The nature of the economic problem — practice question

Mexico, Indonesia, Nigeria and Turkey, collectively called the Mints, are four emerging economies forecast to expand quickly. In 2014, the four nations had fairly large populations, ranging from 75 million in Turkey to 242 million in Indonesia. Their birth rates were also high, from 17 in Turkey to 41.5 in Nigeria per 1000 people. Both income per head and the countries’ Human Development Index ranking are getting better. However, these changes do not mean that everyone in the four countries is content. As incomes rise, so do people’s wants, and what people would like to consume is greater than the maximum output that countries are able to produce. Output and consumption are rising in each of the four countries. Nigeria, for instance, is expected to become one of the world’s 20 largest economies by 2020. Productivity is increasing in most sectors of the Nigerian economy although it is still low in agriculture. Even with some security worries, more multinational companies are establishing themselves in the country because they are attracted by its expanding markets. Nigeria and Turkey both recorded annual inflation rates above 8% in 2014. Indonesia’s rate was 5.7% and Mexico’s 5.2%. In that year, the Mexican Government had used monetary policy measures to hold inflation down. In August 2014 it opened up its energy market, allowing private sector firms to compete with the country’s state-owned petroleum firm. It also raised spending on state-provided health care, which runs alongside private medical care. The four countries experienced exchange-rate movements in 2014. Indonesia’s currency, the rupiah, moved from 10\thinspace685 per US$ in the previous year to 11\thinspace450 per US$ in 2014. Turkey’s currency, the Turkish Lira, showed a similar pattern. Movements in the exchange rate can influence firms’ production costs, as can industrial action. In June 2014 Turkish trade unions organised several strikes in an attempt to secure better wages and working conditions for their members. However, Turkish trade unions have limited power because of restrictive trade union legislation and a low membership level, with only 9% of workers belonging to trade unions. This means that collective bargaining is not a major feature of Turkish labour markets and Turkish trade unions do not have much impact on economic policy.