Flashcards in Section D Deck (64):
What is globalisation?
The growing interdependence and integration of the world's economies.
Identify the four reasons for globalisation
Rapid ICT developments, improvements in international transport networks, widespread deregulation, development of multinationals.
How can governments affect globalisation?
Protectionism, closing international borders preventing trade, denying planning permission for multinationals preventing them from selling in their country.
What is a multinational?
A large and powerful firm that sells goods and services into global markets.
Why do multinationals exist?
Economies of scale (maximising effective production and reducing cost), marketing (heavy advertising increases demand) and technical and financial superiority.
What is foreign direct investment?
When a company makes an investment in a foreign country.
What anomaly is also included in foreign direct investment?
Purchasing shares in a foreign business.
Governments influence FDI by...
Offering tax breaks, subsidies, grants and low interest loans, invest in their own infrastructure, and relax regulations.
What is development aid?
Money and other forms of assistance given to developing countries from developed countries to help a nations long-term development.
State three examples of development aid through projects
Clean water projects and healthcare programmes, education and training programmes, and infrastructure development.
What are three types of development aid?
Bilateral(one country giving aid to another)/Multilateral(aid given by an international agency), Government grants, low to zero interest loans and tied aid(aid given as bilateral but with the expectation of something in return).
What four factors affect the ability of a country to repay their debt?
Size of debt compared to GDP, confidence of lenders, country's ability to earn foreign currency and the areas that debt is used for(if spent on education it may give a better chance for future repayment).
What happens when developing countries become less poor?
Provide market opportunities for multinationals.
Use steps to identify how international borrowing creates a higher standard of living
Higher government expenditure, improve schools and healthcare, higher literacy rates and life expectancy = higher standard of living.
Use steps to identify how international borrowing creates a higher rate of economic growth
Higher government expenditure on labour intensive jobs, reduces unemployment and results in higher disposable incomes, increased aggregate demand which causes more domestic goods sold = a higher rate of economic growth.
Use steps to identify how international borrowing creates an inability to pay back loans.
Money is not invested wisely, little return on investments made = inability to repay loans.
What is debt relief?
When developed countries dissolve debts that developing countries haven't repaid to allow them to develop.
Why do countries trade?
To obtain goods which can't be produced domestically, to obtain goods that overseas firms produce more cheaply, improve consumer choice and sell surpluses of commodities.
Give three advantages of free trade
More choice, more competition and more growth.
Give three disadvantages of free trade
Overspecialisation(overly dependent on a narrow range of raw goods), unemployment(caused by changing demand patterns) and environmental damage(pollution, congestion and loss of non-renewable resources).
A restriction in trade.
What are trade barriers?
Measures designed to restrict trade.
What is a tariff?
Taxes on imports which make domestic goods more expensive.
Give three causes of tariffs
Reduced demand for imports, improve the balance of payments and raise government revenue.
Define a quota
A physical limit on the amount of a good allowed into a country.
What happens if a quota is imposed?
Domestic producers will have a bigger share of the market.
What is the overall effect of a quote or tariff in a market?
Price increases, quantity decreases.
What is the function of a subsidy in relation to protectionism?
Lowering production costs for exporters or the domestic producers that face competition from imports.
What is the overall effect of a subsidy in a market?
Price decreases, quantity increases.
State the meaning of administrative barriers
Import restrictions due to the insistence that imported goods meet strict regulations and specifications.
Identify the six reasons for protectionism
Protect jobs and infant industries, prevent dumping, improve current balance, ban harmful goods and raise revenue.
What are the three problems of protectionism?
Loss of free trade benefits(higher prices and less choice), retaliation(trade wars) and other policies may be more effective.
Give three reasons for the growth of world trade
Better transport and communications, relaxation of trade barriers, and development of multinationals.
What are trading blocs?
Groups of countries situated in the same region that join together and make a free trade area.
What are the advantages of trading blocs?
More consumer choice, high levels of employment, economies of scale due to larger markets - resulting in lower prices, increased FDI and more cooperation between members.
What are the disadvantages of trading blocs?
Members have to pay to belong in a trading bloc, firms may merge within a trading bloc - resulting in regional monopolies and consumer exploitation, non-members face trade barriers when selling goods inside the bloc.
