Cambridge A Level Economics: International aid, trade and investment (9708) – 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 follow sections 11.5.1 and 11.5.2 of the Cambridge International AS & A Level Economics 9708 syllabus (examination in 2026, 2027 and 2028). This is A Level content, topic 11. Every country and figure is invented. Read the study guide or the revision notes first. Course home: Cambridge A Level Economics. Checklist: Cambridge A Level Economics. Diagnostics: all free 10-minute diagnostics.

Questions

1. Define aid, and distinguish bilateral aid from multilateral aid. [3]

2. Country B has GNI of 3,000 million units, a population of 9 million and receives aid of 270 million units.

(a) Calculate aid as a percentage of GNI. [2] (b) Calculate aid per head. [1] (c) Explain why the percentage is more informative than the total when comparing countries. [1]

3. Country B receives a tied grant of 240 million units. Donor suppliers charge 25% more than world prices.

(a) Calculate the effective value of the grant. [2] (b) Calculate the amount lost to higher prices. [1] (c) Explain one other disadvantage of tied aid for the recipient. [2]

4. Explain two reasons why a government might give aid to another country. [4]

5. Country A has GDP of 5,000 million units and domestic saving of 15% of GDP. It targets growth of 6% a year. Each extra unit of output needs 3.5 units of capital.

(a) Calculate the investment needed, the savings gap as a percentage of GDP, and the value of the gap. [4] (b) Aid fills the gap, but only 60% of it is invested and the rest is spent on consumption. Calculate the growth rate that results. [3]

6. Nominal aid to Country B is 600 million in Year 1 and 630 million in Year 2. The price index of goods the aid buys rises from 100 to 108.

(a) Calculate real aid in Year 2 at Year 1 prices. [2] (b) Calculate the percentage change in real aid. [2] (c) Comment on the result compared with the nominal change. [1]

7. Country C: in Year 1 (base) export and import price indices are both 100. In Year 2 the export price index is 110, the import price index is 125 and the export volume index is 130.

(a) Calculate the terms of trade in Year 2. [2] (b) Explain what the result means. [2] (c) Calculate the income terms of trade in Year 2. [2] (d) Explain what (c) shows that (a) does not. [1]

8. A low-income country depends on one primary export with price elasticity of demand of -0.5. A good harvest raises sales by 12%.

(a) Calculate the percentage change in price and in export revenue. [4] (b) Explain two problems this creates for the country. [3]

9. Country G exports a processed good priced at 200 made from a raw input worth 120, so value added is 80. The importing country charges an 8% tariff on the processed good and the price the buyer pays stays at 200.

(a) Calculate the price the exporter receives. [1] (b) Calculate the new value added. [1] (c) Calculate the percentage change in value added. [2] (d) Explain why this pattern of tariffs may keep poor countries as raw-material exporters. [3]

10. Explain two ways in which aid could harm the economy that receives it. [6]

11. Country D has a current account deficit of 180 million. In Year 1 net private capital inflows are 210 million. In Year 2 they fall to 60 million.

(a) Calculate the change in reserves in Year 1. [2] (b) Calculate the shortfall in Year 2 and state two possible results. [2] (c) Explain why portfolio inflows may be less stable than aid. [2]

12. Assess whether trade and investment, rather than aid, offer low-income countries the better route to higher living standards. [12]

Answers

1. Aid is a transfer of money, goods or expertise on easy terms or free, to support development or relieve emergencies [1]. Bilateral aid goes directly from one government to another [1]. Multilateral aid is pooled by many donors and passed through an international body [1]. [3] Examiner insight: Distinguish by who delivers the aid. Saying only that one is bigger gives nothing to credit.

2. (a) 270/3,000 [1] x 100 = 9.0% [1] (b) 270/9 = 30 units per head [1] (c) The percentage relates aid to the size of the economy, so countries of different size can be compared [1]. [4] Examiner insight: Write the division before the answer so your method is visible, and say what the unit of the answer is.

3. (a) 240/1.25 [1] = 192 million [1] (b) 240 - 192 = 48 million [1] (c) The recipient cannot buy from the cheapest supplier [1], which limits choice and may mean poorer-suited goods and a weaker local industry [1]. [5] Examiner insight: Part (c) asks for a different disadvantage from the price premium already found in (a) and (b), so repeating it earns little.

4. Humanitarian: to relieve suffering after disaster or famine [1], because need is greatest where incomes are lowest and the donor values the lives saved [1]. Self-interest: aid can secure political allies or trade [1], for example tied aid that creates orders for the donor’s exporters [1]. [4] Examiner insight: Each reason needs a short development after it. A list of motives without a link to the donor’s aims stays at the level of knowledge.

