A low-income country receives a World Bank loan to build a new national road network connecting rural farming communities to urban markets. Which of the following best explains the likely economic benefit of this investment?

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Question

A low-income country receives a World Bank loan to build a new national road network connecting rural farming communities to urban markets. Which of the following best explains the likely economic benefit of this investment?

Accepted Answer

Improved infrastructure will lower transport costs, increase market access, and raise the productive capacity of the economy — Award 1 mark for identifying that improved infrastructure reduces transport costs and increases market access, and 1 mark for linking this to increased productive capacity and long-term economic growth. A is incorrect — building a road network does not directly increase imports; if anything, it may increase exports by improving connectivity. C is incorrect — World Bank loans finance the investment; they do not operate through changes to import tariffs. D is incorrect — infrastructure investment has no direct mechanism for reducing the money supply.

Answer

The loan will directly increase government tax revenue by raising import tariffs on road-building materials

Answer

Improved infrastructure will lower transport costs, increase market access, and raise the productive capacity of the economy

Answer

The loan will reduce the country's current account deficit by increasing the value of imports

Answer

The road network will reduce the money supply, controlling inflation in rural areas

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