fire Flashcards
(23 cards)
2 factors that caused globalization?
Reduced protectionism – cheaper and more feasible to trade. Increased area in the world for business to expand in to.
Improvement in technology - The internet for communications and sales, aviation for moving people, emails and video conferencing. Allows companies to operate across the globe.
3 other characteristics of globalization?
Growing power of MNCs.
Growing international mobility of labour and FOPs.
Off shoring and outsourcing.
2 pros/cons of gloabalisation for developed countries?
+ acces to raw materials from other countries. Lowers prices.
EVAL: Made countries dependent on countries like Russia. The war has caused cost-push inflation.
+ FDI - Globalisation has increased investment in all countries, creating jobs and economic growth.
EVAL:
- FDI is often a small percentage of total AD when compared to consumption.
- Profits are often repatriated to home countries.
Lost compartive advantage in manufacturing to other countries who are able to produce at a lower unit cost. Led to hysteris and CA deficit.
- Eval: jobs have been created in the service sector. Financial services have become significant for countries like the UK.
Contagion and imported inflation - Developed nations dependent on imported raw materials are also vulnerable if the price of these starts to rise.
2 pros/cons of gloabalisation for emerging countries:
+ exports and creates jobs. Eval: dependency and damges enviroment.
+ Acces to capital – improves productive potential. Eval: no foreign currency reserves for expensive machinery.
Over-reliance on exports to create economic growth. In recessions, the demand for commodities and raw materials fall. Developing countries see a fall in revenue. problem for farmers with no other income.
Labour migrates abroad in search of higher pay, causing brain drain.
These workers are most capable of delivering merit goods and social improvement required in developing countries.
EVAL:
- More remittances.
2 pros and cons of FDI:
Improves productive potential as it brings capital from other countries. Increased LRAS.
Increases AD through spending/investment. Eval: capital intensive may not increase employment,
Complex tax and accounting practices to avoid paying taxes.
Profit returning to the MNCs country of headquarters is a significcant withdrawal from the circular flow.
2 factors influencing terms of trade:
Productivity. Eval: its good for the uk tho.
Exchange rate movements.
Impact of TOT on economy.
increased revenue if demand is inelastic. Better CA.
Fall in growth if favourable TOT.
3 reasons for protectionsim:
Protect strategic/infant industries.
Macro objectives.
Dumping
2 cases aganist protectionsim:
Agaisnt the rulings of comparitive advanatge – leads to a missalocaiton of resources.
Regressive – higher prices.
2 pros and cons of free trade:
Lower prices due to competition.
Firms move FOP to another country that has a comparative advantage.
Worsens current account – leakeges form circular flow.
Higher unemployment due to less domestic demand.
2 causes of international competitivesness:
Poductivity - subsidising firms means that firms can invest in capital goods or education/training. This will improve efficiency and allow firms to produce more per unit input. Prices will be passed on as they fall due to costs being spread out over a larger amount of goods.
Firms have been reluctant to spend on machinery and successive governments have tried to improve productivity. The UK has the lowest productivity in the G7 since the financial crisis.
EVAL: TIme lag / Expensive, so not fundable currently as national debt is bad.
Inflation - A rise in interest rates will reduce consumption in the economy. This will lead to a fall in price level due to excess supply. Goods become more competitive.
EVAL: Time lag / Hot money will flow in, appreciating the pound, which will reduce competitiveness.
2 benefits of trade creation:
Economies of scale – larger market. More jobs
Increased exports.
2 reasons why income inequlity exists:
Strucutral unemployment – occupation immobility after deindustrilaistion -
Thacher tax cuts.
2 reasons why wealth inequality exists:
Income inequality.
Piketty R>G – asset prices are rising faster than incomes. Harder to step onto the property ladder.
2 polices to correct income/wealth inequalities:
Taxation – increase the top rate of tax. Marginal rate of tax – lowers post tax income.
- Eval: assumer on top of Laffer curve. Alos depends on what they do with the tax – need to redistribute instead of pay debt.
Increase minimum wage – effective because many people work in hospitality where they receive MW. The owners of FOP take this burden.
- Eval: higher unemployment. Imperfect information.
2 reasons why the UK runs a current account deficit?
Deindustrialisation. Comparative advantage in financial sector and lost advantage in manufactured goods.
Higher cost per unit which is passed on, increasing PL. Less internationally competitive. Deficit widens.
GET CHECKED
2 factors affecting exchange rates:
Speculation
Flows of hot money. Interest rates
Expenditure reducing policies?
Demand side policy. Fiscal and monetary
Expenditure switching policy:
Protectionism
Lower interest rates so hot money flows out.
3 roles of financial markets:
To lend to individuals/businesses
To facilitate saving.
To provide forward markets.
Pros and cons of specialization:
More choice.
Eos lower prices.
Overdependence
Structural unemployment
2 assumptions for comparative advantage:
Assumes factor mobility
Assumes no protectionism
Quality factors
2 interventionist policies to promote development:
Protectionism – more domestic suppliers so more jobs and more income. Draw diagram showing producer surplus and extension. More foreign currency reserves so more capital accumalation, so more growth.
- Eval: could lead to retaliation and they are reliant on their exports. Higher prices may reduce purchasing power.
Infrastructure – build roads, increase capital, increase labor force participation. Will attract FDI which will further increase jobs.
- Eval: expensive - Heavily in debt. white elephant projects – no demand for these infrastructure projects. Will lead to more debt.
