Flashcards in Chapter 2 - The Global Economy Deck (4):
Global Pattern of Wealth
- GDP: Market value of total output of goods/services produced within a nation
o Indicates country’s purchasing power but doesn’t reflect living standards
o Need to calculate PPP – purchasing power in respective market
o GDP only measures formal, official recorded activities – ignores shadow economy
- Economic growth: Annual percentage change in a nation’s GDP
- OECD predicts world economy will grow at 3% over next 50 years
Pattern of international trade
- Trade has been growing at 7.3% over past 30 years
- Contributors to growth Reduction in barriers, reduction in transport and communication costs, establishment of global supply chains
- Mercantilism theory – countries should maximize their exports and try to limit imports to stimulate economy and increase number of jobs – generating a trade surplus.
- To protect domestic industries from foreign competitors – especially industries in their infancy
- To protect domestic jobs
- Protect against over dependence on a narrow base of products – countries should specialise in goods they have a comparative advantage over.