International Political Economy
🇬🇧
In English
In English
Practice Known Questions
Stay up to date with your due questions
Complete 5 questions to enable practice
Exams
Exam: Test your skills
Test your skills in exam mode
Learn New Questions
Manual Mode [BETA]
Select your own question and answer types
Specific modes
Learn with flashcards
Complete the sentence
Listening & SpellingSpelling: Type what you hear
multiple choiceMultiple choice mode
SpeakingAnswer with voice
Speaking & ListeningPractice pronunciation
TypingTyping only mode
International Political Economy - Leaderboard
International Political Economy - Details
Levels:
Questions:
144 questions
| 🇬🇧 | 🇬🇧 |
| The major obstacle to the development of the underdeveloped countries | Vicious circle of poverty |
| This vicious circle of poverty shows | That income in underdeveloped countries is low. Low income leads to low savings. Low savings will naturally result in low investment, which will result in less production. Low production will generate low income. Low income will create low demand for goods. In other words, it will result in smaller markets (limited extent of markets). Thus, there will be no inducement to invest. |
| According to Nurkse | “The inducement to invest may be low because of the small buying power of the people, which is due to their small real income, which again is due to low productivity. The low level of productivity however is a result of the small amount of capital used in production which in turn may be caused, at last partly, by inducement to invest.” |
| In order to break the vicious circle of poverty in under-developed countries, it is essential to have | Balance between demand and supply |
| The vicious circle of poverty operates both on | Demand and supply side |
| (a) Demand Side: | Low Income → Low Size of Market → Low Investment → Low Productivity → Low Income. |
| (b) Supply Side: | Low-Income → Low Savings → Low Investment → Low Capital → Formation → Low Productivity → Low Income |
| Vicious circle of poverty: On Demand Side: | In UDCs the size of the market is limited. As a result, private investors do not get opportunities for more investment. This reduces investment and capita. Hence productivity of capital would fall |
| Vicious Circle of Poverty: Supply Side: | The underdeveloped countries, can resort to capital formation and accelerate the pace of economic development only by breaking the vicious circle of poverty. Once the vicious circle of poverty is broken, the economy would be on the rails to development. Now the question is how to break the vicious circle of poverty |
| How to Break Vicious Circle of Poverty? | (i) Complementary Demand: (ii) Government Intervention: (iii) External Economies: (iv) Economic Growth: |
| (i) Complementary Demand: | Means the vicious circle of poverty cannot be broken only by making investments in one industry or one sector. Rather, there should be an overall investment in all the sectors. This is the only way to enlarge the size of the market. |
| The complementarity of industries is in reality, the crux of the concept of balanced growth. | This is termed as complementarities of demand. |
| (ii) Government Intervention: | The government must intervene in productive activities through economic planning. when government participates in productive activities, it will help in breaking the vicious circle of poverty. Nurkse opines that if entrepreneurs are available in underdeveloped countries, then they can be induced to make investment. |
| (iii) External Economies: | External economies are those which accrue because of the setting up of new industries and expansion of the existing industries. The accruing of external economies lead to the law of increasing returns to scale. It leads to a fall in the cost of production and hence the price level. A fall in the price leads to an increase in demand which is useful for economic development. |
| (iv) Economic Growth: | Balanced growth helps in accelerating the pace of economic growth, G.M.Meier is of the view that “Balanced Growth is a means of getting out of a rut”. |
| How the Market can be enlarged: | By monetary expansion, salesmanship, and advertisement, removing trade restrictions, and expanding social other heads i.e., infrastructures. It can be widened either by a reduction in prices or by an increase in money while keeping constant prices |
| Nurkse further submits his notion of balanced growth from Say’s law | Which states that “Supply creates its own Demand” |
| Mill cites | “Every increase of production, if distributed without miscalculation among all kinds of produce in the proportion which private interest would dictate, creates or rather constitutes its own demand.” |
| Nurkse’s, balanced growth | A sort of frontal attack—” a wave of capital investment in a number of different industries.” |
