Theme 4 Flashcards
(97 cards)
1
Q
Specialisation
A
Concentrating resources on a narrow range of goods and services that a nation has comparative advantage.
2
Q
Absolute Advantage
A
When a country produces produces goods using fewer resources than competitors.
3
Q
What are the assumptions about comparative advantage?
A
- No transport costs
- No barriers to trade
- No economies of scale
- Perfect knowledge
4
Q
Pattern of Trade
A
Who and where nations trade with.
5
Q
What are the factors of influencing the pattern of trade?
A
- Absolute & Comparative advantage
- Quantity and quality of resources
- Trade blocs and trade agreements
- Exchange rates
- Protectionism
6
Q
Primary Product Dependency
A
Where a country’s economy heavily relies on the export of raw materials or primary products.
7
Q
Trading Bloc
A
A group of countries who agree to reduce or eliminate any barriers to trade that exist.
8
Q
Bi-lateral trade agreement
A
A trading bloc between 2 countries.
9
Q
Multi lateral trade agreement
A
Trade agreements between many countries.
10
Q
What are the different types of trading blocs?
A
- Preferential trading area
- Free trade area
- Customs union
- Single (common) markets
- Monetary union
11
Q
Preferential Trading Area
A
A type of trade agreement where member countries agree to reduce tariffs and other trade barriers among themselves, but keep their trade barriers for non-member countries.
12
Q
Free Trade Area
A
Free trade between members, tariffs and quotas removed
13
Q
Customs Union
A
Free trade between members and a common external tariff on non-members.
14
Q
Single (Common) Market
A
A trading bloc where barriers to trade on factors of production are eliminated for member countries.
15
Q
Monetary Union
A
Members of the bloc share a common currency, central bank and interest rates.
16
Q
What are the advantages of trading blocs?
A
- Increased trade
- Efficiency gains
- Economies of scale
- Political cooperation
17
Q
What is the role of the World Trade Organisation (WTO)?
A
- Negotiation among member countries
- Dispute settlement
- Monitoring trade policies
- Technical assistance
18
Q
Possible conflicts between trading blocs and WTO.
A
- Trade discrimination
- Trade diversion
- Inconsistent rules
- Preferential treatment
- Dispute resolution
- Overlapping memberships
19
Q
How does the WTO work?
A
- Provides a platform for member countries to negotiate agreements that reduce trade barriers.
- Oversees the implementation and enforce agreements made by it’s members.
- Helps resolve conflicts
20
Q
Tariffs
A
A tax on imports
21
Q
What are the types of restrictions on trade?
A
- Tariff
- Quota
- Subsidy
- Non-tariff barrier
- Rules of origin
22
Q
Quotas
A
Physical limits on the quantity of imports allowed
23
Q
Subsidies
A
Payments by the government to reduce the costs of production and increase supply.
24
Q
What are the arguments for protectionism?
A
- Protects domestic industries
- Protect infant industries
- Current account improvement
- Raise tax revenues
25
What are the benefits of protectionism?
1. Domestic industries become more competitive
2. Protects domestic industries
3. Can prevent structural unemployment
4. Gain tax revenues
5. Improve the current account balance
26
What are the problems with protectionism?
1. High prices for consumers (cost push inflation)
2. Less choice for consumers
3. Lower living standards (lack of availability of goods)
4. Price wars
5. Increased inequality
6. Shadow markets
27
What are the issues with free trade?
- Exploitation of nations and resources
- Inequality
- Loss of sovereignty
28
Balance of Payments
A country's B of P records all of the financial transactions between it and the rest of the world.
29
What is the balance of payments compromised of?
1. Current account
2. Capital account
3. Financial account
30
What is meant by the current account?
The current account records the transactions related to a country's trade in goods, services, primary and secondary income.
31
What is the capital account?
Records all transactions that involve the acquisition of non-financial assets, such as real estate, patents and copyrights.
32
What is the financial account?
Records transactions related to financial assets, including FDI, portfolio investment and banking flows.
33
What is a current account deficit?
When the value of exports is less than the value of imports in goods and services.
34
What is a budget deficit?
When the government expenditure is higher than tax revenues.
35
What is a current account surplus?
When the value of exports exceeds the value of imports
36
Wealth
A stock of assets
37
Income
A flow of money
38
Causes of Inequality
- Capitalism
- Access to education
- Access to credit
39
Gini Coefficient
A number between 0 and 1 representing the equality of a nation. (0 means perfect equality)
40
Absolute Poverty
When income is too low to afford basic needs (food, shelter, clothes etc)
41
Relative Poverty
Living on less than 60% of the median income.
