Differences in economic development between countries — practice question

Honduras is a lower middle-income country and depends heavily on trade with the US. Over half of Honduran exports are sold to the US, while 40% of its imports are bought from the US. A large number of Hondurans are employed in the US and remit money to relatives at home. In the past, Honduras focused on banana and coffee production, which helped it build expertise and a strong reputation in those markets. Today, Honduras makes a wider variety of goods, such as clothes, chemicals and paper. This diversification has lessened the uncertainty caused by sudden shifts in demand and supply. For instance, tariffs might be placed on Honduran coffee, or a report might claim that bananas are beneficial to health. Employment in agriculture is falling, whereas jobs in the clothes industry in Honduras are rising. Workers in the clothes industry are expected to receive more training and experience better working conditions. Firms are also making greater use of capital goods. However, it is not clear what will happen to the prices of cotton, wool and the other raw materials needed to make clothes. A thriving clothes industry could help reduce poverty in Honduras. The Honduran government seeks to cut poverty by, for example, paying unemployment benefit. One important reason for the government wanting to reduce poverty is to raise life expectancy. If the Honduran economy became stronger, incomes would rise. Because the country uses a progressive income tax system, tax revenue could rise significantly. A stronger economy would also probably encourage more investment. Unemployment would be expected to decrease, which in turn might affect consumer spending.