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Macroeconomics > Macro Book 5 > Flashcards

Macro Book 5 Flashcards

(50 cards)

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1
Q

Characteristics of globalisation (5)

A
  • increased international trade
  • growth of mnc’s
  • falling transport costs
  • deindustrialisation of medc’s
  • greater international mobility of labour
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2
Q

Positive consequences of globalisation for medcs

A
  • offers larger markets
  • increased living standards
  • improved terms of trade
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3
Q

Negative consequences of globalisation for medc’s

A

-firms ability to offshore/outsource reduces worker power in some industries
-protectionism against ledc’s into medc’s means consumers don’t fully revive gains from trade

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4
Q

Positive consequences of globalisation for ledc’s

A

-increased employment
-increased training + productivity
-increased investment
-increased government tax revenue
-increased living standards
-possible multiplier

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5
Q

Negative consequences of globalisation for ledc’s (4)

A

-jobs likely low skilled and low paid
-lax standards of health and safety laws etc
-profits remitted to home countries
-dependency on mnc investments

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6
Q

Closed economy

A

One that doesn’t take part in international trade

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7
Q

Open economy

A

One that is completely open to trade with the rest of the world

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8
Q

Free trade

A

A situation in which there are no trade barriers

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9
Q

Benefits of international trade

A

-Welfare gains and increased availability of goods
-Rising living standards
-Economies of scale for producers
-Increased competition
-Source of economic growth
-Spur to innovation and dynamic efficiency

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10
Q

Costs of international trade (3)

A

-negative externalities and depletion of natural resources
-countries become vulnerable to exchange rate fluctuations
-can make countries reliant on other countries

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11
Q

Absolute advantage

A

When a country can produce a good at lower cost than another country due to being more technically/productively efficient

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12
Q

Comparative advantage

A

When a country can produce a good at a lower opportunity cost than another country

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13
Q

Sources of comparative advantage

A

-Climate
-Natural resource
-Demographics and human capital
-capital stock
-Innovation
-Institutional framework

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14
Q

Tariffs

A

An indirect tax on imports designed to undermine foreign goods ability to compete on price

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15
Q

Protectionism

A

The use of trade barriers to protect domestic industry and employment

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16
Q

Import quotas

A

Physical limits on the quantity of a good that can be imported

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17
Q

Export subsidies

A

Subsidies given to industries producing goods for export to improve their international competitiveness

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18
Q

Embargoes

A

An outright ban on trade with a specific country

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19
Q

Trade creation

A

When a country moves from buying from a high-cost country to a low-cost country

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20
Q

Trade diversion

A

When a country moves from buying from a low-cost producer to a high-cost country

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21
Q

Arguments in favour of trade restrictions

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A
  1. Sunrise industries - developing industries in the country protected by trade barriers
  2. Strategic trade theory - protecting industries of special strategic importance
  3. Sunset industries - protection of older, declining industries in order to soften the blow of structural change and minimise structural unemployment
  4. Demerit Goods - reduce the importation of demerit goods.
22
Q

Free trade area

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A

There are no trade restrictions between member countries, but each member is free to determine its own restrictions on trade with non-member countries

23
Q

Customs union

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A

Free trade between its members and a common external tariff on imports from non-members

24
Q

The balance of payments is made up of…

Study These Flashcards
A

-Current account,
-Capital account
-Financial account

25
Current account is made up of
-Visible/invisible trade -Primary income (income on overseas investment) -Secondary income (income with nothing in return)
26
Financial account is made up of
- direct overseas investment (productive assets) - portfolio overseas investment ( financial assets)
27
Credit
Money in
28
Debit
Money out
29
Hot money
Investors seek in the highest possible return often following changing interest rates in foreign countries
30
Freely floating exchange rates
Exchange rate is determined entirely by the market forces of supply and demand with no government intervention
31
Fixed exchange rates
Governments maintain a fixed exchange rate either through a common value or through intensive intervention
32
Adjustable-peg systems
In the short term, the value of the currency is fixed, but this can be adjusted as circumstances dictate
33
Managed floats
For the most part exchange rates are determined through market forces but governments can/do intervene
34
Arguments for floating exchange rates
- offer flexibility and can adjust - automatic correction of a current account deficit - allows monetary policy to focus on other targets
35
Arguments against floating exchange rates
- Exchange rate volatility can cause economic uncertainty - Countries may ‘import’ inflation
36
Arguments for fixed exchange rates
- Reduces uncertainty over currency fluctuations - Can reduce inflation and expectations of inflation - Trade balance becomes more stable
37
Arguments against fixed exchange rates
- Requires large foreign currency reserves which come with a large opportunity cost - Conflict with other macro economic objectives - Difficulty in determining rate
38
Correcting a current account deficit 3D’s …
- deflation (contractionary policy) - devaluation - direct controls may also use supply side policies
39
Deflation (contractionary policy)
- expenditure reducing - designed to reduce aggregate demand - aims to reduce imports EVAL: No government is likely to encourage actual deflation as it conflicts with other macroeconomic objectives
40
Devaluation
- Expenditure switching - allows/encourages depreciation - Could be caused by cutting interest rates - Aims to switch demand for imports away from foreign goods and towards domestic goods
41
Direct controls
- expenditure switching - Protectionist measures e.g. tariffs, embargoes, quotas - Reduces demand for imports
42
Marshall-Lerner condition
In order for a devaluation to have a positive impact on a country‘s current account balance the sum of the PED’s for imports and exports must be greater than one
43
Correcting a current account surplus - 3R’s …
- reflation - revaluation - removal of direct controls
44
Reflation
- expansionary macro economic policy will increase national income and with that the demand for imports - Demand-pull inflation causing exports to lose international competitiveness
45
Revaluation
- deliberate appreciation of the country’s exchange rate - marshall-lerner condition necessary
46
Removal of direct controls
Removing tariffs etc. makes foreign goods more able to compete on price
47
Total economic welfare =
Utility from purchased goods and services + utility from state provided public/merit goods + economic welfare from quality of life factors
48
HDI
-human development index - Based on life expectancy of birth, mean and expected years of schooling and GNI per capita - Closer to 1, the more developed the country is
49
Factors affecting growth and development (9)
Population Natural resources Physical capital Technology Government spending Interest rate Climate Exchange rate Political stability
50
Barriers to growth and development (6)
Debt Infrastructure Institutional factors Corruption Human capital Trade barriers

Macroeconomics (6 decks)

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