Exam Practice

Questions in the style of the WEC14 paper (2 hours, 80 marks). Try them timed, then check the guidance in the next section.

A Section A — multiple choice (6 marks)

1. A country has a comparative advantage in a good when it can produce it at a lower: (a) absolute cost; (b) opportunity cost; (c) wage; (d) exchange rate.
2. A tariff is: (a) a limit on the quantity of imports; (b) a tax on imports; (c) a subsidy to exporters; (d) a ban on imports.
3. A country's terms of trade improve when: (a) import prices rise faster than export prices; (b) export prices rise relative to import prices; (c) the exchange rate falls; (d) tariffs are imposed.
4. By the Marshall-Lerner condition, a depreciation improves the current account if: (a) PEDx + PEDm > 1; (b) PEDx + PEDm < 1; (c) PEDx = PEDm; (d) PEDx + PEDm = 0.
5. A Gini coefficient of 0 indicates: (a) perfect inequality; (b) perfect equality; (c) absolute poverty; (d) a trade surplus.
6. Which is a market-orientated development strategy? (a) protectionism; (b) managed exchange rates; (c) trade liberalisation; (d) buffer stock schemes.

B Section B — data response (sample, of 34)

Real world

Extract — Country Z

Country Z depends on coffee exports for 65% of its export earnings. A recent fall in global coffee prices widened its current account deficit, and its currency depreciated by 12%. The government is seeking an IMF loan and is considering trade liberalisation.

1. With reference to the extract, explain one problem of primary product dependency for Country Z. (4)
2. With the aid of a diagram, explain how a depreciation of Country Z's currency might affect its current account. (6)
3. Examine the likely effects of trade liberalisation on Country Z's economy. (10)

C Section C — essays (answer two of three, 20 marks each)

1. Evaluate the view that free trade always benefits a developing economy. (20)
2. Discuss whether a depreciation of the exchange rate is an effective way to reduce a current account deficit. (20)
3. Assess the most effective strategies for promoting development in a developing economy. (20)