Globalisation

Question 1

Globalisation

Answer 1

Globalisation: increasing integration and interconnectedness between the countries of the world.

Question 2

Containerisation

Answer 2

Containerisation: the use of uniform-sized containers for transportation of goods, which significantly reduces the cost of transportation.

Question 3

Outsourcing

Answer 3

Outsourcing: part of a firm’s production is performed by another firm (or in the case of offshoring, the work is done by a firm in another country).

Question 4

Less developed economies

Answer 4

Less developed economies: economies with low income per capita and less development in terms of human capital and infrastructure.

Question 5

Multinational corporations

Answer 5

Multinational corporations (MNCs): businesses that operate in at least two countries (also known as TNCs — transnational corporations).

Question 6

Absolute advantage

Answer 6

Absolute advantage: a country has an absolute advantage in the production of a product if it can be produced for a lower cost than in another country.

Question 7

Comparative advantage

Answer 7

Comparative advantage: a country has a comparative advantage in the production of a product if it can be produced at a lower opportunity cost than in
another country.

Question 8

Protectionism

Answer 8

Protectionism: implementing policies that will protect an economy through restrictions on imports.

Question 9

Tariff

Answer 9

Tariff: a tax on imported goods and services.

Question 10

Quota

Answer 10

Quota: a restriction on the number of a particular kind of import into an economy.

Question 11

Infant industry:

Answer 11

Infant industry: a small, developing industry which cannot yet benefit from economies of scale (and this may justify protection).

Question 12

Dumping

Answer 12

Dumping: where a low-cost producer ‘dumps’ large quantities of a product onto another country’s market below cost price — often leading to the closure of local firms which cannot compete with the low-cost producer.

Question 13

Free trade area

Answer 13

Free trade area: trade without barriers, such as tariffs, between two or more countries.

Question 14

Customs union

Answer 14

Customs union: a free trade area between two or more countries with a common external tariff applied to all outside countries.

Question 15

Common market

Answer 15

Common market: a customs union that has other forms of economic integration, such as free movement of factors of production between members, or harmonisation of laws and product standards.

Question 16

Balance of payments

Answer 16

Balance of payments: a record of all the financial transactions taking place between the UK and any other country.

1 Capital account.
2 Financial account
3 Current account.

Question 17

The capital account

Answer 17

The capital account is a minor component of the balance of payments and includes capital transfers as well as purchases and sales of some non-financial assets.

Question 18

The financial account

Answer 18

measures the flows of financial capital into and out of the country.

Question 19

Primary income

Answer 19

Primary income: flows of income from investments abroad less flows of income from foreign investments located in the UK.

Question 20

Secondary income

Answer 20

Secondary income: transfers of money received in the UK from abroad less transfers of money paid by the UK overseas.

Question 21

Foreign direct investment (FDI):

Answer 21

Foreign direct investment (FDI): the buying of productive assets located outside the country of ownership.

Question 22

Portfolio investment:

Answer 22

Portfolio investment: refers to the buying of financial assets located outside the country of ownership.

Question 23

Short-term speculative capital:

Answer 23

Short-term speculative capital: money which can be moved immediately between currencies to maximise its return (also known as ‘hot money’).

Question 24

Expenditure reducing policies:

Answer 24

Expenditure reducing policies: policies to improve the current account balance by reducing spending in the economy.

• deflationary policies

Question 25

Expenditure switching policies:

Answer 25

Expenditure switching policies: policies to encourage a switch away from imports and to encourage a growth in exports.
- protectionist policies and devaluation

Question 26

Devaluation:

Answer 26

Devaluation: a sudden and significant fall in the value of the exchange rate.

Question 27

Marshall–Lerner condition:

Answer 27

Marshall–Lerner condition: the requirement that devaluation will improve the current account balance only if the total of the price elasticities for imports and exports is greater than 1.

Question 28

Floating exchange rate:

Answer 28

Floating exchange rate: one where the government makes no attempt to influence the value of the currency.

Question 29

Open market operations:

Answer 29

Open market operations: direct intervention into the foreign currency market to influence the demand for and supply of that currency.

Question 30

Fixed exchange rate:

Answer 30

Fixed exchange rate: where the government intervenes in the foreign exchange market to stabilise a currency’s value against one or more other currencies.

Question 31

Eurozone:

Answer 31

Eurozone: those countries using the euro as their currency.

Question 32

currency union

Answer 32

Currency union: a group of countries which share a common currency.

Question 33

Economic growth

Answer 33

Economic growth refers to the increase in the level of national income over time, measured in either actual or potential terms

Question 34

Development

Answer 34

multidimensional concept and is believed to depend on a number of criteria being achieved, such as:
* income — which will come from economic growth
* availability of basic goods and services for survival — food, shelter, warmth and so on
* freedom of individuals to make choices on a social and an economic level