Edexcel IAL Economics: Measuring development and constraints on growth (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 specification section 4.3.6, items 1(a) to 1(c) and the first five bullets of item 2(a), of the Pearson Edexcel International Advanced Level in Economics specification (YEC11), Issue 2, June 2018. The topic belongs to Unit 4, one of the two International A2 units, so only full International A Level candidates take it. Every country and figure is invented, and cu means currency units. Links: study guide, revision notes, course hub and printable checklist.

Questions

1. State the three components of the Human Development Index and one way each is measured. [3]

2. Hale has life expectancy 71.0, expected schooling 12.6 years, mean schooling 7.5 years and income 6,000 cu. Use these illustrative limits. Life expectancy: 20 to 85 years. Expected schooling: 0 to 18 years. Mean schooling: 0 to 15 years. Income: 100 to 75,000 cu.

(a) Calculate Hale’s HDI, using the geometric mean and a natural logarithm of income. [5] (b) Income doubles to 12,000 cu with everything else unchanged. Calculate the new HDI. [2]

3. Explain two limitations of the HDI when comparing living standards between countries. [4]

4. In Country M the adult male labour force is 2.5 million in Year 1, with 72% working in agriculture. In Year 15 it is 3.0 million, with 45% in agriculture.

(a) Calculate the percentage change in the number of men working in agriculture. [2] (b) Explain why a falling agricultural share does not by itself show that living standards have risen. [3]

5. A producer country sells a crop. The price index falls from 100 to 80 and export volume rises by 20%.

(a) Calculate the percentage change in export revenue. [2] (b) Explain two ways in which volatile commodity prices may harm the country’s growth. [4]

6. Over 15 years a country’s export price index falls from 100 to 95 and its import price index rises from 100 to 125. A machine cost 1,000 cu in Year 0 and the crop sold at 100 cu a tonne.

(a) Calculate the terms of trade in Year 15. [2] (b) Calculate how many tonnes of crop now buy one machine, compared with Year 0. [2]

7. Explain the Prebisch-Singer hypothesis and why it suggests primary product dependency may constrain development. [5]

8. Country S has GDP of 80 bn cu, a savings ratio of 7.5% and a capital-output ratio of 3.0. Use the Harrod-Domar model.

(a) Calculate its growth rate. [1] (b) The government targets 4% growth. Calculate the savings gap in bn cu. [3] (c) Better use of capital lowers the capital-output ratio to 2.4. Calculate the new savings gap. [2] (d) State one reason why the model may overstate how easily a gap can be closed. [1]

9. Country T plans investment of 8.0 bn cu. Half of it must be imported. It also needs 2.5 bn cu of fuel imports and 3.0 bn cu of other imports. Export earnings are 6.2 bn cu and remittances 0.9 bn cu.

(a) Calculate the foreign currency gap. [3] (b) Explain why Country T could have enough domestic saving and still face a foreign currency gap. [3]

10. Country V has GDP of 60 bn cu, domestic saving of 6.0 bn cu and a capital-output ratio of 3.0. Residents move 2.0 bn cu abroad in one year.

(a) Using Harrod-Domar, calculate the growth rate before and after the outflow, assuming the outflow is taken from saving. [3] (b) Explain two other effects of capital flight on the economy. [4]

11. Evaluate whether primary product dependency is the main economic constraint on growth in a low-income country. [12]

Answers

1. Health, measured by life expectancy at birth [1]. Education, measured by mean and expected years of schooling [1]. Income, measured by gross national income per head adjusted for purchasing power [1]. [3] Examiner insight: name each component and pair it with its measure, because a list of components without measures does not answer “one way each is measured”.

2. (a) Health = (71 - 20) / 65 = 0.7846 [1]. Education = (12.6/18 + 7.5/15) / 2 = (0.7 + 0.5) / 2 = 0.6000 [1]. Income = ln(6,000/100) / ln(750) = 4.0943 / 6.6201 = 0.6185 [1]. Product = 0.7846 x 0.6000 x 0.6185 = 0.2912 [1]. HDI = cube root = 0.663 [1]. (b) Income index = ln(120) / ln(750) = 0.7232 [1]. HDI = 0.698, a rise of 0.035 [1]. [7] Examiner insight: show each index before multiplying, so your method is visible if a slip changes the final figure, and keep four decimals until the last step.

3. Any two limitations, each with identification and development. It is an average, so it hides inequality [1], and two countries with the same HDI may differ widely in how benefits are shared [1]. It excludes the environment, so a country that damages its natural resources may still score well [1]. Equal weights are a judgement, so the ranking can change if health is valued more than schooling [1]. Other valid points include gender, freedom, security and data quality. [4] Examiner insight: a limitation stated alone is identification only. Explain what the HDI misses and what that does to the comparison.

