4.1 International Economics Flashcards
(80 cards)
1
Q
What is globalisation?
A
The ever increasing integration of the world’s local, regional and national economies into a single, international market
2
Q
List the key characteristics of globalisation. (3)
A
- Free trade of goods and services
- Free movement of capital and labour
- Free interchange of technology and intellectual capital
3
Q
What has resulted from the spread of globalisation? (5)
A
- Increased trade between nations
- More transfers of capital including FDI
- Development of global brands
- Division of labour between countries
- Increased migration and participation in global trade
4
Q
What are some factors contributing to globalisation in the last 50 years? (7)
A
- Trade in goods
- Trade in services
- Trade liberalisation
- Multinational Corporations (MNCs)
- International financial flows
- Communications and IT
- Containerisation
5
Q
What is the impact of globalisation on individual countries? (3)
A
- Trade imbalances
- Income and wealth inequalities
- Cultural spread and loss of diversity
6
Q
How might governments be affected by globalisation?
A
Loss of sovereignty due to international treaties and rules
7
Q
What benefits do producers and consumers gain from globalisation? (4)
A
- Specialisation
- Economies of scale
- Lower average costs
- More competitive environment
8
Q
What are some negative impacts of globalisation on workers? (2)
A
- Structural unemployment
- Exploitation and poor working conditions in MNCs
9
Q
What environmental concerns arise from globalisation? (4)
A
- Increased pollution
- Deforestation
- Water scarcity
- Land degradation
10
Q
Define absolute advantage.
A
A country has absolute advantage in the production of a good or service if it can produce it using fewer resources and at a lower cost than another country
11
Q
Define comparative advantage.
A
Occurs when a country can produce a good or service at a lower opportunity cost than another country
12
Q
What is a key assumption of the theory of comparative advantage?
A
It assumes a perfectly competitive market
13
Q
List some advantages of specialisation and trade. (5)
A
- Greater world output
- Higher quality of goods
- Greater variety of goods
- Lower average costs
- Opportunities for economies of scale
14
Q
What are some disadvantages of specialisation and trade? (3)
A
- Over-dependence on one commodity
- Structural unemployment
- Resource depletion
15
Q
What factors influence the pattern of trade between countries? (4)
A
- Comparative advantage
- Impact of emerging economies
- Growth of trading blocs
- Changes in relative exchange rates
16
Q
How is the terms of trade calculated?
A
The index price of exports over the index price of imports
17
Q
What does a terms of trade index above 100 indicate?
A
Improving terms of trade
18
Q
What factors can affect a country’s terms of trade? (5)
A
- Demand and supply for imports and exports
- Exchange rates
- Inflation
- Changes in tastes
- Income levels
19
Q
What is the impact of improving terms of trade on an economy?
A
Can import more goods for each unit of export, potentially reducing cost-push inflation and improving living standards
20
Q
What does worsening terms of trade imply for a country?
A
For every import, the country has to export more, which could lead to falling living standards
21
Q
What is the effect of worsening terms of trade?
A
A country has to export more for every import, potentially making new technology more expensive and limiting productivity
This could lead to a fall in living standards and difficulties in paying foreign debt.
22
Q
What does the Marshall Lerner condition relate to?
A
The impact on the balance of payments depending on the elasticity of demand for goods and services
If goods are price elastic, an improvement in the terms of trade can worsen the current account.
23
Q
Define a free trade area.
A
Countries agree to trade goods with other members without protectionist barriers
Examples include NAFTA and EFTA.
24
Q
What is a customs union?
A
Countries establish a common trade policy with the rest of the world and have free trade among members
The European Union is an example.
25
What is a common market?
Establishes free trade in goods and services, a common external tariff, and allows the free movement of capital and labour
## Footnote
The EU was initially a common market.
26
What is a monetary union?
Members share the same currency and have a common central monetary policy
## Footnote
The Eurozone is an example.
27
What are the four convergence criteria for joining the Euro?
* Budget deficits must be below 3% of GDP
* Gross National Debt below 60% of GDP
* Inflation below 1.5% of the three lowest inflation countries
* Average government bond yield below 2% of the lowest interest rate countries
28
What is trade creation?
Occurs when a country consumes more imports from a low-cost producer and fewer from a high-cost producer
## Footnote
It is beneficial and welfare-improving.
29
What is trade diversion?
