International economic issues (A Level) Banker

Invented data for a country in one year: GDP is $380 billion. Income earned in the country by foreign-owned firms and sent abroad is $20 billion. Income earned by the country's residents from assets they own abroad is $8 billion. The population is 240 million.

1. (a) Calculate the country's gross national income (GNI). [2]
2. (b) Calculate GNI per head. Give your answer to the nearest dollar. [1]
3. (c) Explain why GNI per head is a better indicator than GDP per head of the income available to the residents of this country. [2]

1. (a) Which indicator is NOT used in calculating the Multidimensional Poverty Index (MPI)?A years of schooling of household membersB child mortality in the householdC household income per personD access to clean drinking water [1]

1. (a) Explain what is meant by the Measure of Economic Welfare (MEW) and why it might give a different view of living standards from real GDP per head. [4]
2. (b) Explain one difficulty in calculating the MEW. [2]

Invented population data for a low-income country: aged 0–14: 72 million; aged 15–64: 150 million; aged 65 and over: 9 million.

1. (a) Calculate the dependency ratio (dependants per 100 people of working age). [2]
2. (b) Explain two economic characteristics, other than population structure, commonly found in low-income countries. [4]
3. (c) Explain how a fall in the birth rate could give this country a 'demographic dividend'. [2]

1. (a) Evaluate whether HDI is a better measure of living standards than real GNI per head. [20]

The Human Development Index uses these formulas:life expectancy index = (life expectancy − 20) ÷ (85 − 20)education index = average of (mean years of schooling ÷ 15) and (expected years of schooling ÷ 18)income index = (ln GNI per head − ln 100) ÷ (ln 75,000 − ln 100), with GNI per head in PPP$Invented data for a country: life expectancy 67.5 years; mean years of schooling 8.0; expected years of schooling 11.0; GNI per head PPP$5,800.

1. (a) Calculate the life expectancy index, the education index and the income index. Give each to 3 decimal places. [3]
2. (b) Calculate the country's HDI as the geometric mean of the three indices. Give your answer to 3 decimal places. [2]
3. (c) Identify which dimension contributes least to the country's HDI and suggest one policy that could raise it. [2]

1. (a) In a year, a country's nominal GDP rises by 12 %, the general price level rises by 8 % and the population rises by 2 %. What is the approximate change in real GDP per head?A a rise of about 1.7 %B a rise of about 3.7 %C a rise of about 6.0 %D a rise of about 10.0 % [1]

Invented data for two countries.Country P: GNI per head (PPP$) 14,000; HDI 0.70; life expectancy 68 years; mean years of schooling 6.5; Gini coefficient 0.52; oil is 60 % of exportsCountry Q: GNI per head (PPP$) 9,000; HDI 0.76; life expectancy 74 years; mean years of schooling 10.0; Gini coefficient 0.34

1. (a) Calculate the percentage by which Country P's GNI per head exceeds that of Country Q. Give your answer to 1 decimal place. [2]
2. (b) Using the data, explain why Country Q has a higher HDI than Country P despite its lower GNI per head. [4]
3. (c) Evaluate whether HDI shows that living standards are higher in Country Q than in Country P. [8]

1. (a) Evaluate the view that rapid population growth is the main obstacle to economic development in low-income countries. [20]

1. (a) Distinguish between bilateral aid and multilateral aid. [2]
2. (b) Explain why tied aid may bring fewer benefits to the receiving country than untied aid. [4]

1. (a) Which is an example of foreign direct investment (FDI) in Pakistan?A a Pakistani worker in Dubai sends money home to his familyB a foreign pension fund buys a small number of shares in a Karachi-listed bankC a foreign car maker builds and operates a new assembly plant near LahoreD a foreign government gives a grant to build schools in Balochistan [1]

Invented data for a copper-exporting country in 2025: external debt service payments (interest and principal) were $9.6 billion and export earnings were $32 billion.

1. (a) Calculate the debt service ratio (debt service as a percentage of export earnings) in 2025. [1]
2. (b) Export earnings are forecast to fall by 20 % in 2026 because of a fall in copper prices, while debt service payments stay the same. Calculate the new debt service ratio. [2]
3. (c) Explain why a rising debt service ratio may reduce the country's prospects for development. [3]

1. (a) Explain two possible benefits to a low-income host country of a multinational company (MNC) setting up a factory there. [4]
2. (b) Explain what is meant by transfer pricing and why it can reduce the benefits to the host country. [4]

1. (a) Evaluate whether foreign direct investment by multinational companies is more beneficial to low-income countries than official development aid. [20]

Invented data for a small mineral-exporting country in one year:GDP: $50 billionprofits of foreign-owned MNCs sent abroad: $3.5 billionincome received by residents from assets abroad: $0.5 billionMNC employment: 40,000 workers, total wages $1.2 billionaverage wage in the rest of the economy: $8,000 per workerMNC exports: $6 billion; corporate tax paid by MNCs: $0.9 billion