What is the aim of the World Trade Organisation (WTO)?
To promote free trade.
Name four activities of the WTO
Reducing or eliminating trade barriers, protecting the environment, settling trade disputes and expanding trade of developing countries.
Name four criticisms of the WTO
It is undemocratic, favours rights of corporations over workers, destroys the environment and favours wealthy nations.
Give four characteristics of developing countries
Low GDP/capita, Low life expectancy, Low literacy rates and rapid population growth compared to developed countries.
Give four characteristics of developed countries
High GDP/capita, High life expectancy, Extremely high literacy rates and little population growth compared to developing countries.
What are four recent trends in trade in developing countries?
Increased FDI in Africa, less reliance on commodities, debt cancellation and a reduction in trade barriers.
What are four recent trends in trade in developed countries?
Loss of trade in manufacturing, widening of the development gap, increase in regional trade agreements and threat of recession.
What is an exchange rate?
The price of one currency in terms of another.
How are exchange rates determined?
By the interaction of supply and demand.
What is appreciation?
When a currency's price, against another currency, rises. (£1.00=$1.40 -> £1.00=$1.60)
What is depreciation?
When a currency's price, against another currency, falls. (£1.00=$1.60 -> £1.00=$1.40)
What are the three factors affecting demand for currency?
Demand for exports, inward FDI and domestic interest rates.
What are the three factors affecting supply for currency?
Demand for imports, outward FDI and foreign interest rates.
Identify the four steps relating to how demand for exports affects demand/supply for currency
Domestic firms sell more exports, foreigners will have to exchange their currency for domestic currency, currency inflow, increased demand for domestic currency.
Identify the four steps relating to how demand for imports affects demand/supply for currency
Domestic people buy more imports, domestic people will have to exchange domestic currency to buy foreign currency to purchase the good being imported, currency outflow, increased supply for domestic currency.
Identify the four steps relating to how inward FDI affects demand/supply for currency
Firms abroad invest in the domestic country(factories, shops etc...), these companies need to exchange their currency for the domestic currency, currency inflow, increased demand for domestic currency.
Identify the four steps relating to how outward FDI affects demand/supply for currency
Domestic firms invest in the foreign countries(factories, shops etc...), these companies need to exchange the domestic currency for the foreign currency, currency outflow, increased supply for domestic currency.
Identify the four steps relating to how domestic interest rates affect demand/supply for currency
Domestic interest rates rise, currency becomes more attractive(more foreign currency moved to domestic banks), currency inflow, increased demand for domestic currency.
Identify the four steps relating to how foreign interest rates affect demand/supply for currency
Foreign interest rates rise(e.g. U.S.), currency becomes more attractive(more domestic currency moved to foreign U.S. banks), currency outflow, increased supply for domestic currency.
What happens when demand for currency increases?
When demand for currency increases there's a rightward shift in demand, ER and quantity increases, excess demand for currency, exchange rate appreciates.
What happens when demand for currency decreases?
When demand for currency decreases there's a leftward shift in demand, ER and quantity decreases, excess supply for currency, exchange rate depreciates.
What happens when supply for currency increases?
When supply for currency increases there's a rightward shift in supply, ER decreases and quantity increases, excess supply for currency, exchange rate depreciates.
What happens when supply for currency decreases?
When supply for currency decreases there's a leftward shift in supply, ER increases and quantity decreases, excess demand for currency, exchange rate appreciates.
How are British firms affected by an increase in the Sterling-Euro exchange rate?
British goods become more expensive in euros, demand for British exports (in Europe) falls, firms sell less abroad, less revenue, but cost of production falls as European exports to Britain become less expensive, resulting in lower prices and higher demand. (more profit overall)
How are British firms affected by a decrease in the Sterling-US Dollar exchange rate?
British goods become less expensive in US Dollars, demand for British exports (in the U.S.) rises, firms sell more abroad, more revenue, but cost of production rises as U.S. exports to Britain become more expensive, resulting in higher prices and lower demand. (less profit overall)
What are the four factors which the impacts of changes in exchange rates depend on?
Whether: the firms sells its goods abroad, the firm buys raw materials or components from abroad, the proportion of the firm's costs which are accounted for by the raw materials or components and the firm's competition in its domestic market from imported goods.
What is SPICED?