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Economics A level Edexcel > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

Define globalisation

A

Definition - The ever-increasing integration of the world’s economies (national/regional/local) into a single international market

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2
Q

What are the key characteristics of globalisation?

A 
More trade in G+S
Free movement of capital
Labour - migration and specialisation
interchange of intellectual capital
larger trading agreements
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3
Q

Causes of globalisation?

A 
Containerisation
Less protectionism
The death of distance/IT
economies of scale
business demands
international financial flows
legislation
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4
Q

Key benefits of globalisation

A

tech innovation
FDI
Economies of scale

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5
Q

Key disadvantages of globalisation

A

ineqeuitable distribution
threat to sovereignty and cultural identity
interdependence

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6
Q

types of tax avoidance

A

transfer pricing
moving production to low tax country
low tax head office

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7
Q

benefits of FDI

A 
can trigger multiplier
increases R&D 
New jobs
Productivity
Increase in export capacity
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8
Q

Disadvantages of FDI

A 
profits may not go to host country
land grabs
low ehtical standard
volatile
low quality jobs
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9
Q

Why are their MNCs?

A 
barriers to entry
economies of scale
icnreased innovation
global branding
patenting
gain politcal influence
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10
Q

define footloose capitalism

A

Fickle companies - may leave quickly if things change (however, this can be difficult for manufacturing)

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11
Q

Summary of inequality and globalisation

A

Decreases inequality between countries

Increases inequality within countries

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12
Q

What is comparative advantage

A

One countru has a lower indirect/opportunity cost of producting than another

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13
Q

What happens to PPF when two countries are trading at a favourable exchange rate

A

PPFs pivot out and become parallel

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14
Q

What theory opposes Adam Smith’s specialisation?

A

Theory of comparative advantage

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15
Q

Name 3 assumptions of theory of comparative advantage

A 
no transport costs
production costs/tech costs constant
2 economies 2 goods
mobile factors of production
homogenous goods
no barriers to trade
perfect knowledge
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16
Q

What are the primary determinates of a comparative advantage

A

quantity and quality of production

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17
Q

What 4 factors influence the pattern of trade?

