OxfordAQA International AS and A-level Economics: Policies to promote development (9640) – 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 section 3.4.3.3 Policies to promote development in the OxfordAQA International AS and A-level Economics (9640) specification, version 1.2. Section 3.4 is extra International A2 content. All countries, firms and figures are invented; “cu” means currency units. Read the study guide and revision notes first. Also see the course hub, the printable checklist and the diagnostics.

Questions

1. State whether each policy is mainly market-based or interventionist: (a) floating the exchange rate; (b) government spending on rural clinics; (c) deregulation of business start-ups; (d) a managed exchange rate. [4]

2. Country D imports tractors with a world price of 8,000 cu.

(a) Calculate the domestic price with a tariff of 25%, and with a tariff of 10%. [2] (b) Calculate the percentage change in the domestic price when the tariff falls from 25% to 10%. [1] (c) Explain one cost to Country D of this trade liberalisation. [2]

3. A foreign firm invests 150 cu million in a factory in Country E. It earns 40 cu million profit in a year and sends 75% abroad.

(a) Calculate the profit kept in Country E and express it as a percentage of the investment. [2] (b) Explain one disadvantage of FDI for Country E. [2] (c) Explain one advantage of FDI for Country E. [2]

4. In Country F, quantities of a crop are in thousand tonnes and price in cu per tonne. Demand is Qd = 1,500 - 2P. In a normal year supply is Qs = 3P - 1,000. In a bumper year supply is Qs = 3P - 700. A buffer stock authority sets a floor price of 480.

(a) Find the free-market price and quantity in the bumper year. [2] (b) Calculate the quantity the authority buys at the floor price and the cost. [3] (c) Calculate farmers’ revenue in the bumper year with the floor price and without it. [2] (d) Identify one problem of running the scheme. [1]

5. A farmer borrows 300 cu from a microfinance lender at a flat 15% interest, repaid in 6 equal monthly instalments. A local moneylender charges 8% a month simple interest on 300 cu for 6 months.

(a) Calculate the total repayable and the monthly instalment from the microfinance lender. [2] (b) Calculate the total repayable to the moneylender and the difference. [2] (c) State one limitation of microfinance as a development policy. [1]

6. A cooperative sells 60 tonnes of produce on fair trade terms at a minimum price of 2,000 cu per tonne. The market price is 1,700 cu. The scheme also pays a premium of 120 cu per tonne.

(a) Calculate the revenue with and without the fair trade price. [2] (b) Calculate the percentage gain in revenue. [1] (c) Calculate the total premium. [1] (d) Explain one limit to the benefit of fair trade for the country as a whole. [1]

7. In Country G, 40,000 workers abroad each send home 2,400 cu a year. GDP is 3,200 cu million. Transfer fees are 6%.

(a) Calculate total remittances and the percentage of GDP. [2] (b) Calculate the annual fee cost, and the saving if fees fall to 3%. [2] (c) Explain one drawback of relying on remittances. [1]

8. Country H earns 1,500 cu million from exports and spends 30% on debt service. A donor cancels one third of the debt service.

(a) Calculate the money freed and how many schools it pays for at 0.75 cu million each. [3] (b) Separately, a donor gives 120 cu million in aid, 45% of it tied. Tied goods cost 25% more than on the open market. Calculate the real value of the aid. [3]

9. Country J receives 250,000 tourists, each spending 600 cu. Leakage is 55%. The local multiplier is 2. Calculate the final gain to Country J. [4]

10. Describe the role of (a) the IMF, (b) the World Bank and (c) NGOs in promoting development. [6]

11. Country K is poor, mostly rural and has weak roads and few skilled workers. Evaluate whether a market-based strategy or an interventionist strategy is better for promoting its development. [10]

Answers

1. (a) Market-based [1]. (b) Interventionist [1]. (c) Market-based [1]. (d) Interventionist [1]. [4] Examiner insight: give a one-word label for each part, and add a reason if you can, since a bare label gives the marker nothing to reward on a part that is less clear cut.

2. (a) 8,000 x 1.25 = 10,000 [1]; 8,000 x 1.10 = 8,800 [1]. (b) (8,800 - 10,000) / 10,000 = -12% [1]. (c) Tariff revenue falls [1], so less government money for services; or domestic tractor makers face cheaper imports and may close, causing job losses [1]. Examiner insight: a cost needs a consequence for the country, not only the statement that revenue falls.

3. (a) Kept = 40 x 0.25 = 10 cu million [1]; 10 / 150 = 6.7% [1]. (b) Profits are repatriated, so most of the gain leaves the country [1]; the national income and balance of payments gain is smaller than the output suggests [1]. (c) Technology and skills transfer to local workers [1], which raises productivity beyond the foreign firm itself [1]. Examiner insight: an advantage or disadvantage scores best as a chain: the feature, why it matters, and the effect on development.