| A British and Australian economist and statistician who worked in both the United Kingdom and Australia. He pioneered the use of the gross national product (GNP) as the basis for studying national economies. | Colin Grant Clark (2 November 1905 – 4 September 1989) |
| Main Works of Colin Grant Clark | “A System of Equations Explaining the United States Trade Cycle” “The Economic Functions of a City in Relation to Its Size” “Economic Development in Communist China” |
| Was a noted New Zealand-born economist. Perhaps his most notable the contribution was to investigate economic development in terms of the sequential dominance of different sectors of the economy: the primary, secondary and tertiary sectors (three-sector theory). | Allan George Barnard Fisher (26 Oct 1895 in Christchurch, New Zealand – 8 January 1976 in London, England) |
| Main Works of Allan George Barnard Fisher | “Some Problems of Wages and Their Regulations” “The Clash of Progress and Security” “International Implications of Full Employment” |
| The Lewis model the line of argument runs | • An economy starts with two sectors; a rural agricultural sector and an urban industrial sector. Agriculture generally under-employs workers and the marginal productivity of agricultural labour is virtually zero. • Therefore, transferring workers out of agriculture does not reduce productivity in the whole economy. • Labour is then released for work in the more productive, urban, industrial sector. • Industrialisation is now possible, given the increase in the supply of workers who have moved from the land. • Industrial firms start to make profits, which can be re-invested into even more industrialisation, and capital starts to accumulate. • As soon a capital accumulates, further economic development can sustain itself. |
| Evaluation of the Lewis model | • Urbanisation may create problems, such as poverty, squalor and shanty-towns, with unemployment replacing underemployment. • The financial benefits from industrialisation might not trickle down to the majority of the population. |
| Clark-Fisher | The Clark-Fisher model shares some characteristics of early linear stage models and later structural change models. In this model, structural change must occur for economic progress to occur in capitalist economies. |
| The Conditions of Economic Progress that became an established component of the economic lexicon. In Economic Conditions, Clark describes a tripartite economic structure consisting | Primary, secondary, and tertiary economic activities. Primary activities are agricultural or extractive in nature and are limited by natural growth factors. Secondary activities are primarily composed of manufacturing and production activities and are limited by mechanical factors. Tertiary activities are service-based and are dependent on, and limited by, human skill and expertise. Primary and secondary activities can be further distinguished from tertiary activities by the nature of their output, which is tangible in nature, whereas tertiary activities produce intangible outcomes. The tertiary for Clark is also a repository for activities which do not fit under the narrower and much more traditional understandings of the first two sectors. |
| Why does a service sector emerge after industrialisation? | High income elasticity of demand Low productivity of labour Employment Structure Change |
| High income elasticity of demand | Generally a high-income elasticity of demand for services, especially leisure, tourism, and financial services. As incomes rise, demand for services increases, and more employment and national output are allocated to service production. |
| Low productivity of labour | Productivity in the service sector is lower than in the manufacturing sector because it is harder to apply new technology to many services. This means that over time prices of services rise relative to primary and secondary goods |
| Employment Structure Change | The employment structure of the country is based on the division between the primary, secondary, and tertiary sectors. The richest country, focused and is more capable on having more job at the tertiary sector, while the poorest country has a high percentage in primary jobs. |
| Limitations of the Clark Fisher Model | • There is a debate whether a country could develop further than the post- industrial stage. • The speed of development varies around the world, and it cannot be the same. • Tourism could lead to a bypass in the Industrial stage. • The model neglects the idea of international economy context. There are a lot of LIC’s where the main sector is the service sector, without having a properly established secondary sector. • Kenya (Tourism) • Malta (Tourism) |
| Adam Smith's Wealth of Nations (1776) | The main purpose of Adam Smith's The Wealth of Nations was to further the understanding of political economy (the role of government in economic policy). |