4. (a) Year 1: 2.5 x 0.72 = 1.8 million [1]. Year 15: 3.0 x 0.45 = 1.35 million, so the change is (1.35 - 1.8) / 1.8 = -25% [1]. (b) The share fell by 27 percentage points [1] but the labour force grew, so fewer workers does not tell you about output per worker [1]. Workers may have moved into low-paid informal work, so incomes may not have risen, and the indicator ignores women, health and education [1]. [5] Examiner insight: keep share, number and percentage points separate. Writing “27%” for the share change loses clarity.

5. (a) Revenue index = 0.80 x 1.20 = 0.96 [1], so revenue falls 4% [1]. (b) Export earnings and foreign currency fluctuate [1], making it hard to pay for imported capital goods [1]. Farm incomes and tax revenue swing [1], so investment and planning are discouraged and growth is unstable [1]. [6] Examiner insight: use the data, such as the fall in revenue despite higher volume, rather than writing generally about instability.

6. (a) Terms of trade = 95 / 125 x 100 = 76 [1], a deterioration of 24% [1]. (b) Year 15: machine 1,250 cu, crop 95 cu, so 1,250 / 95 = 13.2 tonnes [1] against 10 tonnes in Year 0, 32% more [1]. [4] Examiner insight: state the direction of change. A bare 76 shows the calculation but not the meaning.

7. The hypothesis says that over the long run the prices of primary products fall relative to those of manufactures [1]. One reason is that demand for primary goods has a low income elasticity [1], so demand grows slowly as world income rises [1]. Manufactures have higher income elasticity, so their prices rise faster [1]. The terms of trade worsen, so a primary exporter must sell more to buy the same imports, leaving less to invest [1]. [5] Examiner insight: present it as a hypothesis, and a chain from income elasticity to the terms of trade to development scores better than a bare definition.

8. (a) g = 7.5 / 3.0 = 2.5% [1]. (b) Saving needed = 0.04 x 3.0 = 12% [1]. Gap = 12% - 7.5% = 4.5 percentage points [1] = 0.045 x 80 = 3.6 bn cu [1]. (c) Saving needed = 0.04 x 2.4 = 9.6% [1]. Gap = 2.1 percentage points = 1.68 bn cu [1]. (d) Saving may not become productive investment because banks are weak, or capital-output ratio may not stay constant [1]. [7] Examiner insight: show s = g x k, then convert the percentage gap into money, because the question asked for bn cu.

9. (a) Capital goods = 0.5 x 8.0 = 4.0 bn cu [1]. Total imports = 4.0 + 2.5 + 3.0 = 9.5 bn cu, earnings = 6.2 + 0.9 = 7.1 bn cu [1]. Gap = 2.4 bn cu [1]. (b) Domestic saving is in local currency [1], but imports must be paid for in foreign currency [1], so saving cannot buy machines or fuel from abroad unless exports, remittances or inflows supply foreign exchange [1]. [6] Examiner insight: explain the currency of payment. Merging this gap with the savings gap is the common error.

10. (a) Before: s = 6.0 / 60 = 10%, g = 10 / 3.0 = 3.3% [1]. After: saving 4.0 bn cu is 6.7% of GDP [1], g = 6.67 / 3.0 = 2.2% [1]. (b) Foreign currency demand rises [1], so the exchange rate tends to depreciate and imports cost more [1]. The tax base shrinks [1], and fear of further outflows weakens confidence in investment [1]. [7] Examiner insight: the question says “other” effects, so do not repeat the loss of saving already calculated.

11. For: dependence makes export earnings and tax revenue volatile [1]. Prebisch-Singer suggests worsening terms of trade [1]. Few industries limit skills and productivity growth [1]. Weak earnings widen the foreign currency gap [1]. Against: the savings gap limits investment even with stable prices [1]. Capital flight, debt and poor governance can matter more [1]. Some commodity exporters enjoy long booms [1]. Evaluation: the answer depends on how concentrated exports are [1], the product [1], and the period, since volatility is short run and Prebisch-Singer long run [1]. Diversification and stabilisation can reduce the problem [1]. A justified judgement, such as that dependency is a root cause that worsens other constraints but is rarely the sole one, completes the answer [1]. [12] Examiner insight: a one-sided account of dependency is limited. Weigh it against other constraints and finish with a reasoned conclusion that answers “main”.

Where marks are usually lost

• Listing the HDI components without saying how they are measured.
• Rounding indices before the final step.
• Mixing percentage and percentage-point changes.
• Treating a falling farm share as proof of higher incomes.
• Calculating revenue from volume alone, not price multiplied by volume.
• Inverting the terms of trade ratio.
• Stating Prebisch-Singer as a certain fact.
• Forgetting to convert a savings ratio gap into money.
• Merging the savings gap with the foreign currency gap.
• Repeating the same point under capital flight.

Next steps

• Revision notes and study guide.
• Edexcel IAL Economics course hub and printable checklist.
• All free 10-minute diagnostics.
• Book a free trial class: trial.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (YEC11), Issue 2, June 2018, Pearson Education Limited, Unit 4, section 4.3.6.