IGCSE Development Studies: Specimen Questions with Answers 26 - 27 of 98

Explanation

GDP is the worth of net produce in a country in a given financial year. For example- If it is said that a countries GDP fell by 2 % it means that the country՚s produce in the last year has fallen by 2 % . The reasons for fall in GDP can be –

• Fall in the demand by the consumers.
• Adverse impact on manufacturing and service sector affected due to natural causes like, monsoon.

GDP is the report prepared at the end of the financial year. Effect of decline in GDP on an economy is as follows:

• Unemployment: A reduction in production means that less people are employed which leads to less amount of money with the people to make purchases.
• Market situation won՚t be a good one
• A fall in GDP will result in reduction in the size of the economy.
• A decrease in the GDP will cause a fall in the average rate of interest in an economy.

Explanation

Once a country defaults, it cannot repay its debt, the burden of interest increases, a country is unable to get cheaper loans to repay its debt and it gets into the vicious circle of debt.

Ways a country can get out of its debt trap are as follows:

• A country can raise the amount of taxes or it can reduce its expenses.
• A country can opt for printing money to pay for its debt.
• Reforming the economic policies will play an important role in supporting countries coming out of its debt trap.
• A reduction in the trade barriers can reduce can help the countries in increasing the access to its market from other countries leading to an increase in its revenue.
• To have a mechanism to look closely into the debt problems to encourage strong policies and providing risk sharing