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Macroeconomics A2 Level > 4.1 International Economics > Flashcards

4.1 International Economics Flashcards

1
Q

What is globalisation?

A

Process of interaction and integration among people, companies and governments worldwide.
Increases interdependence of economies across globe.
Changes in economic conditions in one country consequently has larger impact on other economies in highly globalised world

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2
Q

Factors contributing to globalisation over past 50 years.

A
  1. Trade liberalisation
  2. Transport
  3. Communications technology
  4. Economic and political transitions
  5. Global companies
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3
Q

What is trade liberalisation?

A

Removal of restrictions on the free exchange of goods and services between nations.

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4
Q

What is a TNC?

A

Business that is based in one country but has outlets in other countries

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5
Q

What is comparative advantage?

A

When a country produces a good or service at a lower opportunity cost than other countries

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6
Q

Industrialisation

A

Development of industries in a country on a wide scale

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7
Q

Impacts of globalisation on individual countries.

A

GOOD- allows countries to specialise and become productive in goods they have comparative adv over
GOOD- strong nationalised firms can turn into successful global ones- boost employment and living standard
BAD- overdependent on certain sectors

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8
Q

Impacts of globalisation on consumers.

A

GOOD- increased choice
GOOD- lower prices
BAD- don’t know how imported goods are made (ethically)

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9
Q

Impacts of globalisation on government’s.

A

BAD- if countries become members of organisations, have to abide by rules
BAD- lose sovereignty due to increase in international treaties

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10
Q

Impacts of globalisation on producers.

A

GOOD- competition: encourages them to lower average cost and become efficient
GOOD- allows firms to expand beyond what’s possible in one country
GOOD- develop global supply chains
GOOD- have copies over supplier, shifty production to places with cheaper labour
BAD- firms that would’ve thrived in protected domestic market gone bankrupt

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11
Q

impacts of globalisation for workers.

A

GOOD- in developed, worker in industries with comparative advantage have higher salaries
BAD- low skilled workers lose out as their industries uncompetitive

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12
Q

Impacts of globalisation on environment

A

BAD- increased environmental destruction
BAD- rise in industrial activity=increased demand for raw materials=mining raw materials= environmental destruction

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13
Q

What is trade?

A

Provides mutually beneficial methods to obtain goods and services that are unavailable to an economy

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14
Q

What is specialisation ?

A

Occurs when an individual, firm or country focuses production on a narrow range of goods and services

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15
Q

Absolute advantage

A

Country has absolute advantage if it can produce more of a goods using equal amounts of resources than another country

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16
Q

Comparative advantage

A

Occurs when a country can produce a good or service at a lower opportunity cost than another country

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17
Q

Evaluation of specialisation and trade.

A

GOOD- allows countries to focus on producing goods and services they have comparative advantage in
GOOD- consumers have access to wider range of goods and services
GOOD- competition= incentive to reduce average costs=higher quality=innovate= consumers benefit
GOOD- trade provided larger market for firms
BAD- dependence increases
BAD- Deindustrialisation
BAD- structural unemployment if comparative advantage lost

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18
Q

Free trade

A

International trade without restrictions

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19
Q

Protectionism

A

Policy of restricting imports through trade restrictions

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20
Q

Reasons why countries use trade restrictions

A
  1. National security
  2. Protect domestic industries (inc infant industries)
  3. Public safety
  4. Retaliation
  5. Tax revenue
  6. Prevent dumping
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21
Q

Which countries are tax revenues from tariffs more valuable from?

A

Developing countries

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22
Q

Infant industry

A

An industry new to a country, but already established in other countries

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23
Q

Why do countries use retaliation?

A
  • punish the other country
  • serve as a warning to other countries
  • convince other country to remove trade restrictions
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24
Q

Dumping

A

Occurs when exporter sells goods in domestic market below production costs
Do this because excess supply or failure to find buyer

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25
Q

Methods of protectionism

A
  1. Tariffs
  2. Quota
  3. Embargo
  4. Administrative barriers
  5. Subsidies to domestic producers
26
Q

Tariffs

A

Tax on import or exports

27
Q

Quota

A

Limit on number of imports allowed in a country

28
Q

Embargo

A

Official ban on imports or exports

29
Q

Administrative barriers

A

Procedure or legal requirement that can inhibit trade if it’s set in difficult manner

30
Q

Subsidy

A

State grant given to firms to encourage production

31
Q

Impact of protectionism on producers

A

GOOD- gain advantage over foreign producers
BAD- if state support given unconditionally, big danger that firms inefficient

32
Q

Impact of protectionism on consumers

A

BAD- limited choice
BAD- tariffs make goods more expensive

33
Q

Impact of protectionism on workers

A

GOOD- increased job security
BAD- protectionism making raw materials more expensive =increases costs of final good = reduce output= less demand for labour

34
Q

Impact of protectionism on governments.