| Sole purpose of Adam Smith | ADAM SMITH wanted to encourage governments to adopt a free-market approach to production and commerce. And it was there that his interest in economics began. Later, he discussed economic theories with his friends, particularly James Mill. Mill persuaded Ricardo to write them down, and Ricardo agreed |
| The first book he published | The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1810) |
| The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1810) | Refueled the controversy then surrounding the Bank of England: freed from the necessity of cash payment (strains from the wars with France prompted the government to bar the Bank of England from paying its notes in gold), both the Bank of England and the rural banks had increased their note issues and the volume of their lending. |
| In 1815 Ricardo published | “An Essay on the Influence of a Low Price of Corn on the Profits of Stock” which regulated grain imports and exports Parliament raised the duty on imported wheat due to a drop in wheat prices. in which he argued that raising the tariff on grain imports tended to increase the rents of the country gentlemen while decreasing the profits of manufacturers. |
| In 1817 he published | “Principles of Political Economy and Taxation” Taxation The book concludes that land rent grows as the population increases. It also presents the theory of comparative advantage, the theory that free trade between two or more countries can be mutually beneficial, even when one country has an absolute advantage over the other countries in all areas of production. |
| RICARDIAN THEORY | Theory of Rent The theory to explain the origin and nature of economic rent. He defined rent as “that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” In his theory, rent is nothing but the producer’s surplus or differential gain and it is found in land only. At the time of Ricardo land was primarily used for agriculture for cultivating corn. |
| Rent exists because of | >Diminishing returns in agriculture >The rent can appear because of two reasons: appears due to limited supply of land – known as Scarcity Rent >Rent appears due to differences in fertility and hence difference in productive the capacity of land – known as Differential Rent |
| Ricardo’s Theory of Value | Value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labor which is necessary for its production, and not on the greater or less compensation (wages) which is paid for that labor |
| Ricardo’s Distribution Theory | >Distribution theory explains how income is distributed in society. How to distribute the national income. >Functional Distribution of Income: There are three factors of production land, labor, and capital goods (such as shovels) and three classes of people landlords, workers, and capitalists. Landlords earn rent, workers earn wages, and capitalists earn profits. Ricardo wanted to show how the total output of society is distributed among wages, rent, and profits. >Personal distribution: held that the landlords would receive an increasing part of the national income while capitalists would get less and less and that this shift in distribution would lead to economic stagnation. |
| Comparative Advantage | The ability of an economy to produce a specific good or service at a lower opportunity cost than its trading counterparts is known as comparative advantage. Comparative advantage allows a corporation to sell goods and services at a cheaper cost than its competitors while maintaining higher profit margins. One of the most essential notions in economic theory is comparative advantage, which is a central premise of the argument that all actors, at all times, can gain from cooperation and voluntary trade. It is also a fundamental principle in international trade theory. |
| The international dependency theory | Blamed the world economic grouping and called for its restructure in order for the third world to benefit whiles neoclassical believed that there is too much state interference and called for the rolling back of the state and promote a free market so as for development to take place. |
| The world is divided or grouped into two (2) economic orders; | The center (rich) and the periphery (poor) countries. |
| THE CONCEPT OF DUALISM IN ECONOMICS | Dualism is a concept widely discussed in development economics. It represents the existence and persistence of increasing divergences between rich and poor nations and rich and poor peoples on various levels. |
| The concept of dualism embraces four key elements as stated by development experts. | 1. Different sets of conditions, of which some are “superior” and others “inferior”, can coexist in a given space. 2. This coexistence is chronic and not merely transitional. It is not due to a temporary phenomenon, in which case time could eliminate the discrepancy between superior and inferior elements. 3. Not only do the degrees of superiority or inferiority fail to show any signs of diminishing, but they even have an inherent tendency to increase. 4. The interrelations between the superior and inferior elements are such that the existence of the superior elements does little or nothing to pull up the inferior element let alone “tickle down” to it. |
