OCR A Level Economics: The financial sector in developing and emerging economies (H460) – 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 financial sector in developing and emerging economies in Component 2, Macroeconomics, of the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. All countries and data are invented. Teaching is in the study guide and the revision notes. See the OCR Economics hub, the printable checklist and the free 10-minute diagnostics.

Questions

1. An economy has a savings ratio of 18% and a capital-output ratio of 4.5. Use the Harrod-Domar model to calculate its growth rate. [2]

2. Country Delta has national income of 300 units, a savings ratio of 14% and a capital-output ratio of 2.8. Its target growth rate is 6%.

(a) Calculate the growth rate the model predicts. [1] (b) Calculate the investment needed for the target and the savings gap. [2] (c) Better infrastructure cuts the capital-output ratio to 2.1. Calculate the new predicted growth rate and comment. [2]

3. Explain two limitations of the Harrod-Domar model for a developing economy. [4]

4. (a) Explain what is meant by microfinance. [2] (b) A trader borrows 500 units for a year. A microfinance lender charges a flat 30% a year. An informal moneylender charges 8% a month on the original sum. Calculate the interest under each and compare the annual rates. [3]

5. Evaluate the role of microfinance in supporting economic development. [6]

6. Country E has national income of 800 units. In year 1 it receives foreign direct investment of 24, equity investment of 16, bond purchases of 12 and bank loans of 8. In year 2 foreign direct investment is 22, portfolio investment is −10 and bank lending is −6.

(a) Calculate year 1 net inflows and their share of national income. [2] (b) Calculate year 2 net flows and the change from year 1. [2]

7. Evaluate the extent to which international financial markets have influenced capital flows into and out of developing and emerging economies. [6]

8. Country A has public debt of 45 units, national income of 90, export earnings of 30 and annual debt repayments of 6.

(a) Calculate the debt-to-GDP ratio and the debt service ratio. [2] (b) Firms in Country A borrowed 20 units of foreign currency when the rate was 5 local units per unit of foreign currency. It is now 7. Calculate the percentage rise in the local-currency cost. [3]

9. Country G has a debt ratio of 50%, an interest rate of 5% and a primary balance of zero.

(a) Calculate next year’s ratio if national income grows by 4%. [2] (b) Calculate it if growth is 1%. [1] (c) State what the results show. [1]

10. Evaluate the impact of public and private sector debt on developing and emerging economies. [6]

11. Country H has national income of 250 units, exports of 80 and receives remittances of 20.

(a) Explain what is meant by remittances. [1] (b) Calculate remittances as a share of national income and of exports. [2] (c) Fees take 8% of each transfer. Calculate the extra amount households receive if fees fall to 4%. [1] (d) Assess one benefit and one limitation of remittances for Country H. [4]

Answers

1. g = s / k [1] = 0.18 / 4.5 = 4% [1]. [2] Examiner insight: Convert percentages to decimals and show the formula; a bare number leaves nothing to credit if it is wrong.

2. (a) g = 0.14 / 2.8 = 5% [1]. [1] (b) Investment needed = 0.06 × 2.8 × 300 = 50.4 [1]. Saving = 0.14 × 300 = 42, so the gap is 8.4 units [1]. [2] (c) g = 0.14 / 2.1 = 6.7% [1], which exceeds the 6% target, so no gap remains; lowering the capital-output ratio can substitute for extra saving [1]. [2] Examiner insight: Part (c) invites a comment, so link the number to the target rather than stopping at the calculation.

3. Any two, each with explanation. All saving is assumed to be invested, but in practice funds may be held as cash, lent abroad or lost in a financial crisis [1], so the predicted growth overstates the result [1]. Capital is not the only constraint; skills, institutions and infrastructure also limit growth [1], so raising saving alone may not deliver it [1]. [4] Examiner insight: A limitation scores when it is paired with its effect on the model’s prediction, not when it is merely named.

4. (a) Small loans, savings or insurance [1] offered to poor people and tiny firms that formal banks usually exclude [1]. [2] (b) Microfinance interest = 0.30 × 500 = 150 [1]. Moneylender = 0.08 × 500 × 12 = 480 [1]. Annual rates are 30% against 96%, so the informal loan costs more than three times as much [1]. [3] Examiner insight: Say whether each rate is monthly or annual before comparing, because mixed periods are the usual slip.