A

comparative advantage
Emerging economies
Trading blocs/agreements
exchange rates

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18
Q

What can be used to measure trade openess

A

ratio of trade to GDP = (X-M)/GDP

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19
Q

How has production changed? 3

A

Fragmentation of production
digitilisation
rise in automation

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20
Q

2 benefits of trade

A

Reduced costs - comparative advantage specialisation

More choice

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21
Q

Risks of trade 2

A

overdependence

loss of culture and sovereignty

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22
Q

formula for terms of trade

A

index of X prices/index of M prices *100

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23
Q

SR determinates of Terms of trade

A

change in ER
inflation
change in demand

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24
Q

LR factors effecting terms of trade

A

productivity

change in income

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25
What does a rise in Terms of trade mean
prices of exports rise and prices of imports fall - buy more imports per export - may worsen balance of payments (depends on elasticity)
26
To see how elasticity affects balance of trade what can we look at?
Export market
27
What is a trading bloc
general term for a group of countries entering a trade agreement to reduce barriers to trade
28
In order of increasing integration what are the types of trading blocs
``` Preferential trade area (PTA) Free trade area (FTA) Customs union Common market Economic union Full integration ```
29
what is a customs union
free trade and a common external tarriff barrier
30
what is a free trade area
free trade within bloc but individual trade barriers
31
what is a common market
free movement of factors of production
32
What is trade creation
consumers switch from high to low-cost producer
33
what is trade diversion
consumer switch from low to high cost producers
34
2 advantages of trading blocs
encourages FDI due to trade potential | encourages competitiveness and effeciency
35
2 disadvantages of trading blocs
can be ineffective and lead to trade diversion | can reduce national sovereignty and control
36
What is the condition for consumers to benefit from a trading bloc
trade diversion < trade creation
37
difference between static and dynamic gains from trade
static are made straight away upon entry and dynamic are over time
38
Name a key example of a monetary union
eurozone and the european central bank
39
What are the rules for eurozone members
fiscal debt cannot be greater than 3% GDP | national debt cannot be higher than 60% GDP
40
3 advantages of a monetary union like the Eurozone
improved price transparancy and stability inward investment less volatile exchange rate as more countries behind it
41
2 disadvantages of monetary union
``` transition costs (menu costs, shoe leather etc) Loss of policy independence ```
42
What are the convergence criteria for joining a single currency? 5
``` low inflation low fiscal deficit low national debt (as a % GDP) stable ER similar IR ```
43
what is the WTO
world trade organisation
44
what did the wto replace
GATT - general agreements on tariffs and trade
45
objectives of the WTO
trade liberalisation | follow trade agreements
46
difference between plurilateral bilateral and multilateral
bi - 2 pluri - multiple multi - everyone
47
most recent WTO round
``` Doha round (QATAR) 160 countries ```
48
3 negatives if WTO
rich countries exploit poorer ones bad for environment Pushes down prices/revenue for developing countries
49
Define protectionism
the use of economic policies to manipulate imports and exports
50
Types of protectionism
``` Tariffs Quotas subsidies Admininstrative barriers exchange rate manipulation ```
51
3 Pros of free trade
encourages competition and effeciency theory of comparative advantage rise in living standards
52
3 cons of protectionism
retaliation dead weight loss can be regressive
53
3 pros of protectionism
Protects infant industries (sunrise and sunset) can improve diversity combat dumping from other countries
54
What is the balance of payements split into
current account financial account capital account
55
What is in the current account
net trade (visibles and invisibles)
56
Whats in the capital account
government and foreign transfers
57
whats in the financial account
investment income | FDI
58
What is the sum of the balance of payments
=0
59
What do countries have underlying current account surpluses or deficits?
``` natural resources underlying competitiveness exchange rates inflation spending by consumers/government ```
60
Positives of a current account deficit
``` financial liberation (more FDI) Partial auto-correction (may be corrected buy business cycle) Investment and supply side (tooling up) Capital inflows (low IR can finance) ```
61
Problems of a current account deficit
``` structural weakness unbalanced economy loss of output (withdrawal) Problems with financing (FDI unreliable) downward pressure on exchange rate ```
62
3 types of method for tackling the balance of payments?
demand management Currency adjustment supply side
63
Types of demand management
expenditure switching | monetary policy
64
What is it called when someone refuses/cannot pay debts
default
65
Key issue of defaulting on debts
makes investment and future borrowing hard and expensive
66
If money is entering the country...
it is being supplied
67
If money is leaving the country...
it is being demanded
68
what is a floating exchange rate
free market determines ER
69
What is hot money
Rise in IR causes speculative money flows so a rise in ER
70
What is the difference between devaluation and depreciation
devaluation is a fixed ER, depreciation is a floating ER
71
what is the marshall-lerner condition
devaluation only leads to an improvement in teh current account if the sum of elsasticities (for X and M) is of a magnitude more than 1
72
What condition talks about elasticities of exports and imports