| CAUSES OF INTERNATIONAL DUALISM AND ITS MANIFESTATIONS | The neo-colonial dependence model, which is an indirect outgrowth of Marxist thinking, attributes the existence and continuance of the third world underdevelopment primarily to the historical evolution of a highly unequal international capitalist system of rich country-poor country relationships. Whether because rich nations are intentionally exploitative or unintentionally neglectful, the coexistence of rich and poor nations in an international system dominated by such unequal power (both politically and economically) relationships between the center (the developed) and the periphery (LDCs) renders attempts by poor nations to be self-reliant and independent difficult and sometimes even impossible. |
| FALSE PARADIGM THEORY | False paradigm is another theory that demonstrates the dualistic nature of the world in both terms. It attributes third world’s underdevelopment to faulty and inappropriate advice provided by uninformed, biased, and ethnocentric international experts from the developed world. |
| COMPARING DOMESTIC AND INTERNATIONAL DUALISM | International dualism is more because it is beyond the control of the third world since the implications are coming from the outside. Domestic are in most cases cause or extended by the state policies which are coming from within. |
| Dualism | Dualism is an issue that will be difficult to erase in any particular society as the head of the policy coordination and advisory service in the presidency (Joel Netshitenzhe) at the international conference: Living on the margins (27th May 2007) South Africa states: “categories or levels of abstraction may change, but dualism will always exist” |
| THE FALSE-PARADIGM MODEL | • Less-radical. • The preposition that developing countries have failed to develop because their development strategies which usually given by the foreign ethnocentric economists from developed countries have been based on an incorrect model of development. • The policy prescriptions serve the vested interests of existing power of groups, both (domestic and international). • Intellectuals, economists, civil servants trained in alien and irrelevant western concepts. |
| This viewpoint connects nations’ underdevelopment to incorrect advice given by uniformed foreign ‘experts’ and advisers from both agencies and organization such as | • World bank • International monetary fund • International labor organization • United nations international children’s emergency fund • United nations development programme |
| The International-Dependence Theory has seen expressions in three models: | : (1) the neoclassical dependence model, (2) THE FASLE-PARADIGM MODEL and (3) the dualistic-development thesis. |
| Harrod-Domar model | Growth model used in development economics that states an economy’s growth rate is dependent on the level of saving and the capital-output ratio. Explains growth in terms of the level of savings and productivity of capital. This model of economic growth has been applied to the problems of economic development. This model also explains three types of growth: warranted growth, actual growth rate, and natural growth. |
| The Harrod-Domar model was developed independently by | Sir Roy Harrod in 1939 and Evsey Domar in 1946. |
| The capital output ratio measures the | Productivity of the investment that takes place. If the capital-output ratio decreases the economy will be more productive, so higher amounts of output are generated from fewer inputs. This again leads to higher economic growth. |
| TYPES OF GROWTH | • Warranted Growth • Actual Growth Rate • Natural Growth Rate |
| Warranted Growth | All resources are fully utilized. The warranted growth rate of growth where all savings are converted or used as capital. it is a rate of growth at which the economy does not expand indefinitely or goes into recession. the growth the rate at which all saving is absorbed into investment. |
| Actual Growth Rate | - Measures economic growth as expressed by gross domestic product (GDP) per year. Actual/Real economic Growth Rate reveals changes in the value of all goods and services produced by an economy - the economic output of a country - while accounting for price fluctuations. |
| Natural Growth Rate | It is the rate required to maintain full employment. Natural growth rate. For example, if the labor force grows at three percent per year, the economy's annual growth rate must also increase at 3% to maintain full employment |
| FACTORS AFFECTING ECONOMIC GROWTH | • Savings • Marginal Efficiency of Capital • Depreciation |