A

GOOD- for developing countries, tax revenue increases
GOOD- used to win political support
BAD- subsidies= opportunity cost

35
Q

WTO

A

Provides formal mechanism to solve trade disputes
Permanent institution formed in 1995

36
Q

Free trade agreement

A

Where countries agree to trade goods with other countries without protectionist barriers.
E.g. NAFTA

37
Q

Trading bloc

A

Group of countries that mutually agree to remove or reduce trade barriers

38
Q

Advantages of FTA’S

A

Trade creation and trade diversion (for non members)
Competitive sectors benefit
Improved choice for consumers
Reduced administration for governments
Increase in FDI
Better allocation of resources

39
Q

Disadvantages of FTA’s

A

Decline of uncompetitive sectors
Risk of structural unemployment= shift production elsewhere
Trade diversion for non-members

40
Q

Customs union

A

Free trade areas that impose uniform restrictions to non-members

41
Q

Common external tariff

A

Trade policy agreed by members of customs union that sets identical restrictions on trade for non-members

42
Q

Evaluation of customs union

A

GOOD- Increased bargaining power when negotiating trade deals
GOOD- Ability to set common external tariff to protect industries
BAD- loss of independent trade policy

43
Q

Common markets

A
  1. Common standards agreed through collective decision making
  2. Freedom of movement of labour
44
Q

Restrictions of trade in customs unions and FTA’s.

A

Workers still need visa’s
Countries set qualification standards
Firms still have to modify products based on different countries
Checks on goods and paperwork still required at customs

45
Q

Monetary union

A

Creates common currency

46
Q

Evaluation of monetary union

A

GOOD- exchange rate risk eliminated
GOOD- greater price transparency
BAD- difficult to gain competitiveness through devaluations
BAD- loss of independent monetary policy

47
Q

Factors influencing the pattern of trade

A
  1. Comparative advantage
  2. Emerging economies
  3. Changes in relative exchange rates
  4. Growth of trading blocs
48
Q

Trade creation.

A

When trade shifts from a high cost producer to a low cost producer
Less competitive/efficient to more competitive/efficient

49
Q

Trade diversion

A

Trade diversion occurs when trade shifts to a less efficient producer

50
Q

Terms of trade

A

An index that tracks the relative price of a country’s exports compared to its imports

51
Q

Terms of trade calculation

A

Index of exports/ index of imports X 100

52
Q

A deterioration in terms of trade

A

Occurs when terms of trade gets smaller

53
Q

An improvement in terms of trade

A

Occurs when terms of trade increases, exports increases compared to imports

54
Q

Short run factors that affect terms of trade

A
  1. Changes in demand and supply for exports and imports
  2. Changes in inflation rates
  3. Changes in exchange rates
55
Q

Long run factors that affects terms of trade.

A
  1. Changes in income
  2. Changes in relative productivity
56
Q

Components of current account on BOP

A
  1. Trade in goods
  2. Trade in services
  3. Investment incomes (e.g. dividend) - primary income
  4. Transfer payments (e.g international aid)- secondary income
57
Q

Components of financial account on BOP

A
  1. FDI
  2. Net balance of portfolio investment
  3. Balance of banking flows
  4. Changes to value of reserves of gold and foreign currency
58
Q

Advantages of international capital flows

A
  1. Facilitate growth in world trade
  2. Provide additional source of finance for firms
  3. FDI can lead to transfer of technology and skills
59
Q

Disadvantages of international capital flows

A
  1. Stability risks
  2. Potentially undermine national security
  3. Can lead to excessive borrowing
60
Q

Causes of current account deficits and surpluses

A
  1. Relative export competitiveness (determined by: inflation, productivity, innovation and protectionism)
  2. Exchnage rates
  3. State of the economy
61
Q

Current account deficit problems

A
  1. AD is reduced (depends on size of multiplier)
  2. Debt burden increases (depends on how sustainably current account deficit is financed)
62
Q

Current account surplus problems

A
  1. Indicator of heavy reliance on exports
  2. Can be harmful to economies of trade partners

Macroeconomics A2 Level (5 decks)

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