Occurs when trade shifts from a more efficient producer outside a trading bloc to a less efficient one inside the bloc
## Footnote
This is considered welfare-reducing.
30
What are the benefits of regional trade agreements? (4)
* Reduced transaction costs
* Economies of scale
* Enhanced competition
* Increased migration
31
What is the role of the WTO? (3)
* Promotes world trade through reducing trade barriers
* Policing agreements
* Settling trade disputes
## Footnote
It covers trade in goods, services, and intellectual property rights.
32
What is protectionism?
The act of guarding a country’s industries from foreign competition by imposing restrictions on free trade
## Footnote
It can help reduce a trade deficit.
33
What are tariffs?
Taxes on imports that lead to higher prices for consumers and a decrease in quantity demanded of imports
## Footnote
They can result in retaliation and loss of consumer surplus.
34
What is a quota?
A limit on the quantity of a foreign-produced good that can be sold in the domestic market
## Footnote
It raises prices for domestic consumers.
35
What is a subsidy to domestic producers?
Financial support that makes domestic goods cheaper compared to imports
## Footnote
It encourages domestic production.
36
What are voluntary export restraints (VERs)?
Agreements between two countries to limit the volume of exports to one another
## Footnote
Typically suggested by the exporting country.
37
What is an embargo?
A complete ban on trade with a particular country, usually politically motivated
38
What are excessive administrative burdens?
Administrative costs that discourage imports and make trade difficult
## Footnote
Particularly harmful for developing countries.
39
What are the components of the balance of payments?
* Current account
* Capital account
* Financial account
40
What does a current account surplus indicate?
A net inflow of money into the circular flow of income
41
What are the causes of a current account deficit? (4)
* Appreciation of the currency
* Economic growth
* Deindustrialisation
* Membership of trade unions
42
What measures can reduce a current account deficit? (3)
* Increase income tax
* Reduce government spending
* Lower interest rates
43
What happens to household expenditure on imports when policy measures end?
Households are likely to revert their expenditure back on imports
## Footnote
This suggests a temporary effect of policy measures on import spending.
44
What is a risk when taxes are imposed on trading partners?
There is a risk of retaliation, which could reduce demand for exports
## Footnote
Retaliation can lead to trade wars and further economic complications.
45
What might a bank do in response to a current account deficit?
The bank might lower interest rates to cause depreciation in the currency
## Footnote
This depreciation makes exports cheaper but can be inflationary.
46
What are potential consequences of lowering interest rates to address a current account deficit?
It could lead to inflation and hot money flow out of the country
## Footnote
Investors may withdraw their funds due to lower returns.
47
What are supply-side policies aimed at increasing productivity?
Increased spending on education and training
## Footnote
This policy can lead to long-term international competitiveness.
48
What is a potential downside of privatisation?
Privatisation could result in monopolies being formed
## Footnote
Monopolies can reduce efficiency and harm consumers.
49
What is a possible reaction from foreign countries if subsidies are provided to some industries?
There could be retaliation from foreign countries
## Footnote
This is often viewed as an unfair protectionist policy.
50
What do macro and microeconomic policies address regarding the deficit?
Both can be used to fix the deficit
## Footnote
The deficit has both micro and macroeconomic causes.
51
What does a current account surplus or deficit indicate about an economy?
It could indicate an unbalanced economy
## Footnote
Reliance on other economies for growth can be problematic.
52
How did the 2008 financial crisis affect the UK's reliance on export markets?
Weak export markets affected UK economic performance
## Footnote
The crisis highlighted vulnerabilities in the UK's economic structure.
53
Why are current account deficits more concerning in the Eurozone?
Countries have a fixed exchange rate, limiting currency devaluation options
## Footnote
This can exacerbate competitiveness issues.
54
What does a surplus indicate about consumer behavior?
It indicates low consumer spending and a low savings ratio
## Footnote
This can lower living standards.
55
What is the definition of a floating exchange rate?
The value is determined by the forces of supply and demand
## Footnote
Market equilibrium prices fluctuate based on economic conditions.
56
What happens in a fixed exchange rate system?
The value is determined by the government compared to other currencies
## Footnote
Central banks can manipulate supply to maintain the rate.
57
What is the difference between revaluation and appreciation of a currency?
Revaluation is an adjustment relative to a baseline; appreciation is an increase in value
## Footnote
Revaluation occurs in fixed systems; appreciation can occur in floating systems.