| Savings – | – Higher savings enable greater investment in capital stock. It is the proportion of national income that is saved. |
| Marginal Efficiency of Capital | This refers to the productivity of investment, e.g., if machines costing £30 million increase output by £10 million. The capital-output the ratio is 3. ?(Economic Growth) = ?(Savings Ratio)/ ? (Capital Output Ratio) |
| Depreciation | – old capital wearing out. It refers to the decline in value of a capital asset |
| Harod-Domar Model | Increased savings> Increased investment> Higher capital stock> Higher economic growth |
| Savings | – represents the supply of loanable funds in the economy for investment. A high saving rate indicates that the economy has significant funds to increase capital stock and productive capacity. An increase in the savings rate leads the economy towards higher growth. |
| Investment | It is the production of goods that will be used to produce other goods. The action or process of investing money for profit or material result. |
| Capital stock | The savings rate is positively correlated with capital stock. A higher saving rate allows for more significant capital investment. |
| GENERAL ASSUMPTIONS | • A full-employment level of income already exists. • The model is based on the assumption of “closed economy.” In other words, government restrictions on trade and the complications caused by international trade are ruled out. • The model assumes constant returns to scale for the capital-output ratio and the propensity to save. • Investment is net, that is, gross investment minus depreciation. Thus, the capital stock changes by net investment. |
| LIMITATIONS | • The model oversimplifies the sources of economic growth. It only uses capital and savings as determinants. It ignores other factors such as labor productivity and technological advances as factors spurring economic growth. • The model assumes the economy is operating at full employment. That is unrealistic in the real world because the economy often fluctuates around full employment (potential output). These fluctuations produce business cycles in which real GDP rises and falls. • The constant marginal return on capital is not valid. An increase in capital stock actually causes lower returns. The Solow growth model shows you, if the capital per labor ratio is high, the effect of increasing output due to additional capital stock tends to decrease. Thus, capital has a decreasing marginal rate of return |
| Karl Henrich Marx | A German philosopher, economist, historian, and journalist who is best known for his work as a radical political theorist and socialist revolutionary. He is also known as the “father of communism” because of his idea about class struggle, the capitalist system, revolutionary and political regimes of the government for a decade |
| Famous Work of Karl Marx | Karl Marx has two (2) famous works that up until today are still read by other philosophers and this are the; The Das Capital “Capital” is one of the major works Karl which is published on September 14, 1867, in which he expounded his theory of the capitalist system, its dynamism, and its tendencies toward self-destruction. He said, his goal was to reveal "the economic rule of motion of modern civilization." Das Kapital spends a lot of time explaining Marx's concept of "surplus value." of labor and its consequences for capitalism. The Communist Manifesto it was published on February 21. 1848. Communist Manifesto it is a modern communist movement that is concern about the nature of society and politics. The Manifesto was written at a time of unprecedented industrial and social change |
| History of Marxism | Marx developed his thoughts by collaborating with German thinker, Fredrick Engels by researching in the British Museum’s reading room and then publishing his writings. |
| Fredrick Engels | Son of a factory owner in Britain, and he observed many factories in Britain at the height of the Industrial Revolution. |
| Primitive Communism | The 1st stage of historical materialism wherein humans lived together before the emergence of large-scale agriculture. People lived in a simple life in which everything was shared amongst the tribe-food, jobs, and belongings. No one owned their land and no one is taken advantage of their labor. Eventually, one group comes to power which leads to Feudalism |
| Two classes. | Feudal lords and serfs. Lords owned the land in their favor and their job was to lease land and employ agricultural labor in their lands So, the serfs fought against the lords. With the spreading of industries, urbanization grew, so the emphasis was on industries which he called Feudalism the 2nd stage of historical materialistic |
| Socialism | The stage where the society is classless and it is based on the principle of equality |
