International trade and the global economy Flashcards
Reasons for international trade.
Improve political relations between countries.
Increases productive potential of individual countries and encourages economic growth through specialisation.
What is international trade?
The exchange of goods and services between countries.
Benefits of free trade?
Allows specialist producers to sell goods without price or quantity being restricted or changed by another country.
This means consumers may choose to buy lower price/better quality goods from these specialists, benefiting consumers and costs may decrease for them as a result and also reducing the use of scarce resources.
What is the balance of payments?
How much a country is spending on imported goods and services and how successful domestic formas are at exporting to other countries.
What is the current account?
The record of trade in goods and service, income flows and transfers between one country and the rest of the world.
What is a balanced current account?
Countries revenue from overseas is equal to its spending overseas.
What is a current account surplus?
An economy is consuming less than it is producing in value.
What is a current account deficit?
Consuming more than it is producing and the income from the extra output is going overseas.
What are the negatives of an account deficit?
Increases national debt.
Larger consequences for high unemployment.
Depreciation in exchange rate and Cost-Push inflation.
What are the positives of an account deficit?
Can enable higher standards of living.
Moderate depreciation can help restore competitiveness.
If it’s only temporary; to buy in raw materials to put into good production that will cause economic growth in the long term.
Reduces inflation within the domestic economy: imports are greater than exports, thereby decreasing total demand and reducing the upwards pressure on prices.