5. (a) Investment needed = 6 x 3.5 [1] = 21% of GDP. Gap = 21 - 15 = 6% of GDP [1]. Value = 0.06 x 5,000 [1] = 300 million [1] (b) Invested aid = 0.6 x 6 = 3.6% of GDP [1]. Total investment = 15 + 3.6 = 18.6% [1]. Growth = 18.6/3.5 = 5.3% (5.31) [1] [7] Examiner insight: State the assumption behind the model. A good answer also says that growth falls short of the target because some aid is consumed.

6. (a) Real aid = 630 x 100/108 [1] = 583.3 million [1] (b) (583.3 - 600)/600 [1] = -2.8% [1] (c) Nominal aid rose 5% but real aid fell, because prices rose faster [1]. [5] Examiner insight: Use the Year 1 figure as the base for the percentage change. Using Year 2 as the base is a common slip.

7. (a) 110/125 [1] x 100 = 88.0 [1] (b) Export prices have fallen relative to import prices [1], so each unit of exports buys 12% fewer imports [1]. (c) 88.0 x 130/100 [1] = 114.4 [1] (d) Rising export volume means the country can afford more imports in total, even though each export buys less [1]. [7] Examiner insight: Interpret in words that mention both exports and imports. “The terms worsened” alone is a statement of the number, not an explanation.

8. (a) Price change = -12/0.5 = -24% [1] (linear approximation) [1]. Revenue = 1.12 x 0.76 = 0.8512 [1], a fall of 14.9% [1] (b) Export earnings are unstable when supply varies [1], which makes planning, tax revenue and investment difficult [1]. Low incomes for farmers who produce the good reduce their spending and may push them out of production [1]. [7] Examiner insight: Link the low elasticity to the revenue result. The size of the price fall comes from the elasticity, so refer to it.

9. (a) 200/1.08 = 185.19 [1] (b) 185.19 - 120 = 65.19 [1] (c) (65.19 - 80)/80 [1] = -18.5% [1] (d) The tariff takes more from value added than its headline rate (8% against 18.5%) [1], because the input cost is unchanged [1]. If raw materials enter at zero tariff, selling the raw material is more profitable than processing it, so poor countries stay in primary exports [1]. [7] Examiner insight: Show why a small tariff has a large effect on value added. The answer is the fixed input cost.

10. Dependency: government may rely on aid and tax less [1]. This weakens institutions and accountability [1], and leaves spending exposed if the aid is cut [1]. Exchange rate: a large inflow raises demand for the local currency [1], the currency appreciates, so exports become dearer [1] and exporters lose competitiveness [1]. [6] Examiner insight: Each effect should be a chain with at least two linked steps. Naming “corruption” without how it happens stays at a single point.

11. (a) 210 - 180 = +30 million [1], so reserves rise by 30 million [1] (b) 60 - 180 = -120 million shortfall [1]. Possible results: reserves fall, the currency depreciates or the government raises interest rates or cuts spending [1] (c) Portfolio investors can sell quickly if confidence falls [1], whereas aid is usually a commitment spread over several years [1]. [6] Examiner insight: A sign matters here. A surplus adds to reserves and a shortfall must be financed, so state which one you have found.

12. Points that can be developed (the best answers weigh them and reach a judgement):

• Trade lets countries use comparative advantage and sell to larger markets [1]. Export growth raises incomes without donor decisions [1].
• Investment inflows bring capital above domestic saving and fund capacity [1]. Long-term investment can raise productive capacity [1].
• Barriers such as tariff escalation and farm subsidies limit trade gains [1]. Trade depends on rich-country policy as well [1].
• Falling terms of trade and volatile prices limit export earnings [1]. Portfolio flows can reverse suddenly [1].
• Aid reaches where trade and private investment do not, such as emergencies and basic health [1]. Aid can fund the infrastructure that makes trade and investment possible [1].
• Judgement: the answer depends on the country’s size, institutions, export base and access to markets [1]. A small, fragile economy may need aid first, while a larger one may gain more from trade. A conclusion that follows from these conditions [1]. [12] Examiner insight: Weigh the routes against each other for a particular type of country. A one-sided case for trade or aid, however well developed, leaves the “assess” unanswered.

Where marks are usually lost

• Giving the total amount of aid without relating it to GNI or population.
• Dividing by the wrong index when finding the terms of trade.
• Using the later year as the base for a percentage change.
• Saying tied aid is “bad” without the price premium.
• Treating aid as automatically invested, so ignoring leakage into consumption.
• Describing effects of aid with no chain of reasoning.
• Forgetting that a fall in terms of trade need not mean a fall in export revenue.
• Giving trade and aid as alternatives with no conclusion about which suits which country.

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Official syllabus

Cambridge International AS & A Level Economics 9708, syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, sections 11.5.1 and 11.5.2.