1. (a) Calculate the country's GNI and GNI as a percentage of GDP. [2]
2. (b) Calculate the average annual wage paid by the MNC per worker, in dollars. [1]
3. (c) Evaluate, using the data, whether the MNCs bring more benefits than costs to the country. [7]

1. (a) Evaluate whether debt relief is the most effective way to promote economic development in heavily indebted low-income countries. [20]

1. (a) Explain the main roles of the International Monetary Fund (IMF) and the World Bank in relation to low-income countries. [4]
2. (b) Discuss why the conditions attached to IMF loans are often controversial. [4]

1. (a) Distinguish between a floating exchange rate, a fixed exchange rate and a managed float. [3]
2. (b) Explain two ways in which a central bank could prevent its currency from falling below a fixed exchange rate. [4]

A Pakistani textile firm sells shirts for Rs 5,600 each. The exchange rate changes from Rs 280 = $1 to Rs 300 = $1 (invented data).

1. (a) Calculate the dollar price of the shirt before and after the change in the exchange rate, and the percentage change. Give the percentage to 1 decimal place. [3]
2. (b) Calculate the rupee cost of a $50 machine part before and after the change. [2]
3. (c) Explain why the depreciation might not raise the textile exporter's profits as much as expected. [2]

Invented data: a burger costs Rs 900 in Pakistan and $5.50 in the USA. The market exchange rate is Rs 280 = $1.

1. (a) Calculate the exchange rate implied by purchasing power parity (PPP) for the burger. Give your answer to 1 decimal place. [2]
2. (b) Calculate the percentage by which the rupee is undervalued against the dollar on this measure. Give your answer to 1 decimal place. [2]
3. (c) Explain one reason why a single-product comparison may not give a reliable estimate of the PPP exchange rate. [2]

1. (a) According to the Marshall–Lerner condition, a depreciation of a currency will improve a country's current account balance ifA the sum of the price elasticities of demand for exports and imports is greater than oneB the price elasticity of demand for exports is less than oneC the sum of the price elasticities of demand for exports and imports is less than oneD the income elasticity of demand for imports is greater than one [1]

1. (a) Evaluate whether a fixed exchange rate system is better than a floating exchange rate system for a developing economy. [20]

Invented data: a country's currency depreciated by 15 % at the start of Quarter 1. Its current account balance ($ billion) was:Quarter 0: −2.0Quarter 1: −2.6Quarter 2: −2.9Quarter 3: −2.1Quarter 4: −1.2Quarter 5: −0.4

1. (a) Identify the quarter in which the current account deficit was largest, and calculate the improvement from that quarter to Quarter 5. [2]
2. (b) Use the J-curve effect to explain the pattern in the data. [4]
3. (c) Suggest one reason, other than the depreciation, why the current account might have improved. [1]

1. (a) Distinguish between a free trade area, a customs union and a common market. [3]
2. (b) Explain one problem that can arise in a free trade area that does not arise in a customs union. [2]

1. (a) Which of the following is a feature of a customs union but not of a free trade area?A removal of tariffs on trade between member countriesB a common external tariff on imports from non-membersC free movement of labour between member countriesD a single currency used by all members [1]

Invented data for a country ($ billion):2015: exports 12, imports 18, GDP 402025: exports 15, imports 20, GDP 50

1. (a) Calculate the trade openness ratio ((exports + imports) as a percentage of GDP) for 2015 and 2025. [2]
2. (b) A newspaper said the data show the country 'became less involved in globalisation'. Explain why this conclusion may be wrong. [4]

Country A imports a good. It can buy the good from Country B at $10 per unit or from Country C at $8 per unit. Before joining a customs union, Country A charges a 50 % tariff on imports from all countries. Country A then forms a customs union with Country B, keeping a 50 % common external tariff on goods from Country C (invented data).

1. (a) Explain from which country Country A imports the good before and after joining the customs union. [2]
2. (b) State whether this is trade creation or trade diversion, and calculate the extra resource cost per unit to the world of buying from the new supplier. [3]
3. (c) Explain why consumers in Country A may still gain even though the government of Country A loses. [2]

1. (a) Evaluate the view that globalisation has reduced inequality between countries. [20]

1. (a) Which policy is an expenditure-reducing policy for correcting a current account deficit?A a devaluation of the currencyB a tariff on imported carsC an increase in income tax ratesD a subsidy to exporters [1]

1. (a) Explain the difference between expenditure-switching and expenditure-reducing policies for correcting a current account deficit, giving one example of each. [4]
2. (b) Evaluate whether expenditure-reducing policies are a suitable way to correct a current account deficit in a country with high unemployment. [6]