58
What effect does lower inflation have on a currency's demand?
It increases demand for the currency, causing appreciation
## Footnote
Lower inflation makes exports more competitive.
59
What is the impact of speculation on currency value?
Increased demand can lead to a rise in the currency's value
## Footnote
Speculators buy currencies they believe will appreciate.
60
What does a current account deficit indicate about a country's imports and exports?
The value of imports exceeds exports
## Footnote
Struggling to finance this can lead to currency depreciation.
61
What is the Marshall-Lerner condition?
The condition states that a currency depreciation will improve the current account balance only if the sum of the price elasticities of demand for exports and imports is greater than 1
## Footnote
This condition is essential for effective currency devaluation.
62
What is the J-curve effect?
Initially worsens the trade deficit after devaluation before improving it
## Footnote
This is due to the time lag in changing import and export volumes.
63
How does a weaker exchange rate affect employment?
It can increase exports, potentially creating jobs
## Footnote
Conversely, a stronger exchange rate may lead to job losses in domestic industries.
64
What is FDI?
Foreign Direct Investment is the flow of capital to gain lasting interest in a foreign enterprise
## Footnote
A weaker currency can attract more FDI by making costs lower.
65
What does the acronym SPICED stand for?
Strong Pound Imports Cheap Exports Dear
## Footnote
This helps remember the effects of exchange rates on trade.
66
What is meant by relative unit labour costs?
How much labour costs per unit of output
## Footnote
Lower costs improve a country's competitiveness in manufacturing.
67
What factors influence a country's ability to attract FDI? (3)
* Stability in the economy and financial system
* Tax rate
* Potential to trade
## Footnote
These factors can enhance productive capacity and living standards.
68
How does a depreciation in the exchange rate affect competitiveness?
Makes exports relatively cheaper, increasing competitiveness
## Footnote
However, it can raise import costs, affecting small firms.
69
What does economic stability entail for firms?
Low and stable inflation allows firms to plan investment and spending
## Footnote
Predictability in the economic environment supports business growth.
70
What is the relationship between workforce productivity and international competitiveness?
A more productive workforce leads to better quality goods and services, improving international competitiveness.
## Footnote
Productivity increases efficiency and effectiveness in production, which is vital in a global market.
71
How do part-time and temporary contracts affect a firm's costs?
They help limit a firm’s costs, lowering unit labour costs.
## Footnote
Flexibility in labour markets enables firms to adapt to economic changes.
72
What is the effect of low and stable inflation on firms?
It allows firms to plan their investment and spending more effectively.
## Footnote
Uncertainty from high inflation or deflation complicates future financial planning.
73
What is a potential benefit of low income tax rates?
They provide an incentive to earn more, attracting skilled labour.
## Footnote
Lower tax rates can enhance disposable income for consumers and firms.
74
How can excessive regulation impact firms?
It can hinder investment and raise average production costs.
## Footnote
Reducing regulation may encourage investment and innovation.
75
What does the rate of innovation indicate?
It is calculated by the proportion of GDP invested in new capital.
## Footnote
Higher innovation can lead to advanced technology, improving competitiveness.
76
What impact do low interest rates have on spending and investment?
They encourage spending and firm investment but may deter foreign investors due to low returns.
## Footnote
Increased aggregate demand can lead to demand-pull inflation.
77
What are the benefits of being internationally competitive? (4)
* Increased exports
* Higher AD
* Current account surplus
* Potential for higher prices due to reputation.
## Footnote
Competitive markets enable firms to reach more consumers and achieve economies of scale.
78
What are potential problems associated with being internationally competitive?
* Inefficient spending limits education/healthcare gains, hurting competitiveness.
* Poor R&D wastes funds; investment alone doesn't ensure innovation.
* Tax cuts to attract business reduce revenue, limiting public services.
## Footnote
Balancing public service funding with competitiveness is crucial.
79
What happens to infant industries in a competitive environment?
They may struggle to compete and be forced out of the market.
## Footnote
Established firms may dominate, limiting opportunities for new entrants.
80
What are the macroeconomic and microeconomic impacts of international competitiveness?
Macroeconomic impacts include balance of payments effects; microeconomic impacts include effects on firm profits.
## Footnote
Competitiveness influences various economic scales and sectors.
