Pearson Edexcel IAL Economics: Industrialisation, aid, debt relief, institutions (YEC11) – 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 parts c and d of item 3 in section 4.3.6 of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics (YEC11) specification, Issue 2, June 2018. It is Unit 4 content, which the specification places in the International A2 part of the full qualification. All countries and figures are invented. Learn the content first from the study guide and the revision notes. The course hub, checklist and free diagnostics are also linked.

Questions

1. In Country A, 90 farm workers produce 2,700 units a year, and 30 of them are surplus labour with zero marginal product. The modern sector pays a wage 20% above the farm subsistence wage.

(a) Calculate the subsistence wage and the modern wage. [2] (b) Thirty workers move to modern firms, where each adds 60 units of output. Calculate modern-sector profit. [2] (c) Firms reinvest 60% of profit and each new job needs capital of 108. Calculate the new jobs created. [2] (d) Calculate farm output and average product after the 30 workers leave. [2]

2. Explain two reasons why the Lewis model may overstate the speed of industrialisation. [4]

3. Tourists in Country G number 400,000 and each spends 500 in the year. Of this spending, 45% leaks out. Residents spend 50% of any extra income on local goods.

(a) Calculate total tourist spending. [1] (b) Calculate the multiplier and the total local income created. [3] (c) Arrivals fall by 25%. Calculate the fall in total local income created. [2] (d) Explain one reason why tourism may raise development less than these figures suggest. [2]

4. In Country H, a tonne of raw crop sells for 400 and uses 90 of inputs. The same crop, processed locally, sells for 1,100 using the 400 raw crop and 250 of other inputs.

(a) Calculate value added at each stage. [2] (b) The crop is 70% of export earnings and its price falls 15%. Calculate the fall in total export earnings. [2] (c) Explain one barrier to moving into processing. [2]

5. Country J has debt service of 320 and export earnings of 1,600.

(a) Calculate the debt service ratio. Lenders then waive 25% of payments. Calculate the new ratio and the money freed. [4] (b) A loan of 1,000 carries 6% interest on the outstanding balance and is repaid in equal yearly instalments of principal. Compare repaying over 10 years with 20 years, in first-year payment and total interest. [3]

6. Assess whether debt relief will raise development in a highly indebted country. [6]

7. Country K receives aid of 600m, has GNI of 12,000m and a population of 30 million. Of the aid, 60% is tied and tied goods cost 20% above world prices.

(a) Calculate aid as a percentage of GNI and aid per person. [2] (b) Calculate the real value of the aid. [2] (c) A donor with GNI of 400,000 gives 1,200. Calculate aid as a percentage of its GNI. [1] (d) Distinguish between bilateral and multilateral aid. [2]

8. Explain two reasons why aid may fail to promote development and one reason why it may succeed. [6]

9. (a) Distinguish between the roles of the World Bank and the IMF. [4] (b) Explain two ways in which an NGO may achieve results that government aid does not. [4]

10. Country L has 55% of workers in low-productivity farming, a debt service ratio of 28%, aid worth 8% of GNI and one mineral that gives 70% of export earnings. It also has a long coastline. Evaluate which strategy the government should prioritise. [10]

Answers

1. (a) Subsistence wage = 2,700 / 90 = 30 [1]. Modern wage = 30 x 1.2 = 36 [1]. (b) Output = 30 x 60 = 1,800 and wage bill = 30 x 36 = 1,080 [1]. Profit = 720 [1]. (c) Reinvested = 720 x 0.6 = 432 [1]. New jobs = 432 / 108 = 4 [1]. (d) Output stays at 2,700, since marginal product was zero [1]. Average product = 2,700 / 60 = 45 [1]. Examiner insight: Show the output and wage bill separately before subtracting, so a reader can see how you reached profit even if one input was misread.

2. Any two, each with a reason and a link to speed: Profits may be spent on imports or sent abroad, not reinvested at home, so capital grows slowly [1] and few jobs appear [1]. Firms may choose capital-intensive methods, so each unit of investment creates few jobs [1], and surplus labour moves slowly [1]. Other acceptable reasons: marginal product is not truly zero, so farm output falls and the modern wage must rise sooner; weak infrastructure or skills limit modern output per worker. Examiner insight: Naming a limitation earns little unless you say why it slows the transfer of labour.

3. (a) 400,000 x 500 = 200m [1]. (b) Local share = 200 x 0.55 = 110m [1]. Multiplier = 1 / (1 - 0.5) = 2 [1]. Local income = 110 x 2 = 220m [1]. (c) Arrivals 300,000 so spending is 150m [1]. Income falls by 55, from 220 to 165 [1]. (d) Leakage means much of the spending leaves through imports or foreign profit [1], so local income and tax revenue rise less than visitor spending [1]. Also valid: seasonal, insecure work; environmental damage. Examiner insight: Label the first-round local amount before applying the multiplier. Applying the multiplier to total spending overstates income.

