2.6.5 Growth and Development — Practice Questions

Eight original multiple-choice questions on economic growth and development, written to the style and difficulty of AQA Paper 3 Section A.

8 questions AQA A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 2.6.5 Growth and Development revision notes.

1. 1. Economic development differs from economic growth in that development

   Definition in context

   Select one answer

   A Also covers health, education and living standards.

   B Always follows automatically from economic growth.

   C Is measured only by real GDP per capita.

   D Is only relevant to developed economies.
   Show model answer

   Answer: A (Also covers health, education and living standards.). Economic growth is the narrow measure: a rise in real GDP. Development is broader, taking in welfare and quality of life — health, education, equality and the non-material things income alone does not capture.
   The distinction matters because growth can occur without development, if the extra income is concentrated among a few or spent in ways that do not improve most people's lives.

   Why the other options are wrong

   • B — Growth makes development possible but does not guarantee it. Whether it delivers depends on how the gains are distributed and used.
   • C — Real GDP per capita measures growth. Development uses broader indicators, of which HDI is the best known.
   • D — Development applies everywhere. Health, education and inequality are live issues in rich and poor countries alike.

2. 2. The Human Development Index combines three equally weighted elements. They are

   Definition in context

   Select one answer

   A Health, income and inequality.

   B Income, education and sustainability.

   C Income, inequality and life expectancy.

   D Life expectancy, schooling and income.
   Show model answer

   Answer: D (Life expectancy, schooling and income.). The HDI's three dimensions are health, measured by life expectancy at birth; education, measured by mean and expected years of schooling; and income, measured by real GNI per capita at purchasing power parity.
   PPP is used so that differences in the cost of living do not distort the comparison. Scores run from 0 to 1.

   Why the other options are wrong

   • A — Health and income belong, but inequality does not. That omission is the HDI's best-known limitation, and the reason the inequality-adjusted HDI exists.
   • B — Income and education belong, but sustainability is not included — another recognised weakness of the measure.
   • C — Life expectancy and income belong, but inequality is not one of the three, and education is missing.

3. 3. Two countries record the same HDI score, but income is distributed far more evenly in one than in the other. This illustrates that HDI

   Applied reasoning

   Select one answer

   A Cannot be compared across countries.

   B Hides inequality within a country.

   C Ignores life expectancy entirely.

   D Measures only income.
   Show model answer

   Answer: B (Hides inequality within a country.). HDI averages across a population, and an average hides its distribution. Two countries can reach the same score with very different degrees of inequality in health, education and income.
   This is why the inequality-adjusted HDI was developed, discounting the score according to how unevenly each dimension is spread.

   Why the other options are wrong

   • A — Enabling international comparison is one of HDI's main strengths, and the reason it uses PPP for income.
   • C — Life expectancy is one of the three components — it is the health dimension.
   • D — Measuring more than income is the whole point of a composite index.

4. 4. A developing economy depends heavily on exporting a single agricultural commodity. The most likely consequence is

   Applied reasoning

   Select one answer

   A A permanent current account surplus.

   B Rapid growth in manufacturing exports.

   C Stable export revenues from year to year.

   D Unstable export revenues.
   Show model answer

   Answer: D (Unstable export revenues.). Primary product prices are notoriously volatile, because supply depends on harvests and weather while demand for many commodities is price inelastic. A small shift in either moves the price a long way.
   An economy whose export earnings rest on one such commodity therefore faces unpredictable revenue, which makes planning government spending and investment very difficult. Primary product dependency also limits the ability to add value, and a commodity boom can push up the currency and damage other exports — the Dutch disease.

   Why the other options are wrong

   • A — Volatile earnings can produce a deficit as easily as a surplus, and there is nothing permanent about either.
   • B — Dependency on primary products is characterised by the absence of a developed manufacturing sector.
   • C — Stability is exactly what such an economy lacks.

5. 5. The Harrod-Domar model suggests that a developing economy will grow slowly if it has

   Definition in context

   Select one answer

   A A floating exchange rate system.

   B A high savings rate that limits consumption.

   C High levels of foreign direct investment.

