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Chapter Menu
Chapter Introduction
Section 1: Economic Development
Section 2: Achieving Economic Development
Section 3: The Transition to Capitalism
Visual Summary
Chapter Intro 1
Your pen pal from abroad has asked for your school’s help on a project to improve the quality of life for the students in his school and community. As a member of the planning committee, your task is to suggest ideas. Create a list of ways to help students and the neighborhood as a whole. Present your proposals to the class. Read Chapter 17 to learn about the ways that developing nations can improve the quality of life for their citizens.
Chapter Intro 2
1. Every society has an economic system to allocate goods and services.
2. The study of economics helps us deal with global economic issues and global demand on resources.
Section 1-Preview
Section Preview
In this section, you will learn that developing countries face a number of obstacles that make economic growth difficult.
Section 1-Key Terms
Content Vocabulary
• developing country
• primitive equilibrium
• takeoff
• crude birthrate
• life expectancy
• zero population growth (ZPG)
• external debt
Academic Vocabulary
• proportion • primary
• default
• capital flight
A. A
B. B
C. C
Section 1
Approximately how many people currently live in poverty throughout the world?
A. 10 billion
B. 1 billion
C. 5 billion
A B C
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Section 1
Economic Development
• Most of the world’s population lives in developing countries.
• Best way to improve the rampant poverty is with economic growth and development.
Section 1
The Importance of Economic Development
In a global economy, the economic health of all nations is important.
Section 1
The Importance of Economic Development (cont.)
– Economic problem
– Source of social discontent
– Source of political unrest
• Impact of poverty
Gross National Income and Gross National Income Per Capita
Section 1
The Importance of Economic Development (cont.)
• Economists convert all currencies to a common unit then express it on a per capita basis.
• Findings—about 1 billion people live in poverty today.
Gross National Income and Gross National Income Per Capita
Section 1
The Importance of Economic Development (cont.)
• International community shares humanitarian and economic concern for the poor:
– Moral responsibility to help those with less income and wealth
– Self interest—critical raw materials needed from developing countries
– Global economic cooperation leads to a more stable political climate.
A. A
B. B
C. C
Section 1
Does the export of diamonds from developing countries in Africa have a positive or negative impact on its economy?
A. Negative impact on its economy
B. Positive impact on its economy
C. No impact on its economy
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Section 1
Stages of Economic Development
Thinking about economic growth as occurring in stages helps us understand economic development.
Section 1
• Developing countries pass through stages of economic development:
– Primitive equilibrium
– Transition
– Takeoff
– Semidevelopment
– High development
Stages of Economic Development (cont.)
A. A
B. B
C. C
Section 1
What stage of economic development is a developing country in when its old customs start to crumble?
A. Primitive equilibrium
B. Transition
C. Takeoff
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Section 1
Obstacles to Development
Numerous obstacles make economic growth in developing countries more difficult than in developed countries.
Section 1
• Challenges facing developing countries
– Population growth
Obstacles to Development (cont.)
• High crude birthrate
• Increase in life expectancy
• Zero population growth (ZPG)
– Limited natural resources and geography
– Disease and substance abuse
Section 1
– Education and technology
Obstacles to Development (cont.)
• Default on loans
– Corruption
– War and its aftermath
– Capital flight
The Corruption Perception Index
– External debt
A. A
B. B
C. C
D. D
Section 1
A B C D
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Which of the following do you think is the biggest obstacle to a developing country’s economic growth?
A. Natural resources and geography
B. External debt
C. Population growth
D. Education and technology
Section 2-Preview
Section Preview
In this section, you will learn that developing countries can progress in economic development by finding domestic and international funding and by encouraging regional cooperation.
Section 2-Key Terms
Content Vocabulary
• micro loan
• International Monetary Fund (IMF)
• World Bank
• soft loan
• expropriation
• free-trade area
• customs union
Academic Vocabulary
• ethic • duration
• European Union (EU)
• euro
• ASEAN
• cartel
A. A
B. B
C. C
Section 2
What is the World Bank?
A. A religious affiliated organization that makes loans available to foreign entities
B. An international corporation that makes loans and provides advice to developing countries
C. A group of foreign investors providing economic assistance to the poorest of the poor
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Section 2
Funding Economic Development
Developing countries can fund economic development through savings, international aid and loan programs, and foreign investment.
Section 2
Funding Economic Development (cont.)
• Sources of funding for economic development
– Internal savings
– Micro loans
– International Monetary Fund (IMF)
– World Bank Group
• Soft loans made to the neediest countries
Section 2
Funding Economic Development (cont.)
– Borrowing from foreign governments
• Expropriation
The Global Economy & YOUTypes of Peace Corps Aid
– Private funds from foreign investors
A. A
B. B
C. C
D. D
Section 2
A B C D
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Which loans are popular with women in small African villages?