4. (a) 1,500 - 2P = 3P - 700 [1]; P = 440, Q = 620 [1]. (b) At 480: Qd = 1,500 - 960 = 540 and Qs = 3 x 480 - 700 = 740 [1]; buys 740 - 540 = 200 thousand tonnes [1]; cost 200 x 480 = 96,000 thousand = 96 cu million [1]. (c) With floor: 740 x 480 = 355,200 thousand, or 355.2 cu million [1]; without: 620 x 440 = 272,800 thousand, or 272.8 cu million [1]. (d) Storage cost, or the funds needed to buy the surplus, or the stock cannot be sold if the price stays low [1]. Examiner insight: the floor only matters if it lies above the free-market price, so check that first and then use the floor price for both demand and supply.

5. (a) 300 x 1.15 = 345 cu [1]; 345 / 6 = 57.50 cu a month [1]. (b) 300 x 0.08 x 6 = 144 interest, so 444 cu [1]; difference = 444 - 345 = 99 cu [1]. (c) Interest may still be high, or borrowers may fall into debt, or loans are too small to build large firms [1]. Examiner insight: state the difference as a positive amount saved, and keep the units visible.

6. (a) With: 60 x 2,000 = 120,000 cu [1]; without: 60 x 1,700 = 102,000 cu [1]. (b) 18,000 / 102,000 = 17.6% [1]. (c) 60 x 120 = 7,200 cu [1]. (d) Only members of the scheme benefit, and the price may attract extra producers and create a surplus [1]. Examiner insight: divide the gain by the original (market-price) revenue, not by the new revenue.

7. (a) 40,000 x 2,400 = 96 cu million [1]; 96 / 3,200 = 3% [1]. (b) 6% fee: 96 x 0.06 = 5.76 cu million [1]; at 3%, 2.88, so saving = 2.88 cu million [1]. (c) Brain drain, or dependence on conditions in foreign labour markets [1]. Examiner insight: always convert units first, since 3,200 cu million and 96 cu million must be in the same units before a percentage is taken.

8. (a) Debt service = 1,500 x 0.30 = 450 [1]; freed = 450 / 3 = 150 cu million [1]; 150 / 0.75 = 200 schools [1]. (b) Tied = 120 x 0.45 = 54 [1]; real value of tied part = 54 / 1.25 = 43.2 [1]; total real value = 120 - 54 + 43.2 = 109.2 cu million [1]. Examiner insight: divide by 1.25 rather than subtracting 25%, because the price is 25% above the open-market price, not 25% below it.

9. Total spending = 250,000 x 600 = 150 cu million [1]. Retained = 150 x 0.45 = 67.5 [1]. Multiplier is 2 [1]. Final gain = 67.5 x 2 = 135 cu million [1]. Examiner insight: apply leakage before the multiplier; applying the multiplier to the full spending overstates the gain.

10. (a) The IMF monitors the international monetary system [1] and lends to countries with balance of payments problems, often with conditions [1]. (b) The World Bank lends for development projects [1] and gives technical advice, with cheaper loans for the poorest countries [1]. (c) NGOs run local projects in health and education [1] and campaign for causes, reaching communities directly [1]. Examiner insight: describe what each body does and give one specific example of how it helps, rather than a general statement that it helps development.

11. Market-based: trade liberalisation or encouraging FDI could bring capital and technology [1]; applied to K, FDI might build rural processing plants [1]. Weakness: low skills and weak roads limit private investment, so the market may not supply infrastructure alone [1]. Interventionist: public spending on roads, education and health builds the capacity K lacks [1]. Chain: roads cut transport costs, farmers reach markets, incomes rise, and demand grows [1]. Weakness: limited tax revenue, risk of waste, corruption and slow results [1]. The strategies overlap: the state builds roads while private firms invest [1]. Short-run, aid or FDI may fund the state’s plans [1]. Judgement: interventionist spending on basics should come first, with market-based policies added once infrastructure and skills exist [1], and success depends on institutions and the government’s ability to deliver [1]. [10] Examiner insight: an evaluation gains credit for applying the argument to K’s rural, low-skill setting and for reaching a supported judgement, not for listing generic pros and cons.

Where marks are usually lost

• Stating a percentage change using the wrong base.
• Forgetting to apply leakage before the multiplier.
• Not showing the floor or ceiling when answering a buffer stock question.
• Mixing units, such as thousand tonnes and cu million.
• Giving an advantage or disadvantage of FDI with no explanation of the effect.
• Treating market-based and interventionist policies as opposites.
• Describing the IMF and World Bank as the same body.
• Concluding with no judgement.

Next steps

• Review the revision notes and the study guide.
• Visit the course hub and tick off the checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, section 3.4.3.3 Policies to promote development. For International AS exams from May/June 2021 and International A-level exams from May/June 2022.