   D Too little saving to finance investment.
   Show model answer

   Answer: D (Too little saving to finance investment.). The Harrod-Domar model links growth directly to saving and investment. Saving provides the funds for investment in capital, investment raises productivity, and higher productivity delivers growth.
   Where incomes are so low that households can save almost nothing, there is a savings gap: not enough domestic saving to fund the investment growth requires. This is a standard argument for foreign aid and foreign direct investment as ways of filling that gap.

   Why the other options are wrong

   • A — The exchange rate system affects trade and stability. It plays no part in this model.
   • B — The model treats a high savings rate as the route to faster growth, since it makes more investment possible.
   • C — Inward FDI helps fill the savings gap, so it supports growth rather than holding it back.

6. 6. A developing country's currency becomes overvalued during a boom in its oil exports, leaving its other export industries uncompetitive. This is best described as

   Applied reasoning

   Select one answer

   A Capital flight.

   B Dutch disease.

   C The savings gap.

   D Trade diversion.
   Show model answer

   Answer: B (Dutch disease.). Dutch disease is the paradox that a natural resource boom can leave an economy worse off overall. Strong demand for the resource means strong demand for the currency, which appreciates — and at that stronger exchange rate, manufacturing and agricultural exports become uncompetitive and decline.
   The economy ends up even more dependent on the single commodity, and so more exposed when its price falls.

   Why the other options are wrong

   • A — Capital flight is financial assets leaving the country rapidly, usually because of instability. Here capital is flowing in.
   • C — The savings gap is a shortage of domestic saving to fund investment. This is about the exchange rate and competitiveness.
   • D — Trade diversion happens when a trading bloc's external tariff shifts trade to a higher-cost member. No bloc is involved.

7. 7. Table 1 shows three indicators for two countries with identical income per head.
   Using Table 1, it follows that

   Data interpretation

   Table 1: Development indicators

   Indicator	Country P	Country Q
   Real GNI per capita (PPP)	$12,000	$12,000
   Life expectancy at birth	61 years	78 years
   Mean years of schooling	5	11

   Select one answer

   A Both countries have the same level of development.

   B Country P is likely to have the higher HDI.

   C Country Q is likely to have the higher HDI.

   D HDI cannot be calculated without inequality data.
   Show model answer

   Answer: C (Country Q is likely to have the higher HDI.). The income dimension is identical, at $12,000 for both, so it cannot separate them. The other two HDI dimensions can.
   Country Q has both a higher life expectancy — 78 years against 61 — and more than twice the mean years of schooling. Since the three dimensions are equally weighted, Q scores higher on two of three and equal on the third, so Country Q has the higher HDI.
   This is the clearest demonstration that income alone does not measure development.

   Why the other options are wrong

   • A — Equal income per head does not mean equal development. The two countries differ sharply on health and education.
   • B — Country P is behind on both life expectancy and schooling, and level on income, so it cannot score higher.
   • D — The standard HDI needs no inequality data — it uses health, education and income. It is the inequality-adjusted HDI that requires more.

8. 8. A developing country receives large amounts of official development assistance in the form of soft loans. A genuine economic concern is that this may

   Applied reasoning

   Select one answer

   A Create dependency and add to the debt burden.

   B Improve infrastructure and healthcare provision.

   C Reduce the country's foreign currency gap.

   D Remove the need for domestic saving entirely.
   Show model answer

   Answer: A (Create dependency and add to the debt burden.). Soft loans are still loans. They have to be repaid, so they add to a debt burden that may already be diverting resources from productive investment into debt servicing — and repayments in foreign currency worsen the foreign currency gap.
   The deeper worry is dependency: aid that arrives year after year can substitute for building domestic institutions, tax capacity and saving, so the underlying constraints on development are never addressed. Where corruption is a problem, the money may not reach its intended use at all.

   Why the other options are wrong

   • B — Better infrastructure and healthcare are what aid is for. That is a hoped-for benefit, not a concern.
   • C — Narrowing the foreign currency gap is another intended benefit of aid inflows, at least while the money is arriving.
   • D — Aid does not remove the need for domestic saving — the concern is precisely that it may discourage the effort to build it.