IB Economics 4.7 Sustainable Development Questionbank

(d) Using information from Table 2, calculate the change in total revenue from trekking permit sales between 2021 and 2022.

(e) Define the term “Keynesian multiplier.”

(f) Using an AD/AS diagram, explain how an increase in foreign direct investment might affect real output in Nepal in the short run.

(g) Using information from Table 1, calculate the labour force participation rate in Nepal for 2021.

(h) Using information from the text, explain how income inequality could act as a constraint on Nepal’s economic growth.

(i) Using the text/data provided and your knowledge of economics, recommend a policy which could be implemented by the government of Nepal in order to promote sustainable economic growth.

Over the past decade, Iceland’s economy has experienced both rapid growth and sudden declines. Tourism surged from fewer than 1 million visitors in 2012 to over 2 million visitors in 2019. However, fishing remains one of Iceland’s most significant export sectors, accounting for around 20% of national exports. The COVID-19 pandemic and associated travel restrictions led to a sharp decrease in tourism revenues and posed challenges for Iceland’s open economy.

Although Iceland has one of the lowest levels of income inequality among OECD countries, its policymakers remain vigilant about potential inequalities. Corporate and personal income taxes help fund a comprehensive social welfare system. Indirect taxes, such as a value-added tax (VAT) of 24%, also contribute significantly to government revenue. Recent exchange rate fluctuations have influenced the competitiveness of Icelandic fish products abroad.

Table 1: Real GDP in Iceland

Table 2: Hypothetical Demand for Icelandic Cod Exports

Table 3: Income Distribution in Iceland (2020)

Figure 1 (not to scale) illustrates the growth in tourist arrivals in Iceland from 2017 to 2020:
• 2017: 2.2 million visitors
• 2018: 2.3 million visitors
• 2019: 2.0 million visitors
• 2020: 0.5 million visitors

Additionally, Iceland’s current corporate income tax rate is 20%. Personal income taxes range from 20% to 31%, depending on income brackets. VAT on goods such as tourism-related services is 11%, while it is 24% for most other goods. Policymakers in Iceland are debating how to sustain economic growth in the post-pandemic period by encouraging both a more diversified export sector and a stronger tourism industry.

(a) Using the information provided in Table 1, calculate the real GDP for Iceland in 2020 (in ISK billions).

(b) Suppose that an increase in government spending of ISK 30 billion led to an overall increase in real GDP of ISK 60 billion. Using the concept of the Keynesian multiplier, calculate the multiplier for Iceland.

(c) Using the information from Table 2, calculate the price elasticity of demand (PED) when the price of cod increases from ISK 800 per kg to ISK 840 per kg.

(d) If indirect tax revenue from VAT on various goods rises by ISK 8 billion as a result of higher consumption, calculate the total additional amount spent on these goods by consumers (assuming a uniform 24% VAT on those goods).

Nepal is a landlocked country in South Asia with a population of approximately $29.3$ million people. Agriculture remains crucial, contributing about $27\%$ of gross domestic product (GDP). Tourism and remittance inflows (estimated at around $24\%$ of GDP) are also major components of Nepal’s economy. Nepal’s main trading partner is India, accounting for the largest share of both exports and imports. Nepal’s government applies a $13\%$ Value Added Tax (VAT) on many goods and services, including coffee sales in the domestic market.

Table 1: Key Macroeconomic Indicators for Nepal (2019–2021)

Table 2: Labour Market Data for Nepal (2021)

Table 3: Income Distribution (Nepal and Selected Countries)

Figure 1: Market for Nepali Coffee

• In 2021, the price of coffee in Nepal was $400$ NPR/kg, and daily quantity demanded was $3000$ kg.
• In 2022, the price rose to $440$ NPR/kg, and daily quantity demanded fell to $2800$ kg.
• The Government of Nepal imposes a $13\%$ VAT on coffee. In 2022, total revenue from coffee sales in the domestic market, excluding VAT, was $1,232,000$ NPR.

(a) Using the information from Table 1, calculate the average annual real GDP growth rate for Nepal over the period 2019–2021.

(c) Using the information provided in Table 2, calculate the unemployment rate in Nepal for 2021.

(d) From the information on VAT in the text above, calculate the total amount of VAT revenue the government collected from domestic coffee sales in 2022.

Sustainable Growth and Economic Challenges in Vanuatu: Tourism, Trade, and Development Strategies

(1) Vanuatu is a small island nation in the southwestern Pacific Ocean, geographically dispersed across more than 80 islands. Despite its modest population of around 314,000 people, the country has seen steady growth in the tourism sector, which contributed about 22% of its Gross Domestic Product (GDP) in 2022. At the same time, agriculture remains vital, accounting for an estimated 26% of GDP, with coconut and cocoa among the leading exports.