A. World Bank loans
B. Micro loans
C. Soft loans
D. IMF loans
Section 2
Regional Economic Cooperation
Regional economic agreements foster trade and economic growth among member nations.
Section 2
• Ways to promote regional economic cooperation:
– Free-trade area
– Customs union
– European Union (EU)
Regional Economic Cooperation (cont.)
• Euro
The European Union
Section 2
– ASEAN
– OPEC
Regional Economic Cooperation (cont.)
• Cartel
The European Union
A. A
B. B
C. C
D. D
A B C D
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Section 2
Which of the following is not true about the European Union?
A. The EU acts as a single market.
B. No internal barriers regulating flow of workers, capital, goods or services within EU
C. Citizens of EU member nations can travel anywhere in EU without trouble.
D. A single EU currency is used by all members replacing their national currencies.
Section 3-Preview
Section Preview
In this section, you will learn that reforms in the former Soviet Union, China, and many Latin American and eastern European nations have moved these economies toward more capitalistic, market-oriented systems.
Section 3-Key Terms
Content Vocabulary
• capitalism
• privatization
• vouchers
• Five-Year Plan
• Gosplan
• collectivization
• perestroika
• Great Leap Forward
Academic Vocabulary
• undertaking • isolationism
• Solidarity
• black market
• capital-intensive
• keiretsu
• population density
A. A
B. B
Section 3
Is capitalism good for developing countries?
A. Yes
B. No
A B
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Section 3
The Transition to Capitalism
• As countries develop their economies, capitalism based on their own cultural and social values spreads across the globe.
Section 3
Problems of Transition
Countries in transition to capitalism must learn to abide by the rules of free market economies.
Section 3
Problems of Transition (cont.)
• Capitalism’s benefits
– Increased productivity and economic growth
– Standard of living for nearly everyone within country increases.
• Transition from communist and socialist economic systems to capitalism is difficult.
– PrivatizationProfiles in Economics:
Karl Marx
Section 3
Problems of Transition (cont.)
• Vouchers
– Loss or shift of political power
– Underestimating the costs of capitalism before seeing benefits
– Everyone must adjust to new incentives, interpret prices, and fend for him-or herself.
A. A
B. B
C. C
D. D
Section 3
A B C D
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What are some of the costs a nation may undergo before transitioning to capitalism?
A. Social unrest
B. Unemployment
C. Recession
D. Any of the above
Section 3
Countries and Regions in Transition
Different countries have had varying success in their transitions to capitalism.
Section 3
• Russian economy
– Five-Year Plan—introduced by Joseph Stalin in 1927
– Gosplan
– Collectivization
– Perestroika—introduced by Mikhail Gorbachev in 1985
Countries and Regions in Transition(cont.)
Section 3
– After fall of Soviet Union, Boris Yeltsin accelerated privatization.
Countries and Regions in Transition(cont.)
– Currently, under Vladimir Putin, privatization is slowing.
Section 3
• China’s economy
– Communist economy in 1949 modeled after Soviet Union
– Great Leap Forward instituted in 1958
– Free-market practices in specific regions were copied in 1980s.
– Currently, privatizing industries and introducing market reforms
Countries and Regions in Transition(cont.)
Section 3
• Latin American economy
– Economic path—combined socialism and isolationism
Countries and Regions in Transition(cont.)
Section 3
• Eastern Europe economy
– Many unwilling participants in the Soviet block embraced capitalism.
– Struggle began in Poland with Solidarity.
– Hungary was successful transitioning to capitalism after a thriving black market.
Countries and Regions in Transition(cont.)
A. A
B. B
C. C
D. D
Section 3
A B C D
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What impact does Vladimir Putin’s action of slowing down privatization have on Russia’s ability to transition to capitalism?
A. Decreases the standard of living for its citizens
B. Causes political unrest
C. Inhibits profit motive
D. All of the above
Section 3
Other Faces of Capitalism
A number of nations have developed successful free market economies.
Section 3
• Japan
– Loyal and dedicated work force
– Ability and willingness to develop new technologies
Other Faces of Capitalism (cont.)
• Capital-intensive
– Government is involved in day-to-day activities of private sector
Economic Systems and Economic Success
Section 3
• Stagnation occurred in 1990s—keiretsu prevented true competition.
Other Faces of Capitalism (cont.)
Economic Systems and Economic Success
• Japan is restructuring today so it can resume its previous growth.
Section 3
• South Korea
Other Faces of Capitalism (cont.)
– In mid 1950s—one of poorest countries in Asia
– Had highest population density
– Began opening markets to world trade a few industries at a time
Economic Systems and Economic Success
Section 3
• Singapore
Other Faces of Capitalism (cont.)
