IB Economics 1.1 What Is Economics? Questionbank

(e) Define the term “Keynesian multiplier.”

(h) Using information from the text, explain two ways in which reliance on remittances may act as a barrier to economic development in Tajikistan.

(i) Using the information in the text and your knowledge of economics, evaluate the extent to which reliance on remittances is a barrier to economic development in Tajikistan.

Explain how the method of resource allocation differs between a free market and a planned economy.

Economic Challenges and Developments in Jordan

Jordan, located in the Levant region of the Middle East, has historically served as a major trade hub due to its strategic location. Over the past decade, Jordan’s government has pursued policies to diversify the economy beyond traditional service sectors such as tourism and finance. While Jordan boasts political stability relative to some neighbors, it faces persistent macroeconomic and microeconomic challenges, including high unemployment, persistent budget deficits, and rising poverty levels in rural areas. In 2022, Jordan’s real GDP grew by approximately 2.2%, marking a modest rebound after slower growth in previous years.

One major concern is the country’s dependence on imports for energy, food staples, and manufactured goods. The government maintains a partial subsidy on wheat and cooking gas to keep basic food prices affordable and reduce social pressures. However, critics argue that these subsidies weigh on government spending and distort market signals. Efforts to gradually remove universal subsidies and move toward targeted assistance have been tested amid inflationary pressures that reached 4.5% in the same year. Jordan’s budget deficit stood at around 6.8% of GDP in 2022, prompting the government to seek further support from international financial institutions to implement fiscal reforms.

Unemployment remains a pressing issue, averaging about 22% in urban centers and exceeding 35% among the youth. Small and medium-sized enterprises (SMEs) complain of limited access to credit, constraining their ability to invest in capital goods and expand operations. Foreign direct investment (FDI) inflows have stagnated in recent years, partially due to geopolitical risks and global economic uncertainties. The Central Bank of Jordan has maintained a fixed exchange rate regime, pegging the Jordanian dinar to the US dollar to stabilize investor confidence and control inflation. This policy requires careful reserves management, as fluctuations in remittances and tourism receipts can influence the country’s current account balance.

Jordan also contends with developmental challenges and pockets of poverty. Official estimates put the national poverty rate at about 15%, though some independent studies suggest regional disparities are more pronounced. In rural governorates, inadequate infrastructure, limited job opportunities, and underinvestment in education perpetuate what policymakers describe as a “poverty trap.” Government initiatives to address poverty include conditional cash transfers, microfinance programs, and public works projects aimed at boosting income for low-skilled households. Non-governmental organizations also play a significant role in bridging gaps in healthcare and education services, particularly for vulnerable groups.

On the trade front, Jordan has signed agreements with the European Union (EU) and other regional partners to reduce tariffs on a wide range of goods. Exports of agricultural produce, chemicals, and textiles have grown, but the trade balance remains negative. Jordan’s reliance on imported oil and capital equipment contributes to a large current account deficit. Meanwhile, some exporters point to administrative barriers and compliance costs when selling into foreign markets. The government, with donor support, has invested in infrastructure and logistics hubs to improve the competitiveness of Jordanian goods abroad.

Recently, Jordan has increased its focus on sustainable development. Investments in renewable energy, particularly solar power, have gained momentum, improving energy security. Government agencies have also introduced pilot projects to reduce water wastage and improve agricultural productivity in arid regions. Nevertheless, recurring droughts and the influx of refugees from neighboring conflict zones create additional pressures on public services, threatening progress in poverty reduction.

In the short to medium term, Jordan’s economic outlook depends on containing inflation, reducing the budget deficit, and attracting FDI to diversify its economic base. Overcoming structural inefficiencies, supporting SMEs, and chipping away at long-standing poverty levels will require continued policy reforms and collaboration with international partners. The interplay of government interventions, global market conditions, and social development programs will ultimately shape Jordan’s capacity for sustained and equitable growth.

Table 1: Selected Macroeconomic Indicators for Jordan (2019–2022)

Table 2: Development and Social Indicators for Jordan

Vietnam’s Path to Development: Growth and Structural Change

Over the last few decades, Vietnam has undergone a significant economic transformation. Since the introduction of the "Doi Moi" reforms in 1986, the nation has shifted from a centrally planned economy dependent on agriculture to a market-oriented economy driven by manufacturing and export-led growth. This transition has resulted in one of the world’s highest rates of real GDP growth, lifting millions of people out of absolute poverty.