(2) Like many small, open economies, Vanuatu faces vulnerabilities related to natural disasters and external economic shocks. In 2021, Cyclone Harold caused extensive damage to infrastructure, prompting the government to launch a major infrastructure investment program (estimated at over US$150 million) aimed at improving roads, ports, and rural connectivity. The expectation is that this will foster long-term national development by enhancing trade flows and attracting new businesses.

(3) To promote domestic production, the government introduced a direct subsidy scheme for local farmers in 2022. This program, costing approximately 2% of Vanuatu's annual budget, aims to lower production costs and encourage food security. Officials hope that boosted agricultural outputs will reduce the country's reliance on food imports, which remain relatively high due to limited local capacity in certain product categories.

(4) International trade plays a key role in Vanuatu's economy. The country exports coconut oil, cocoa, and kava, primarily to regional neighbors such as Australia and New Zealand. In 2022, merchandise exports accounted for US$80 million. Meanwhile, imports of fuel, machinery, and consumer goods reached US$210 million, contributing to a persistent trade deficit. Additionally, foreign direct investment (FDI) inflows have grown, especially in areas like eco-tourism. Yet concerns persist that external shocks—including global downturns—could significantly restrict Vanuatu's FDI prospects in the future.

(5) The national government's economic policies include the "Sustainable Tourism Plan," focused on eco-friendly resorts and better infrastructure to accommodate rising visitor numbers. The authorities envision that a more environmentally conscious approach to tourism development could both generate revenue and protect Vanuatu's natural habitats.

(6) Meanwhile, inflation stood at around 3.2% in 2021, inching up to 3.5% in 2022, partly due to rising fuel costs. Budget deficits have been moderate, averaging around 3% of GDP over the last three years. The government has been managing external debt cautiously, working with international organizations on concessional lending terms to finance climate-resilient projects and the new infrastructure plan, while striving to maintain fiscal sustainability.

(7) Alongside its focus on macroeconomic stability, Vanuatu is confronted with social issues such as uneven access to education and healthcare, especially in remote islands. Recent data shows that 15% of rural households have limited access to healthcare. The authorities are hopeful that targeted spending on public services, underwritten by the new infrastructure projects, will improve living standards.

(8) Looking forward, Vanuatu's policymakers see opportunities to diversify the economy by building more resilient supply chains and expanding niche exports, such as organic produce. However, achieving strong economic development depends largely on climate adaptation measures, the effective use of infrastructure investment, and managing the balance between tourism growth and environmental sustainability.

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

Table 2: Social and Trade Indicators (2020–2022)

(a) Define the term “infrastructure investment” indicated in the text (paragraph 2).

(b) List two ways in which the government is encouraging growth in Vanuatu’s tourism sector, as mentioned in the text.

(c) Using information from Table 1, calculate the percentage increase in Vanuatu’s nominal GDP between 2019 and 2022.

(d) Sketch a demand-and-supply diagram to illustrate how a subsidy for local farmers (paragraph 3) might affect the equilibrium price and quantity in Vanuatu’s domestic agricultural market.

Ghana’s economy has experienced relatively high levels of economic growth over the past decade, largely driven by the export of primary commodities, such as cocoa and gold, and an expanding services sector. Ghana is one of the world’s largest exporters of cocoa, and cocoa alone contributes a significant share of the country’s export earnings. Despite these gains, Ghana has faced macroeconomic challenges in recent years, including rising inflation and fiscal deficits.

The government has attempted to diversify the economy away from its reliance on primary commodities, investing in infrastructure and seeking to encourage more value-added activities to boost productivity and employment. However, issues such as income inequality and limited access to finance in rural areas persist and may limit the potential for inclusive growth.

Below are some data tables about Ghana’s economy.

Table 1: Selected Macroeconomic Indicators for Ghana (2022)

Table 2: Cocoa Market Data (2022 estimates)

Table 3: Income Tax Rates in Ghana

Additional information: • The marginal propensity to consume (MPC) in Ghana is estimated at 0.8.
• Government tax revenue from cocoa exports is calculated as 10 % of the value of cocoa exported.
• The government aims to reduce inflation by tightening monetary policy and improving the efficiency of its tax collection system.

(a) Using the information in Table 2, calculate the total tax revenue (in Ghana cedis) the government earns from cocoa exports.

(c) Using the information in Table 1, calculate Ghana’s approximate GDP per capita in US dollars. Show your working.

(d) From Table 2, using the estimated PES (+0.3), calculate the percentage change in quantity supplied of cocoa if its price rises from GH¢ 10 000 per tonne to GH¢ 11 000 per tonne in the domestic market.

(b) Using the data in Figure 1, and applying the midpoint method, calculate the price elasticity of demand for Nepali coffee when its price rises from $400$ NPR/kg to $440$ NPR/kg.

(b) Assume that the government injects an additional GH¢ 1 billion into infrastructure spending. Given that the marginal propensity to consume (MPC) in Ghana is 0.8, calculate the total change in real GDP resulting from this additional spending using the Keynesian multiplier formula.