– Offers generous tax breaks, government subsidies, and training of employees
– Research and development spending is high—developing own technologies
– Focuses on a few select industries
Economic Systems and Economic Success
Section 3
• Taiwan
Other Faces of Capitalism (cont.)
– Government concentrates on industries most likely to grow
– Concern: People’s Republic of China regards Taiwan as a “renegade province.”
Economic Systems and Economic Success
A. A
B. B
C. C
D. D
Section 3
A B C D
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The success South Korea has had in capitalism impacts you in what way?
A. South Korea has no impact on my daily life.
B. Increases my standard of living.
C. My family may purchase a television or appliance manufactured in South Korea.
D. Answers B and C apply.
Stages of Economic Development Countries usually go through several stages of economic development, although the boundaries between these stages may overlap.
VS 1
VS 2
Funding Economic Development Countries that need to develop their economies have a variety of funding sources available to them.
VS 3
Problems of Transition While capitalism provides a remarkable degree of economic growth, making a successful transition to capitalism can be difficult.
Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Profile
Karl Marx (1818–1883)
• published The Communist Manifesto in 1848
• his ideas inspired communist revolutions
DFS Trans 1
DFS Trans 2
DFS Trans 3
Vocab1
developing country
country with relatively low average per capita income and less developed infrastructure, education, and health care system
Vocab2
primitive equilibrium
first stage of economic development during which the economy is stagnant
Vocab3
takeoff
third stage of economic development when barriers of primitive equilibrium have been overcome
Vocab4
crude birthrate
number of live births per 1,000 people
Vocab5
life expectancy
average remaining life span in years for persons who attain a given age
Vocab6
zero population growth (ZPG)
condition in which the average number of births and deaths balance so that population size is unchanged
Vocab7
external debt
borrowed money that a country owes to foreign countries and banks
Vocab8
default
the act of not repaying borrowed money
Vocab9
capital flight
legal or illegal export of a nation’s currency and foreign exchange
Vocab10
proportion
comparative relationship between things in terms of size, quantity, etc
Vocab11
primary
most important
Vocab12
micro loan
small, unsecured loan made primarily to women to help them undertake an income-generating project in a developing country
Vocab13
International Monetary Fund (IMF)
international organization that offers advice, financial assistance, and currency support to all nations
Vocab14
World Bank
international agency that makes loans and provides financial assistance and advice to developing countries
Vocab15
soft loan
loan that may never be paid back
Vocab16
expropriation
government confiscation of private- or foreign-owned goods without compensation
Vocab17
free-trade area
group of countries that have agreed to reduce trade barriers among themselves but lack a common tariff barrier for nonmembers
Vocab18
customs union
group of countries that have agreed to reduce trade barriers among themselves and have uniform tariffs for nonmembers
Vocab19
European Union (EU)
economic, political, and social union established in 1993 by the Maastricht Treaty as the successor of the European Community
Vocab20
euro
single currency of the EU introduced in January 2002 and adopted by many member nations
Vocab21
ASEAN
group of 10 Southeast Asian nations working to promote regional cooperation, economic growth, and trade
Vocab22
cartel
group of sellers or producers acting together to raise prices by restricting availability of a product
Vocab23
ethic
moral principles; generally recognized rules of conduct
Vocab24
duration
length of time
Vocab25
capitalism
economic system in which private citizens own and use the factors of production in order to generate profits
Vocab26
privatization
conversion of state-owned factories and other property to private ownership
Vocab27
vouchers
certificate that could be used to purchase government-owned property during privatization
Vocab28
Five-Year Plan
comprehensive, centralized economic plan used by the former Soviet Union to coordinate the development of industry and agriculture
Vocab29
Gosplan
central authority in the former Soviet Union that devised and directed Five-Year Plans
Vocab30
collectivization
forced common ownership of all agricultural, industrial, and trading enterprises used in former Soviet Union to boost output
Vocab31
perestroika
fundamental restructuring of the Soviet economy introduced by Gorbachev
Vocab32
Great Leap Forward
China’s second five-year plan that began in 1958 and forced rapid industrialization and collectivization of agriculture
Vocab33
Solidarity
independent Polish labor union founded in 1980 by Lech Walesa
Vocab34
black market
market in which economic products are sold illegally
Vocab35
capital-intensive
production method requiring relatively large amounts of capital relative to labor
Vocab36
keiretsu
independently owned group of Japanese firms governed by an external board of directors in order to regulate competition
Vocab37
population density
number of people per square mile of land area
Vocab38
undertaking
entering into an activity
Vocab39
isolationism
national policy of not interacting with other countries
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