The factors of production — practice question

Read the source material thoroughly before you answer Question 1. Source material on The United Arab Emirates (UAE) UAE fact file (2021): Population 10m; Foreign nationals living in the UAE 8.9m; Number of people unemployed 0.2m; Economic growth rate 3.8%. There are more foreign nationals living in the UAE than citizens of the UAE. Labour mobility between the UAE and other countries is high, with many daily flights, for instance, arriving in the UAE from India and Pakistan. The UAE hosted the World Expo in 2021-2022, when countries from every part of the world displayed their economic achievements. A major feature of the World Expo was the stronger links between people through migration, the exchange of goods and services, and the sharing of ideas. Another repeated theme at the World Expo was technological progress, which has raised global living standards. In the UAE, technological development has increased both the quality and the quantity of the factors of production. This technological progress was backed by a very large amount of finance obtained from oil production and oil exports. Oil is a necessity and its price inelasticity of demand has created both benefits and drawbacks for the economy. Figure 1.1 shows the annual percentage change in the oil price and the annual percentage change in the UAE’s balance on the current account of the balance of payments. Figure 1.1 text: Vertical axis labelled “% change” with scale at 150, 100, 50, 0, -50, -100. Horizontal axis labelled “Year” with years 2016, 2017, 2018, 2019, 2020, 2021 and 2022. A solid line represents “annual % change in the price of oil”. A dashed line represents “annual % change in the UAE’s balance on the current account of the balance of payments”. Caption: “Figure 1.1 Annual percentage change in the price of oil and the annual percentage change in the UAE’s balance on the current account of the balance of payments 2016-2022”. Dubai, which is one of the cities in the UAE, does not rely on oil because 95% of its economy is non-oil based. Dubai has an international reputation for luxury tourism and financial services, and these affect employment, tax revenues and export revenues. However, there are worries about sustainable water use in a desert environment and about the size of income inequality. Even though the economy has changed rapidly, the value of the domestic currency, the dirham, has remained very steady because the government has kept a fixed exchange rate system since 1980. This has supported confidence among investors in the economy. However, a fixed exchange rate influences the government’s capacity to achieve other macroeconomic objectives. Answer every part of Question 1. Use the source material in your answers.