4. (a) Raw stage: 400 - 90 = 310 [1]. Processing stage: 1,100 - 400 - 250 = 450 [1]. (b) 0.70 x 15 = 10.5% [2]. (c) For example, processing needs reliable power and finance [1], which are scarce, so firms cannot expand [1]. A different barrier, such as foreign tariffs on processed goods, also works if it ends in lower export demand or investment. Examiner insight: A barrier needs a consequence. Naming a missing resource alone is a description.

5. (a) DSR = 320 / 1,600 x 100 = 20% [1]. After waiver, payments = 320 x 0.75 = 240 [1]. New ratio = 240 / 1,600 = 15% [1]. Freed = 80 [1]. (b) Principal 100 a year over 10 years: first payment = 100 + 60 = 160. Principal 50 over 20 years: first payment = 50 + 60 = 110 [1]. Total interest over 10 years = 0.06 x 1,000 x 5.5 = 330. Over 20 years = 0.06 x 1,000 x 10.5 = 630 [1]. A longer period lowers each year’s burden but costs 300 more interest [1]. Examiner insight: Compare both measures, yearly burden and total cost. Giving only one makes the comparison one-sided.

6. Relief lowers debt service, so the government has more funds [1]. If spent on schools, clinics or roads, productivity and growth rise [1]. A drawback is moral hazard: expecting relief may encourage reckless borrowing [1], and lenders may cut future lending [1]. Judgement: the outcome depends on whether freed funds go into human capital or infrastructure and whether governance is sound [1], so relief helps most alongside reforms [1]. Examiner insight: Assessment is shown by saying when relief works or fails and why, not by listing pros and cons.

7. (a) 600 / 12,000 x 100 = 5% [1]. 600m / 30m = 20 [1]. (b) Tied = 360, untied = 240. Real tied value = 360 / 1.2 = 300 [1]. Total real value = 240 + 300 = 540 [1]. (c) 1,200 / 400,000 x 100 = 0.3% [1]. (d) Bilateral aid passes straight from a single donor government to the recipient [1]. Multilateral aid comes from a pool of donor funds distributed by an institution [1]. Examiner insight: Define both terms in contrast to each other, not by one example each.

8. Reason aid may fail: corruption diverts funds [1], so projects are not completed [1]. Another: tied aid raises costs [1], so its real value is lower [1]. Reason it may succeed: aid can fund roads, schools and health care that private markets underprovide [1], raising productivity [1]. Examiner insight: Link each reason to a result for development. Repeating the word “corruption” is not enough.

9. (a) The World Bank gives long-term loans and advice for development and poverty reduction [1], such as infrastructure and education [1]. The IMF monitors economies and gives temporary loans for balance of payments problems [1], usually with policy conditions [1]. (b) Local knowledge lets NGOs target communities government misses [1], so aid reaches the poorest [1]. NGOs can act quickly in emergencies with fewer procedures [1], saving lives sooner [1]. Examiner insight: Contrast roles directly. Writing separate paragraphs about each body without a contrast is weaker.

10. Industrialisation: 55% in farming suggests surplus labour [1], so moving workers into modern jobs can raise output without losing farm production [1]. Tourism: the coast could earn foreign exchange and jobs [1], but leakage and seasonality reduce gains [1]. Debt relief: a 28% ratio absorbs a large share of export earnings [1], so relief would free funds for human capital [1]. Primary dependence: one mineral gives 70% of exports, so diversification reduces price risk [1]. Aid at 8% of GNI offers funding but may bring dependence [1]. Judgement: prioritise industrialisation supported by infrastructure and skills, because it addresses low productivity [1]. Give conditions: if debt payments block investment, relief comes first [1]. Examiner insight: A recommendation is stronger when it names a condition under which another choice would be better.

Where marks are usually lost

• Skipping the working in profit, multiplier and ratio questions.
• Dividing by the wrong base, such as GDP instead of exports for the debt service ratio.
• Applying a multiplier to total spending instead of the amount retained.
• Describing a strategy with no chain of reasoning to development.
• Listing pros and cons with no judgement or condition.
• Confusing the World Bank and the IMF.
• Forgetting that tied aid cuts real value.
• Quoting real statistics from memory in place of the data supplied.

Next steps

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Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification, Issue 2, June 2018, first assessment June 2020, published by Pearson Education Limited: section 4.3.6, Growth and development in developing, emerging and developed economies, item 3, parts c and d.