QUESTION 1 (6 marks) Economic growth is a necessary, but not a sufficient condition for economic development in a country. True or False? Justify your answer by comparing through an example of an...

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Answer To: QUESTION 1 (6 marks) Economic growth is a necessary, but not a sufficient condition for economic...

David answered on Dec 29 2021
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QUESTION 1 (6 marks)
Economic growth is a necessary, but not a sufficient condition for economic development in a co
untry. True or False? Justify your answer by comparing through an example of an Asia-Pacific e
conomy (compa
re between indonesia and china) over 2000-2010 period.
Answer:
The statement that “Economic growth is a necessary, but not a sufficient condition for economic
development in a country” is a true statement. To establish this statement, we can compare the an
nual growth rates and human development indexes of two Asia-pacific countries say; Japan and
China. The data and graph has been shown below;

China Japan
Year
GDP Annual
growth rate (%)
GDP Annual
growth rate
(%)
2003 10 2
2004 10 2
2005 11 1
2006 13 2
2007 14 2
2008 10 -1
2009 9 -6
2010 10 4

Sources: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Sources: http://hdr.undp.org/en/data/trends/
It can be noted that despite having a very high annual growth rate relative to Japan (for the perio
d 2003-2008), China‟s economic development (as measured in terms of human development ind
ex) is far below Japanese economic development. It proves the initial statement that “Economic
growth is a necessary, but not a sufficient condition for economic development in a country.
QUESTION 2 (5 marks)
Refer to the table below that provides data on Gross Domestic Product (GDP) per capita in 2009
and answer the following question:
What are the possible reasons that could explain the significant difference between GDP per capi
ta measured at official exchange rates and that measured at purchasing power parity (PPP) for de
veloping countries (for example, China, Vietnam, India) compared to developed countries (for ex
ample, US, UK, Japan) in the above table?
Answer:
Possible reasons that could explain the significant difference between GDP per capita measured
at official exchange rates and that measured at purchasing power parity (PPP) for developing cou
ntries;
1. Lower cost of living in developing country as compare to developed country; cost of livin
g in developing country is much lower than developed country and this fact is not reflecte
d in official exchange rate. So once GDP is calculated on PPP basis (which...
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