marshall lerner condition
73
What does the J-curve show
Devaluing the currency in the SR can increase deficit due to fixed contracts and slow reactions - there is a TIME LAG
74
What can an ER do to inflation
Rise in ER can make imports cheaper, lowering AD, moderating inflation
75
ER and economic growth
lower rate increases investment as more export opportunities
76
comptitiveness can have a big effect on...
employment
77
measures of international competiveness
``` unit labour costs global competitiveness league table realtive export prices terms of trade growth rates ```
78
Real exchange rate formula
nominal * domestic price level/foreign price level
79
Name 3 factors that influence competitiveness
exchange rates Quality/R&D PED
80
Why are there dynamic gains from trade
widens market so more investment and efficiency
81
Why is the UK competitive?
Can attract FDI because skilled flexible labour, gateway to europe, stable, low tax rates
82
3 advantages of competitiveness
Current account surplus wage growth and jobs attracts FDI
83
how can competitiveness be lost 2
rise of middle class (erodes wage advantage) | current account surplus can appreciate exchange rate, reducing competitiveness
84
evaluating a policy to increase competitiveness
``` Trade deficit Incentives ST/LT impact Impact of future decisions Could something have achieved them with fewer resources Why did it fail? ```
85
what is equity
the quality of being fair or equal
86
3 causes of inequality
earned income (race, age, gender etc) government policy competition
87
4 types of wealth
physical (antiques etc) property private pension wealth financial
88
key cause in inequality for wealth
inheritance
89
formula for gini coeffecient
a/(a+b) *100
90
value for absolute poverty
less than $1.90
91
relative income figure
less than 60% median income
92
3 causes of poverty
lack of human capital dependency infrastructure
93
what is the poverty cycle
concept that poverty causes poverty
94
what is horizontal equity
equal treatment of people in the same situation (regardless of age race gender etc)
95
What is vertical equity
different treatment of indivuduals to promote equity (e.g. progressive taxes)
96
3 types of taxation
progressive regressive propotional
97
6 policies to reduce inequality
``` Minimum/maximum wages Forced benefits to workers Equal pay legislation Trade unions Price controls on necessities Goods provided on an income basis ```
98
key disadvantage of taxation
lowers incentive to work
99
Trickle down effect
high wealth in individuals creates jobs
100
6 development classifications
``` income developed, developing, less developed worlds model NICs BRICs Tiger economies ```
101
what are the tiger economices
South Korea, Singapore, Taiwan
102
Why doesn't growth correlate with development?
other factors can influence, | inequlity, corruption, lack of social mobility
103
three variables of HDI
GNI pc at PPP education - mean years life expectancy at birth
104
What is a hard commodity?
Something that is mined or extracted
105
What is a soft commodity
something that is grown or raised
106
why are commodity prices so volatile
very inelastic demand and supply, which mean small changes cause big changes in price
107
What is the prebisch singer hypothesis
Over the long term, as commodities don't rise in value as much as technology and other processed materials, the terms of trade of countries with primary product dependency deteriorates
108
What is the IHDI
Inequality-adjusted HDI | uses atkinson index
109
How many indicators does the genuine progress indicator have and what are the three categories of these
26 | Social, economic, environmental
110
What is the MPI
Multidimensional poverty index | 10 indicators
111
What is the resource curse
Countries have an abundance of natural resources but do not develop
112
Why do primary product dependent countries struggle with prices
very volatile | makes planning and investment difficult
113
what is dutch disease
Country becomes a significant exporter of a resource in short space of time, which appreciates exchange rate, eroding competitiveness
114
What is the harrod-domar model
change in Y/Y=s/k s is savings ratio k is capital output ratio
115
What is the savings cycle
low savings low investment low capital accumulation low incomes
116
What is the savings gap
the difference between actual savings and the savings needed to finance investment for higher growth
117
What is a foreign exchange gap
difference between exports and the exports needed to finance higher growth
118
What is capital flight
Money is sent abroad to be saved
119
What is the Malthusian trap
Population grows before agricultural growth, results in inadequate food --> can be extended to energy
120
What is microfinance
very small loans given to poor groups to allow them to invest
121
What is often a missing market in developing countries
absence of a financial sector
122
what does the kuznets curve show
Level of envronmental degradation and the industrialisation of a nation
123
What can lead to underemployment
Over-education can lead to underemployment
124
what is a brain drain
better educated memebers of the workforce leave to countries with better opportunities
125
What is rent seeking
behaviour which attempts to increase share of existing pot of wealth rather than creating higher income/wealth
126
What is dead capital
Poorer people not being able to use their assets (like land) as collateral for loans
127
Name 4 non-economic factors that influence growth and development
war poor governance disease Geographical location
128
What is allocative efficiency
Price (AR) = MR | When the state of the market best represents consumer preferences
129
What is a surrogate competitor
When a regulator acts as competition to increase efficiency in a monopoly
130
3 types of strategies to improve development
Market-based interventionist Other
131
Market-based strategies to improve development
``` Privatisation trade liberisation promotion of FDI Removal of subsidies Floating exchange rate Microfinance ```
132
Interventionist strategies to improve development