| Communism | Is the ultimate final stage where there is the prevalence of equality among all. Everybody works according to his capacity and gets according to his due, when capitalism goes and communism comes into being there are some elements found in some form or other of capitalism in socialism. |
| Marxism | Social, political, and economic theory. It examines the effect of capitalism on labor, productivity, and economic development and argues for a worker revolution to overturn capitalism in favor of communism. Marxism posits that the struggle between social classes—specifically between the bourgeoisie, or capitalists, and the proletariat, or workers—defines economic relations in a capitalist economy and will inevitably lead to revolutionary communism. |
| Marx’s class theory portrays | Capitalism as one step in the historical progression of economic systems that follow one another in a natural sequence. |
| Socio-Economic Classes | >The Bourgeois/Bourgeoise they “means of production”, the systems by which goods are made and distributed. These includes everything from the mines where resources are extracted to the factories where manufactured goods are produced to the stores where they are sold. >The proletariat, they work for the bourgeois. Proletariat exchange their labor for a fixed wage that represents only a small fraction of the total volume of their work. They work for t |
| Marxism vs Capitalism | Role of Government >There is a government who will control everything. >There is no government who will interfere in the economy. Property >Public Property/Ownership. >Private Property/Ownership Earnings >Workers earn the same wage. >Workers are not equally pay Welfare ' they provided a free access for every citizen. ' Citizens generally pay for everything |
| Communism vs Socialism | >communism, most property and economic resources are owned and controlled by the state > Socialism, all citizens share equally in economic resources as allocated by a democratically-elected government. F |
| Goal of Marxism | The goal of Marxism is to create a society in which justice determines a fair distribution of wealth, leading to society in which all individuals can achieve their potential without the advantages or disadvantages currently granted by their position in the world capitalist system. |
| Background | Keynesian Economics or Theory is an economic theory developed by John Maynard Keynes (183-1946), a British Economist. The term “Keynesian Economics or Theory” was named after John Maynard Keynes. Keynes developed this economic theory in an attempt to understand the Great Depression in 1930s. The ideas of this economic theory were written in Keynes’ writing titled “The General Theory of Employment, Interest, and Money”. Keynesian Economics was based on the circular flow of money. Keynesian Economics is one of the three main schools of thought in macroeconomics (Classical, Keynesian, and Monetarist). |
| Basic Rules | A. If Aggregate Demand is greater than Aggregate Supply, the output grows, economy grows, and unemployment falls. b. If Aggregate Demand is less than Aggregate Supply, output falls, economy shrinks, and unemployment rises. c. If Aggregate Demand is equal to Aggregate Supply, economy is in equilibrium. |
| Aggregate Demand | The total demand for all goods and services in an economy |
| Aggregate Supply | The total supply for all goods and services in an economy or TOTAL PRODUCTION IN AN ECONOMY. |
| Ideas of Keynesian Economics | 1. National income depends on the amount of employment. 2. The marginal propensity to consume is less than 1. 3. Employment results from consumption and investment. 4. The system rests, in equilibrium, with excess capacity. 5. Employment could be increased if workers accepted lower wages, because it would make lower investments by business profitable, but wages are sticky. 6. To increase employment and achieve full employment, spending must be increased. 7. All spending is equal. 8. Since consumer spending and investment are stuck, the government must increase spending to restore full employment. 9. All spending is subject to a multiplier effect. 10. The government can supplement spending until full employment is reached without inflation |
| Ideas of Keynesian Economics | 11. Once full employment is reached, additional spending, will cause inflation. 12. Private Laissez Faire investment cannot produce the necessary investment to maintain full employment. 13. Monetary policy, influencing interest rates, alone, cannot regulate investments necessary to maintain full employment. 14. Direct central controls of long term investments by the state is necessary to ensure full employment. |
| PL | – Price LeveL |
| AD | – Aggregate Demand |
| LRAS | – Long Run Aggregate Supply |
| Aggregate Demand includes: | Consumption Investment Government Spending Net Exports |
| Thomas Robert Malthus | A famous 18th-century British economist known for the population growth philosophies outlined in his 1798 book "An Essay on the Principle of Population." |