However, development economists argue that economic growth alone does not equate to economic development. While Vietnam's Gross National Income (GNI) per capita has risen substantially, the country faces challenges in ensuring that these gains are distributed equitably. Rising income inequality, measured by the Gini coefficient, has become a concern as the wealth gap between urban industrial centers and rural agricultural regions widens. Furthermore, rapid industrialization has led to environmental degradation, raising questions about the sustainability of its current growth model.

To better capture the multidimensional nature of progress, the United Nations uses the Human Development Index (HDI). This composite indicator reflects achievements in health, education, and standard of living. In Vietnam, improvements in life expectancy and mean years of schooling have contributed to a steady rise in its HDI score, placing it in the "high human development" category. Despite this, some critics suggest that even composite indicators like the HDI may overlook crucial factors such as gender empowerment, political freedom, and environmental quality.

Investment in infrastructure and human capital remains a priority for the Vietnamese government. By improving vocational training and health outcomes, the government aims to increase the productivity of its workforce and expand the nation's productive capacity. However, as the economy matures, the challenge lies in balancing the pursuit of higher income levels with the need for social equity and environmental preservation.

Table 1: Vietnam’s Key Development Indicators (2018–2022)

Table 2: Inequality and Environmental Indicators

(a) Define the term economic growth.

(b) Define the Gini coefficient.

(c) Using information from Table 1, calculate the percentage change in Vietnam's GNI per capita between 2020 and 2022.

(d) Using a correctly labeled diagram, sketch a Lorenz curve that illustrates the increase in income inequality in Vietnam between 2018 and 2022.

The Impact of Subsidies on Agricultural Production in India

India's government introduced a large subsidy program for wheat farmers to ensure food security, stabilize domestic production, and protect farmers' incomes amidst rising global wheat prices. The government allocated funds for direct subsidies to farmers to reduce production costs, thus aiming to encourage more local production. The subsidies were primarily intended to reduce reliance on wheat imports and ensure a steady supply of affordable wheat for domestic consumers.

Despite the intention to improve local agricultural output, some analysts have criticized the policy for causing distortions in the market. The subsidized wheat prices led to a significant increase in production, but experts argue this might lead to overproduction, environmental degradation, and inefficient resource allocation. Additionally, the increase in local wheat production made it difficult for some small-scale farmers to compete.

The following data reflects changes in the wheat market over two years, and the government is considering extending the subsidy for another year to maintain production levels.

Table 1: Wheat Market Data Before and After Subsidy

To further assess the impact of subsidies, the following data shows the government's expenditure on subsidies and changes in farmers' incomes over the two years:

Table 2: Government Subsidy Expenditure and Farmers' Income

"The government’s introduction of subsidies aims to boost wheat production and reduce dependency on imports by lowering farmers' production costs. While the policy has succeeded in increasing production, critics argue that it distorts market prices and increases environmental pressures due to overproduction. Furthermore, the subsidy has resulted in increased wheat exports, which may affect the country’s trade balance. There are concerns that the policy's long-term sustainability could be undermined by the growing costs associated with the subsidies and the risk of creating market inefficiencies."

(a) Define the term "subsidy."

(b) List two ways in which government intervention can impact agricultural markets.

(c) Using information from Table 1, calculate the percentage change in wheat production from Year 1 to Year 2.

(d) Draw a demand and supply diagram to show the effect of the subsidy on the wheat market.

(d) Using the cotton market data provided above, calculate the change in total revenue for cotton producers in Tajikistan following the increase in price from TJS $10$ to TJS $12$ per bale.

(f) Using an appropriate AD/AS diagram, explain how an injection of TJS $600$ million into the economy (with an MPC of $0.75$) might affect Tajikistan’s real GDP.

(g) Using the information provided, calculate the total value of Tajikistan’s stimulus package as a percentage of its real GDP in $2021$.

(a) Define the term “subsidy” as used in the text (paragraph $2$).

(b) Define the term “foreign direct investment (FDI)” as mentioned in the text (paragraph $3$).

(c) Using information from Table $1$, calculate the total nominal GDP increase (in US$billion) from$2019$to$2022$ for Jordan.

(d) Sketch an aggregate demand and aggregate supply (AD/AS) diagram to explain how rising inflation (Table $1$) could result from increased government spending on subsidies.