade liberalisation, privatisation and secure property rights raise competition and incentives [1]. Private firms respond to prices and may invest more efficiently [1]. Weakness: public goods, equity and the environment may be neglected [1]. Interventionist: the state can build roads, schools and clinics that firms will not provide [1], and protect infant industries while they grow [1]. Weakness: government failure, corruption and poor information may waste funds. Judgement: success depends on institutions and state capacity, and many strategies combine both [1]. [6] Examiner insight: A comparison with a reasoned judgement tends to do better than two separate lists.

9. (a) Fall = 0.60 x 25% [1] = 15% [1]. (b) 15% x 20% of GDP [1] = 3% of GDP [1]. (c) Diversification, such as subsidising or training for manufacturing exports, reduces dependence on one price [1] but takes time and may need investment finance [1]. A stabilisation scheme or reserve fund saves in high-price years and spends in low-price years [1], but needs good governance and funds to be kept safe [1]. [8] Examiner insight: Each policy should be tied to the vulnerability described, and the limit of the policy adds the evaluation.

10. Case for aid: it can fill the gap between required and domestic investment [1], fund public goods like health and schooling that markets under-provide [1], and give urgent relief in a crisis [1]. Case against: leakage through corruption cuts what reaches projects [1], tied aid raises costs [1], dependency can reduce incentives to raise tax revenue [1], and loans add to debt [1]. Compare with trade: export growth can raise incomes without donor conditions, but needs infrastructure and open markets [1]. Judgement: aid works best when it is untied, targeted at health, schooling or infrastructure and used in a country with good institutions; it is rarely sufficient alone [1]. [9] Examiner insight: Evaluation gains credit when the judgement states the conditions under which aid is more or less effective, rather than a general “it depends”.

11. (a) Farm-gate price before = 50 - 12 = 38 and after = 50 - 5 = 45 [1]. Change = 45 / 38 - 1 = 18.4% [1]. Output change = 1.2 x 18.4% = 22.1% [1]. (b) Roads are costly and benefit many users who do not pay, so private firms cannot easily charge for the full benefit [1]. Free riders and positive externalities make returns to a private builder low relative to social benefit [1]. The government may therefore need to provide or fund the road [1]. [6] Examiner insight: Percentage change must be taken on the original farm-gate price, not on the market price; this is the common error.

Where marks are usually lost

• Treating growth and development as synonyms.
• Subtracting growth rates when exact per capita growth is asked.
• Stating that HDI includes inequality or the environment.
• Listing a characteristic without saying what it does to income or investment.
• Skipping the comparison step in a calculation, such as net return against the alternative.
• Writing one-sided verdicts about aid or trade with no conditions.
• Describing a policy but not its limit, so evaluation is missing.
• Ignoring the context given in the question.

Next steps

• Review the revision notes and the study guide.
• Visit the course hub and the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA AS and A-level Economics (7135 and 7136), specification version 1.3, 29 June 2022, published by AQA, for first teaching from September 2015. Section 4.2.6.5 of the combined PDF, “Economic growth and development”.