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Economics Theme 4 > International Economics > Flashcards

International Economics Flashcards

(54 cards)

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1
Q

Disadvantages of globalisation (6)

A

Growing inequality
Higher structural unemployment
Environmental costs
Trade imbalances
Risk of external shocks
Less cultural diversity

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2
Q

Advantages of globalisation (5)

A

Lower prices
Benefits of trade
Greater employment
Large economies of scale
Free movement of labour and captial

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3
Q

Advantages of specialisation (5)

A

Larger range of goods and services
Greater output
Greater quality
Benefits of trade
Reduces problem of scarcity

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4
Q

Terms of trade

A

Indicates the quantity of exports that must be sold to purchase a given level of imports

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5
Q

Factors influencing the terms of trade (short run)

A

Change in demand/supply of exports/imports
Inflation rates
Exchange rate movements

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6
Q

Factors influencing the terms of trade (long run)

A

Incomes
Productivity
Technology

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7
Q

Trading bloc

A

A group of countries that join together and agree to increase trade between themselves

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8
Q

Free trade area

A

No trade barriers
Can trade with other countries

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9
Q

Customs union

A

No trade barriers
Common external barrier

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10
Q

Common market

A

No trade barriers
Common external barrier
Free movement of labour and capital

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11
Q

Globalisation

A

The process in which national economies have become increasingly integrated and interdependent

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12
Q

Causes of globalisation (5)

A

Trade liberalisation
Trading blocs
Growth of MNCs
Technological advances
Greater mobility of labour and capital

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13
Q

Absolute advantage

A

When a country can produce a product using fewer factors of production than another nation

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14
Q

Comparative advantage

A

A country should specialise in the goods and services it can produce at the lowest opportunity cost, and then trade with another country

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15
Q

Specialisation

A

When a worker, firm, region or country produces a narrow range of goods and services

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16
Q

Terms of trade equation

A

(Weighted average of export prices) x (Weighted average of import prices) x100

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17
Q

Monetary union

A

No trade barriers
Common external barrier
Free movement of labour and capital
Common currency and central bank

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18
Q

World Trade Organisation (WTO)

A

International organisation that regulates world trade

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19
Q

WTO’s ideal world trade (5)

A

Non-discriminatory
Free from barriers/protectionism
Predictable
Promotes fair competition
Beneficial for developing countries

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20
Q

Role of WTO (7)

A

Set and enforce rules of international trade
Resolve trade disputes
Provide a forum for negotiating trade liberalisation
To monitor further trade liberalisation
Increase transparency of decision making process
Help developing countries benefit
Cooperate with other major economic instituions

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21
Q

How WTO conflicts with trading blocs (5)

A

Distort world trade
Averse effects on non-member states
Inefficient allocation of resources
Increased protectionism
WTO loses power as trading blocs become more powerful

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22
Q

Tariff

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A

Tax on imports

23
Q

Quota

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A

Quantity limit on amount of imports

24
Q

Trade subsidy

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A

Subsidy given to domestic suppliers

25
Aim of trade subsidy
To reduce costs of production → passed onto consumer as lower prices → makes firm more competitive
26
Non-tariff barriers
Voluntary export restraint (countries limit exports to each other Intellectual property laws (patents, copyright etc) Technical barriers (health and safety etc) Financial protectionism (govt. tells banks to prioritise local firms when allocating loans) Hidden protectionism (discrimination against foreign workers) Exchange controls (limit of capital flows between countries) Currency intervention (competitive devaluation)
27
Balance of Payments
Measures the inflows and outflows of money into and out of a country
28
Components of the current account
Trade in goods (trade balance) Trade in services (trade balance) Income e.g. remittances (income balance) Transfers - govt. fees e.g. aid, EU payments (income balance)
29
Causes of current account surplus (6)
Exporting more than importing Recession Competitive exports (deflation/disinflation/high quality exports) High level of natural resources Exports worth more than imports High levels of exports
30
Causes of current account deficit (6)
Importing more than exporting Sustained economic growth Uncompetitive exports (inflation/poor quality products) Low level of natural resources Exports worth less than imports Low levels of exports
31
Components of financial account (3)
FDI Portfolio investment Reserves
32
Capital account
Minor payments/transfers
33
what is an effective exchange rate/trade weighted
average movement of exchange rate based on values of trade with main trade partners
34
Advantages of a floating exchange rate (4)
Reduces need to hold large foreign currency reserves Freedom to set interest rates Automatic correction Less risk
35
Floating exchange rate
Currency value set by market No govt. intervention No target for exchange rate Speculation causes change in floating exchange rate e.g. British Pound
36
Disadvantages of floating exchange rate (2)
Can be volatile - reduces FDI A lower, more competitive exchange rate does not guarantee a current account surplus
37
Fixed exchange rate
Govt. fixes currency value to another currency Central bank must hold sufficient currency reserves e.g. Chinese Yuan
38
Advantages of a fixed exchange rate
Stability attracts FDI Stability controls inflation Leads to lower borrowing costs Less speculation
39
Disadvantages of a fixed exchange rate
Cannot use interest rates in macro policies (monetary policy) Developing countries may not have sufficient foreign currency reserves to fix Devaluation of exchange rate leads to cost-push inflation
40
Managed exchange rate
Currency value set by market forces Central bank occasionally intervenes Currency is a key target of monetary policy e.g. Japanese Yen
41
Competitive devaluation intentions
Make exports cheaper and imports more expensive Increases growth Increases inflation Improved current account
42
Revaluation
When the value of the currency is adjusted
43
Appreciation
When the value of the currency increases
44
Devaluation
When the value of the currency is lowered in a fixed exchange rate system
45
Depreciation
When the value of the currency falls
46
Factors influencing exchange rates
Inflation Speculation Other currencies Govt. finances Balance of payments International competitiveness
47
Government intervention in the currency markets - interest rates (hot money)
An increase in interest rates is more attractive for foreign investors This increases demand for currency, appreciating the value of the currency Government intervention in the currency markets - quantitative easing
48
Government intervention in the currency markets - foreign currency transactions
Buying and selling foreign currency to manipulate domestic currency
49
International competitiveness
The ability of a nation to compete successfully overseas and to sustain improvements in living standards and output
50
Components of international competitiveness
Price competitiveness Non-price competitiveness Ability to attract FDI
51
Unit labour costs =
Total labour cost / output
52
Relative export prices
Relative export prices
53
Factors that influence international competitiveness (8)
Unit labour costs Labour flexibility Labour skills Tax regimes Innovation Infrastructure Regulation Economic stabilility
54
Advantages of protectionism
Reduces trade deficit Protects infant industries

Economics Theme 4 (4 decks)

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