Cambridge International as and a level Economics Ebook

poverty cycles
, 
which are also sometimes referred to as 
development 
traps
. 
Figure 9.10 
shows two poverty cycles.
Th
e term ‘
emerging economies
’ describes those 
developing economies that have high rates of economic 
growth and are expected to give high rates of return on 
investment while carrying a greater risk than investment 
in developed economies.
Poverty cycles: 
the links between, for example, low 
income, low savings, low investment and low productivity.
Development traps: 
restrictions on the growth of 
developing economies that arise from low levels of savings 
and investment.
Emerging economies: 
economies with a rapid growth rate 
and that provide good investment opportunities.
KEY TERMS
233
Chapter 9: The macroeconomy 

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TOP TIP
Avoid thinking all developing economies are the same.
Classification according to levels of income
Economies are classifi ed in a number of ways. Th
e best 
known is according to the value of their GDP per head 
or GNI per head. Th
is is used by the 
World Bank
, which 
classifi es every economy as low income, middle income 
(subdivided into lower and upper middle) or high income. 
Developing economies have low income or middle income. 
Emerging economies tend to have middle or high income 
and developed economies have high income.
World Bank: 
an international organisation that lends 
money to developing economies for projects that will 
promote development.
KEY TERM
Each year there are some changes. In the 2013 
classifi cation, Russia moved to high income and Chile, 
Lithuania and Uruguay also became high-income 
economies for the fi rst time. Hungary slipped from high 
income to high middle income.
Th
e thresholds between the categories are updated each 
year to account for the international rates of infl ation. As a 
result the thresholds are constant in real terms over time.
Classifying economies according to income levels 
is relatively straightforward and can help to identify 
those economies in need of help and assistance from 
aid providers. It can, however, be misleading as some 
countries’ economies may be growing while others may be 
contracting. It also does not capture all the infl uences on 
development.