5. Benefits: credit without collateral lets poor households invest in tools or stock [1], and savings and insurance smooth income when shocks hit [1]. Limits: rates are often high, so borrowers can become over-indebted [1], and loans may fund consumption, not production [1]. Tiny firms may not grow because local markets are small [1]. Judgement: it helps where project returns exceed the interest rate, but it complements rather than replaces infrastructure, education and jobs [1]. [6] Examiner insight: Close with a judgement that names the condition it depends on, for example the return on the project against the interest rate.

6. (a) Net inflow = 24 + 16 + 12 + 8 = 60 [1]. Share = 60 / 800 = 7.5% [1]. [2] (b) Net flow = 22 − 10 − 6 = 6 [1]. Change = 6 − 60 = −54 units [1]. [2] Examiner insight: Keep the signs: outflows are negative, and adding them as positive figures gives the wrong net result.

7. Support: global interest rates and investor appetite for risk push funds in and out [1], and portfolio and bank flows can reverse quickly, as in a sudden stop [1]. Currency and interest rates then respond [1]. Against: pull factors such as institutions, policy credibility and growth prospects decide who attracts funds [1], and FDI is steadier because it is tied to productive assets [1]. Judgement: global markets strongly affect the timing and size of flows, but domestic conditions determine the effect [1]. [6] Examiner insight: Separate FDI from portfolio flows; treating all capital flows alike limits the evaluation.

8. (a) Debt-to-GDP = 45 / 90 = 50% [1]. Debt service ratio = 6 / 30 = 20% [1]. [2] (b) Old cost = 20 × 5 = 100 [1]. New cost = 20 × 7 = 140 [1]. Rise = 40 / 100 = 40% [1]. [3] Examiner insight: Show the old and new local-currency cost before the percentage, so the working can be followed.

9. (a) Next ratio = 0.50 × 1.05 / 1.04 [1] = 50.5% [1]. [2] (b) 0.50 × 1.05 / 1.01 = 52.0% [1]. [1] (c) The ratio rises whenever the interest rate exceeds growth, and rises faster when growth is slow [1]. [1] Examiner insight: Link the interest rate and the growth rate in the comment; the ratio alone does not explain the change.

10. Public debt can fund infrastructure that raises growth [1], but heavy debt service crowds out health and education spending [1] and may force tax rises or cuts [1]. Private debt can fuel booms and banking crises, and governments may absorb the losses [1]. Foreign-currency debt is exposed to depreciation [1]. Judgement: debt is harmful when its cost exceeds the growth it creates, so use, currency and terms matter [1]. [6] Examiner insight: Cover both public and private debt, since the question names both.

11. (a) Money sent home by migrants working abroad [1]. [1] (b) 20 / 250 = 8% of national income [1]; 20 / 80 = 25% of exports [1]. [2] (c) Fees fall from 1.6 to 0.8, so households receive 0.8 units more [1]. [1] (d) Benefit: raises household income and can fund education, health or small businesses [1], with a steady flow that supports the balance of payments [1]. Limitation: a large inflow can appreciate the currency and hurt exporters, or families may come to depend on it [1]. Judgement: at 8% of income it is significant, but its value depends on whether it is spent productively [1]. [4] Examiner insight: Use the 8% and 25% figures in your answer; generic comments miss what the data show.

Where marks are usually lost

• Writing s × k instead of s / k, or leaving percentages as whole numbers.
• Stating the savings gap without the investment needed beside it.
• Mixing monthly and annual interest rates.
• Treating FDI, portfolio flows and bank lending as one thing.
• Judging debt by the debt-to-GDP ratio alone.
• Omitting the sign on outflows.
• Describing remittances as aid.
• Ending evaluation with “it depends” and no condition.

Next steps

• Review the revision notes and the study guide.
• Visit the OCR Economics hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class: /trial/.

Official syllabus

These questions follow the OCR A Level in Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, published by OCR (Oxford Cambridge and RSA Examinations).