Q1.

Issues in economic development and inequality (1250 words) [50 marks]

 1a) Discuss the use of the “one-size-fits-all” policy recommendations to tackle the problem of
low economic development/growth in the 1960s and 1980s. 

Following this discussion, identify an alternative approach to design policy recommendations

and explain its rationale and appropriateness. [20 marks] (500 words)

Ans:
The 1960s and 1980s economic downtown situation
For much of the international economy, the 1980s were a
time of considerable difficulty: industrialized market economies saw a recession; developing nations
experienced a "great divergence"; and Eastern Europe and the Soviet Union experienced a downturn in
growth before eventually collapsing. These and other factors led to significant economic policy changes
being implemented throughout the world, which increased financial and trade integration and reduced
the role of the state. Since the end of World War II, there has been amazing improvement, but in the
1970s, the economy began to collapse. During the latter half of the 1970s and the beginning of the
1980s, economic development slowed down globally. Prior to the 1973 oil price shock, the world's gross
product had been growing at a rate of 5.3% annually; however, for the remainder of the 1970s, the rate
of global growth was only 2.8%.

Policy Applied in the time of the 1960s and 1980s for Low Economic
development:

The Second United Nations Development Decade (1971–1980) and Third United Nations Development
Decade (1981–1990) were overshadowed by the worldwide economic upheaval of the 1970s and 1980s.
These development plans were comprehensive and ambitious, but because of the deteriorating
economic downturn, short-term economic policies have taken precedence over longer-term
development objectives. This example shows how easily support for internationally agreed development
goals can wane in tough economic times, and it also underlines how crucial a stable global economic
climate is for maintaining support for the commitment to carry out ambitious development agendas.
Many nations, especially those in Latin America and the Caribbean, as well as Africa, witnessed an
increase in debt levels because of the challenging economic climate to maintain economic growth.
Through more cogent and internationally coordinated monetary and fiscal policy action, the protracted
and painful adjustment process of the 1970s and 1980s may have been shortened and minimized. This
emphasizes the significance of such coordination and coherence in international economic policy, as
well as the implementation of various policy measures intended to preserve economic stability and
shorten the duration of economic crises.

Policy recommendation for 1960s and 1980s economic downtown

I already explained much of my discussion in the previous section and now I just want to sum it up. As
US President Kennedy did by cutting and increase government spending and after much reading I did
agree with it. And if I add it more the countries should have open trade with countries that time despite
the huge losses of economies in war and everyone war always costs economies into recession and bad
economic situation just see the case of Ukraine-Russia war, both countries suffered in any way and the
last thing they do is to decrease interest rate to attract investment and the last five things I suggest they
should have to add in their policies. Identify your top financial priorities, If you can, concentrate on
paying off your debt, Think about the possibilities for your career, both now and in the future, Try to
increase your emergency savings in advance, Maintaining awareness of your financial status is
important.

1b) Consider the following values of real interest rate and investment for Country A and Country
B over a six year period. Plot the data in two graphs/charts (one for Country A and one for
Country B). 

Briefly discuss what the data suggests and explain the observed paths in the two graphs/charts.
Identify one country for which comparatively the rate of investment overtime seems due to low
expected returns and one for which it seems due to high cost of finance. Explain your
reasoning. [20 marks] (500 words)

Ans:

First, we must draw the graph of the above data to analyze the data as per question requirement:
As you see the graph of country A and country B, lets start with the analysis of Country A. Typically the
real interest rate and Investment have negative relationship as in country A graph because higher
interest rates make borrowing more expensive and require Investment for higher return on investment
and for investments to be profitable.

Interest rates and the relationship between them and investments are of importance to investors
because they have a direct impact on the returns they receive from their investments, such as bonds.
Interest rates also have a direct and indirect impact on a company's net earnings, which in turn have a
direct impact on stock returns and prices. Additionally, consumer demand and market behavior are
impacted by interest rates, which also has an impact on the company's profitability and stock values.

In economics, investment is not buying stocks or bonds, it occurs when firms buy equipment or
households buy newly built houses. As such the relationship between investment and the interest rate is
negative. When the interest rate goes down firms find it easier to borrow more to buy i.e. invest in
equipment. When the interest rate goes up firms invest less because borrowing is more expensive and
keep more money in banks or buy bonds to benefit from the higher interest rate.

And as real interest rate increase the people started saving and reduce its spending and when real
interest rate decreases people start to invest more usually in the bond and stock market and the graph A
fulfill the real condition of Interest rate and Investment. In bond market bond prices fall when interest
rates rise, and the opposite is true when interest rates are on the rise.

In conclusion, as interest rates decline:

 Bond prices increase
 Possible gains on the stock market
 Decreases in the interest rates on CDs and savings accounts
 Rise in commodity prices
 Low mortgage rates

Bond prices decline.

 Possible losses on the stock market

 A rise in the interest rates on CDs and savings accounts
 Falling commodity prices
 Rising mortgage rates

Now come to the graph of Country B, which according to the given data don’t fulfill any condition of
the relationship between interest rate and Investment. As I already explained briefly the real
relationship between the interest rate and investment, But if we see the graph of country B it is
totally vague and I don’t think this need any explanation or analysis because this would never
happen. As graph suggest totally vague path so we do noy explain it. And we also don’t compare it
with the Country A graph which suggest the things which is totally real and that is explained very
well.