Crunch Time Flashcards
(32 cards)
What is free trade?
A: Free trade is the exchange of goods and services between countries without tariffs, quotas, or other trade barriers.
What are the benefits of free trade?
A: - Access to cheaper goods
Encourages efficiency and innovation
Promotes global competition
Greater variety for consumers
Can boost economic growth
What are the drawbacks of free trade?
A: - Can harm domestic industries
Risk of over-specialisation
Increased unemployment in some sectors
Loss of economic sovereignty
Risk of trade imbalances
What are trade deals?
A: Agreements between countries that define trade terms (tariffs, quotas, rules of origin). Examples: EU single market, USMCA
Why might some countries lack a comparative advantage?
A: Due to underdeveloped infrastructure, poor technology, low human capital, or small economies.
Why could domestic industries suffer under free trade?
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A: Cheaper imports undercut prices, making local firms uncompetitive
How does over-specialisation create risk?
A: If global demand for a single export falls, the economy becomes vulnerable (e.g., oil in Venezuela).
How can free trade increase unemployment?
A: Industries may shut down due to foreign competition, leading to structural unemployment.
What is protectionism?
A: Government actions (like tariffs or subsidies) to shield domestic industries from foreign competition.
What is the risk of retaliation in protectionism?
A: Other countries may impose tariffs in response, reducing exports and harming global trade.
What is economic development?
A: Sustainable improvements in living standards, income, health, and education.
Growth for Development
Pros:
Higher income and employment
More tax revenue for government
Potential poverty reduction
Cons:
May increase inequality
Can damage the environment
Growth may not be inclusive or sustainable
Aid for Development
Pros:
Provides capital for infrastructure
Emergency relief
Supports health and education
Cons:
May create dependency
Poorly targeted or misused
Can distort local markets
Trade for Development
Pros:
Encourages exports and growth
Provides foreign exchange
Integrates economies into the global system
Cons:
Developing countries may face trade barriers
Prone to commodity price fluctuations
Risk of unequal trade relationships
FDI (Foreign Direct Investment) for Development
Pros:
Brings in capital and technology
Can create jobs and infrastructure
Stimulates growth
Cons:
Profits may be repatriated
Can exploit local labor
Environmental degradation
Microfinance for Development
Pros:
Supports entrepreneurship
Empowers women
Increases financial inclusion
Cons:
Small scale, limited impact
Risk of over-indebtedness
Success depends on local institutions
Market-Based Policies for Development
Examples: Deregulation, trade liberalisation, tax reforms
Pros:
Encourages efficiency and competition
Attracts investment
Promotes entrepreneurship
Cons:
May worsen inequality
Limited role of state in public goods
Market failures may persist
Interventionist Policies for Development
Examples: Public investment, subsidies, education and healthcare spending
Pros:
Addresses market failures
Reduces poverty and inequality
Builds long-term capacity
Cons:
Potential for corruption
May be inefficient
Risk of misallocation of resources
Q: What is Aggregate Demand (AD)?
A: Total spending in the economy at different price levels: AD = C + I + G + (X - M)
What is Aggregate Supply (AS)?
A: Total output firms are willing to produce at different price levels.
What shifts Aggregate Demand (AD)?
A: - Changes in consumption, investment, government spending, or net exports
Monetary/fiscal policy
Consumer/business confidence
Exchange rates
Tax changes
What shifts Short Run Aggregate Supply (SRAS)?
A: - Changes in wages
Raw material costs
Energy prices
Exchange rate (imported inflation)
Business taxes/subsidies
What shifts Long Run Aggregate Supply (LRAS)?
A: - Improvements in productivity
Investment in capital
Education and training
Technological progress
Institutional improvements
Why does AD shift right?
A: Increased consumer confidence, lower interest rates, increased government spending, rise in exports.