42
Causes of Poverty
1. Unemployment
2. Lower paid work
3. Lack of education
4. Age
5. Disability
6. Lack of welfare benefits
43
Explain what the different curves on the lorenz curve show.
- Diagonal line shows perfect equality (50% of population has 50% of income)
- Bottom line shows high inequality
44
International Competitiveness
The sustained ability to sell goods and services profitably at competitive prices in a foreign country.
45
International Price Competitiveness
Being able to produce goods/services at lower prices globally than other nations.
46
Terms of Trade
The relative prices of a country's exports compared to the cost of imported goods and services
47
Equation for Terms of Trade
(Index of export prices/Index of import prices) x 100
48
What are the factors influencing ToT?
1. Relative inflation rate
2. Relative productivity rates
3. Exchange rates
49
Exchange Rate
The price of one currency in terms of another.
50
Multi Lateral Exchange Rate
The price of one currency in terms of a group of other currencies.
51
What are the factors influencing the demand for a currency?
- Interest rates
- Inflation rates
- Economic growth
- Government debt
52
What are the different types of exchange rate systems?
1. Floating
2. Managed
3. Fixed
53
Floating exchange rate
Currency value is set purely by Demand and Supply. (No intervention by the central bank)
54
Managed exchange rate
Exchange rate is determined by Supply & Demand. However, occassionally the central bank intervene to stabilize the currency
55
Fixed exchange rate
Central bank pegs the currency value to one or more currencies. The central bank must hold enough foreign exchange reserves to intervene in currency markets when needed to maintain the fixed currency peg.
56
Advantages of a floating exchange rate system.
1. Independent monetary policy - Interest rates and QE decisions can be used to influence the economy.
2. Currency reserves - Central Bank doesn't need to hold large foreign currency reserves.
57
What is the difference between appreciation and revaluation?
- Appreciation = an increase in the alue of currency thorugh Supply & Demand
- Revaluation = the intentional increase in the value of currency by the central bank
58
What is the difference between devaluation and depreciation?
Depreciation = A fall in the strength of a currency through supply and demand
- Devaluation = Intentional decrease in the strength of a currency by the central bank.
59
How can a central bank intentionally influence the strength of their own currency?
- Buying their own currency on the foreign exchange market would strengthen their currency due to increased demand and vice versa.
- Increasing interest rates will raise the exchange rate because foreign investors will see a higher return on investments.
- Quantitative easing will reduce the strength of the currency, because the money supply increases.
60
International Monetary Fund (IMF)
- An international institution which aims to ensure global financial stability and economic cooperation.
- Provides memebers with finance to correct balance of payments.
- Oversees exchange rates between nations and individuals.
61
Human Development Index
- A number between 0 and 1, used to measure and compare the overall development of a country .
- The higher the number, the higher the human development.
62
What are the different dimensions of the Human Devlopment Index (HDI)?
1. Health - life expectancy at birtth
2. Education - mean years of schooling and expected years of schooling
3. Living standards - GNI per capita at PPP
63
What are the advantages of using the HDI to compare levels of development between countries and over time?
1. Multidimensional - Takes into account lots of factors (health, education, economic)
2. Simplified index - By combining the dimensionms into a single index, it becomes easy to compare.
3. It's a global measure (used by lots of countries)
64
What are the disadvantages of using the HDI to compare levels of development between countries and over time?
1. Oversimplifies human development
2. Doesn't consider other factors such as environmental sustainability and inequality.
3. Focuses on quantity rather than quality - such as years of schooling rather than quality of schooling.
65
What is primary product dependency and explain how primary product dependency can influence growth and development.
- Primary product dependency = economic reliance of a country on the production and export of raw materials.
- Primary products can generate substantial export earnings, providing the government with revenue.
- Leads to comaprative advantage
- Dependence on a limited range of goods can leave economies vulnerable to economic shocks.
66
What is volatility of commodity prices and how does it influence growth and development?
- Refers to the fluctuation in the prices of raw materials over time.
- Can increase uncertainty for investors
- Countries may experience fluctuations in export revenue.
- Can increase inequality
67
What is the savings gap and how does it influence growth and development?
- Refers to the differece between the savings that an economy needs to finance investments and the actual savings that it has.
- Leads to insufficient infrastructure
- Leads to debt accumulation
- Countries with a savings gap often rely on foreign aid.
68
What is the Harrod-Domar model in reference to the savings gap?
A higher savings ratio leads to an increased rate of investment, thereby helping to build the capital stock of a country, therefore increasing output through a rise in productive capacity.