``` Development of human capital Protectionism Managed exchange rates developing infrastructure joint venturing buffer stocks ```
133
What is import substitution
when protectionism is used to move consumption from imports to domestic products
134
Other strategies to improve development
``` fairtrade developing primary industries debt relief aid tourism industrialisation ```
135
Why might a government decide to build infrastructure
Potential for a social profit - positive externalities
136
Pros of FDI 3
Risk of investment taken by MNC not government transfer of knowledge and skills Multiplier
137
Cons of FDI 3
Loses sovereignty Repatriation of profits Can be exploitative
138
What is a joint venture
Foreign investor must set up in partnership with a local
139
What do buffer stocks tackle
Volatile prices
140
Advantages of buffer stocks
Encourages I Prevents fall in revs that cause poverty Consumers see more stability
141
disadvantages of buffer stocks
``` Prices may go one way (don't work) - unsustainable Large cost to taxpayer to set up Difficult to do with perishables Free riders (other countries) ```
142
What is the Lewis Model
Traditional and modern sector | Industrialisation through the transfer of workers to urban sector, therefore should a key objective
143
Negatives of lewis model
Profits may not be passed onto workers Urban poverty Government can waste resources on investment Slums caused by influx
144
Advantages of Aid
fulls savings, trade gaps | can be targetted
145
positives of debt relief
Reduces burden on small countries Allows growth Interest was larger than original loan Previous government may have been corrupt
146
Negatives of debt relief
moral hazard | eases pressure on govt to adopt good policies
147
Name 3 key development NGOS
IMF World Bank WTO
148
What does the imf do
Provides tempory relief in crisis | tied aid
149
What does world bank do
Promotes devlopment through different sub branches
150
What is a financial market
A set of arrangements where buyers and sellers can buy or trade a range of goods/services/assets for financial gain
151
6 roles of financial markets
``` Facilitate saving Lending Facilitate exchange Provide forward markets Provide equity markets Provide insurance ```
152
5 types of financial institutions
``` Retail banks Commercial banks Investment bank Saving vehicles Insurance companies ```
153
6 key financial markets
``` Money Capital FX commodity Derivatives Insurance ```
154
Types of financial market failure
``` Asymmetric info Moral hazards Specualtion/bubbles Market rigging Externalities ```
155
What is a market bubble
when speculation causes a price to be excessively high, which may then collapse
156
What is herding
investors watch what other investors do rather than at the underlying value of an asset
157
What is the relationship between bonds and IR
proportional as substitutes
158
What is a central bank
Instution responsible for acting as the governments bankers
159
4 key roles of central bank
Implements monetary policy Banker to government Banker to banks (lender of last resort) Regulator
160
Classic financial markets moral hazard
bailing out banks
161
What is the capital/leverage ratio
Ratio of liabilities/capital/reserves to assets
162
3 reasons for public expenditure
Efficiency Equity Macro management
163
What is capital expenditure
Spendign on investment goods (longer than a year)
164
What is current expenditure
genereal government spending (G+S in year, transfer payments, debt interest
165
Ev government efficiency
Free market increases competition, firms maximise profits and lower costs and innovation gives an advantage so is desired If inefficiency > benefits from the public good, then G should be minimised
166
What is resource crowding out
extra G leads to reduced private sector spending
167
What is crowding in
Increase in G leads to higher public sector spendingPF
168
PPF and crowding in/out
in- shift out (new PPF or better use) | out - shift along
169
What is a direct tax
Tax levied on economic agents
170
What is an indirect tax
tax levied on a G/S
171
Why tax
Fund G Correct market failure Manage the economy Redistribute economy
172
Equity taxes type
proportional progressive regressive
173
What are the canons of taxation
Cost to collect is low % of yield Timing and amount is clear Payment/timing is conveniant equitable
174
What is a hypothecated tax
tax linked to a specific area of G
175
What does the laffer curve show
Tax revenure and tax rate
176
What is tax competition
low corporation tax to attract investment
177
Name some main UK taxes
``` income National insurance contributions Inheritance excise VAT Council Business ```
178
2 types of G
Automatic stabilisers | discretionary fiscal policy
179
Link equation between deficit types
Structural deficit = actual deficit - cyclical deficit
180
What is the structural deficit
difference between deficit at peak of cycle and fiscal balance
181
Primary deficit?
Taxes - G
182
What does primary deficit not include
DEbt interest repayments
183
4 factors that influence fiscal balance
Strutural Cyclical Unforseen disasters Debt interest
184
What is the name for the amount of money required to pay debts
debt servicing
185
What is inter-generation equity's link to national debt
burden on future
186
How does borrowing effect future borrowing
Credit ratings - if not paid back it gets more expensive
187
5 objectives of fiscal policy
``` Private sector market gaps Desirable distribution of wealth Correct market failure improve macro performance ensure sustainability ```
188
Types of demand management
expansionary deflationary/contractionary automatic stabilisers
189
2 ways to reduce a deficit
fiscal austerity | Automatic stabilisers
190
5 ways to reduce debt
``` fiscal surplus balancing budget inflation QE Default ```
191
What are direct controls
Measure imposed on a single product or factor of production
192
Key problems that face policy makers
Inaccurate information Risk and uncertainty External shocks

Economics A level Edexcel (6 decks)

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