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Economic Disparity

Economic Disparity. CGW4U0. For more info: . Check out chapters 13 and 14 in Global Connections. Extreme Poverty. Half of the world's population lives on less than $2 per day. 47% of India's population lives on less than $1 per day. Another 40% lives on $1-$2 per day.

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Economic Disparity

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  1. Economic Disparity CGW4U0

  2. For more info: • Check out chapters 13 and 14 in Global Connections

  3. Extreme Poverty • Half of the world's population lives on less than $2 per day. • 47% of India's population lives on less than $1 per day. Another 40% lives on $1-$2 per day.

  4. Why are some countries so poor? • Colonial Legacy • Lack of Investment • Population Growth • Disease • Foreign Debt • War • Leadership Issues • Trade Inequities • Lack of Local Control

  5. How can we solve each of these issues? • Colonial Legacy? • Lack of Investment? • Population Growth? • Disease? • Foreign Debt? • War? • Leadership Issues? • Trade Inequities? • Lack of Local Control?

  6. Foreign Aid • Developed countries provide financial and resource assistance to the Highly Indebted Poor Countries (HIPC) of the world. • Bilateral Aid goes directly from one country to another • Multilateral Aid is distributed through an agency or an NGO. In Canada, CIDA distributes much of our foreign aid. • Tied Aid, is aid that is often tied to certain conditions, like using it to buy products from the aiding country.

  7. Why do we care? • Religious and Humanitarian Motives • Economic Motives • Political Motives • Historic Motives • Is it always distributed properly? • See previous slide regarding causes of economic disparity.

  8. Gini Index • In a perfect (or communist) world, wealth would be shared equally. • Equal wealth distribution results in a Gini Index score of 0.00. The highest possible score is 1.00 • Canada's score is 0.33. Sweden is 0.23. Namibia is 0.71. Not all countries are calculated. • Here's how you can calculate a country's Gini Index: • This will be on the test.

  9. Debt • Developing countries have become trapped in a debt crisis because of: • Loans, not grants • Skyrocketing oil prices starting in the 1970s • High Inflation • Falling commodity prices • Declining Exchange Rates • Zimbabwe has since abandoned its currency and uses South African or American Dollars

  10. The IMF and the World Bank • What’s the diff? • Even John Maynard Keynes (perhaps the most brilliant economist ever) had trouble distinguishing between the two. He suggested that the IMF is actually a bank and the World Bank is actually a fund. Confusing? Obviously. Besides, he wasn’t really correct. • Virtually every country in the world belongs to both organizations. • They often work together. They both strive to improve the global economy. • Both based in Washington D.C. (used to be in the same building) • The main difference: • The World Bank is primarily a development institution. They lend and borrow money to poor nations and from rich nations. • The IMF is an institution that is meant to maintain an orderly systems of payments and receipts between nations. They encourage nations to make it easy to exchange currencies, thus promoting international trade. They will also lend money to member nations in temporary times of need, when deficits exist.

  11. From the IMF website(http://www.imf.org/external/pubs/ft/exrp/differ/differ.htm) • World Bank • seeks to promote the economic development of the world's poorer countries • assists developing countries through long-term financing of development projects and programs • provides to the poorest developing countries whose per capita GNP is less than $865 a year special financial assistance through the International Development Association (IDA) • encourages private enterprises in developing countries through its affiliate, the International Finance Corporation (IFC) • acquires most of its financial resources by borrowing on the international bond market • has an authorized capital of $184 billion, of which members pay in about 10 percent • has a staff of 7,000 drawn from 180 member countries • International Monetary Fund • oversees the international monetary system • promotes exchange stability and orderly exchange relations among its member countries • assists all members--both industrial and developing countries--that find themselves in temporary balance of payments difficulties by providing short- to medium-term credits • supplements the currency reserves of its members through the allocation of SDRs (special drawing rights); to date SDR 21.4 billion has been issued to member countries in proportion to their quotas • draws its financial resources principally from the quota subscriptions of its member countries • has at its disposal fully paid-in quotas now totaling SDR 145 billion (about $215 billion) • has a staff of 2,300 drawn from 182 member countries

  12. IMF and World Bank • These two organizations (particularly the World Bank) have provided a significant amount of loans to developing countries, but the interest rates are often crippling. • Structural Adjustment Policies (SAPs) ensure that aid receiving countries: • Devalue currencies • Increase exports (cash crops) • Restrict social and education spending

  13. So… • Why does economic disparity exist? • What can we do about it?

  14. Again • Check out chapters 13 and 14 in Global Connections

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