69
Capital Flight
The rapid outflow of money from a country due to economic, political or social instability.
70
Net Migration
The difference between the number of people entering a country and the number of people leaving the country.
71
What are the market orientated strategies regarding growth and development?
- Trade liberalisation
- Removing subsidies
- Privatisation
- Microfinance schemes
- Floating exchange rate
- Promotion of FDI
72
What is trade liberalisation and how does it influence growth and development?
- The removal/lowering of trade barriers such as tariffs and quotas.
- Lower prices and more choice for consumers
- Opens up international trade
- Attracts FDI
73
Joint Ventures
A business agreement in which two or more parties agree to pool their resources for a specific project or business activity.
74
Buffer Stock Schemes
- A maximum-minimum price system, designed to reduce the volatility of market prices where prices are unstable.
1. The gov set a max and min price.
2. If price falls too low, the gov buy the excess supply until the price is back up.
3. If price is too high, the gov will sell their stocks until the price is back at the desired range.
75
How do buffer stock schemes influence growth and development?
- Ensures price stability
- Increases business confidence
- However, cost to set up is high
- However, storage costs are high
76
What is the lewis model regarding industrialisation?
- Growth and development can be achieved by the migration of workers from the rural primary sector, to the modern industrial sector.
77
World Bank
- An international financial institution that provides financial and technical assistance to developing countries globally reduce poverty.
- Provides loan
- Aims to reduce poverty and promote economic growth
78
What is a financial market?
Where buyers and sellers come together to trade financial assets, such as stocks, assets or bonds.
79
What are the roles of financial markets?
- To facilitate saving by businesses and households.
- To lend to firms and consumers
- To facilitate the exchange of goods and services
- To provide forward markets in currencies and commodities.
- To provide a market for equities
80
Forward Market
A type of agreement to buy or sell a specific commodity, asset or currency at a set future date for a set price.
81
What are the causes of market failure in the financial sector?
1. Asymmetric information
2. Externalities
3. Moral hazard
4. Speculation and market bubbles
5. Market rigging
82
Asymmetric Information
When one party in a transaction has more information than another party.
83
Moral Hazard
When an individual or corporation takes excessive risks because they are protected from the full consequences of their actions.
84
Speculation in Financial Markets
Buying, selling or holding assets such as stocks, currencies or real estate with the expectation of profiting from price increases.
- Can inflate asset prices above their values
85
Market Bubbles
When asset prices rise significantly above their fundamental values due to speculation.
86
Market Rigging
The manipulation of financial markets to gain unfair advantages. For example insider trading.
87
What are the key functions of central banks?
- Implementation of monetary policy
- Banker to the government
- Banker to the banks (lender of last resort)
- Role in regulation of the banking industry
- Setting interest rates to control inflation
88
What is the difference between capital expenditure, current expenditure and transfer payments?
Current exp = Gov spendign on providing public services
Capital exp = Gov spending on new public infrastructure
Transfer payments = Payments made by the government whereby no goods or services are exchanged.
89
Crowding Out
Increased government spending leads to a reduction in private sector investment/economic activity.
90
What is the distinction between automatic stabilisers and discretionary fiscal policy?
Aut. Stab = built in mechanisms within a gov's fiscal policy which help to stabilise the economy during fluctuations.
Disc. fis. pol = deliberate actions taken by a government to influence AD, output and jobs through changes in spending and taxation.
91
What is the difference between a fiscal deficit and the national debt?
Fiscal deficit = when gov expenditure exceeds tax revenue in a year
National debt = the total amount of money a government owes to creditors
92
What is the difference between structural and cyclical deficits?
Structural = A budget deficit that occurs when a government consistently spends more than it earns through tax revenue, regardless of the state of the economy in the trade cycle
Cyclical = A budget deficit that occurs due to downturns in the trade cycle
93
Austerity
A contractionary fiscal policy, where the Gov reduce government spending to decrease the budget deficit and national debt.
94
Regulation of transfer pricing
Rules and regulations set by the government to ensure that the prices charged for transactions between divisions of the same TNC are fair and comply with tax laws.
95
Automatic stabilisers
Fiscal policy tools used to automatically influence GDP and counter fluctuations in the economic cycle.
- In a boom they will "cushion" demand
- In a recession they will support demand to prevent deep recession.
96
What is the marshall lerner condition?
- States that a currency depreciation will only correct a current account deficit if trade is >1 (elastic)
- This is because of exports are inelastic, whilst PL falls the TR will fall.
97
What is the J-Curve?
- In the short term, a currency depreciation may not improve the current account.
- This is beacause in the short term, exports & imports are inelastic.
