trade and the global economy Flashcards
(12 cards)
What is reshoring, and how does it impact trade?
Reshoring is moving production back to developed countries due to tech reducing costs, allowing them to export more.
How does FDI from developed countries influence trade?
It leads to more production in emerging countries, increasing their exports and changing trade composition.
How have developed economies responded to cost advantages in emerging economies?
By specializing more in high-tech manufacturing and services, while importing more low-cost goods.
What happens to export volumes when export prices rise and demand is elastic?
Export volumes fall significantly → export revenues fall → balance of trade worsens.
How can an improvement in the terms of trade reduce GDP?
Higher export prices → fewer exports sold → fall in net exports → ↓ aggregate demand → ↓ GDP.
What happens to unemployment if the terms of trade improve due to rising export prices?
Unemployment rises, especially in export-related industries, due to falling demand.
How does inflation react to an improvement in the terms of trade (via higher export prices)?
Inflation falls due to weaker aggregate demand → ↓ demand-pull inflation
What happens when terms of trade improve because import prices fall?
Imports become cheaper → import volumes rise → consumers switch from domestic to foreign goods.
AND BALANCE OF TRADE BECOMES WORSE
What is the impact of cheaper imports on domestic producers?
Domestic firms lose market share to foreign competition → potential fall in output and jobs.
How do falling import prices affect inflation?
Lower import prices → ↓ cost-push inflation + ↓ demand-pull inflation → overall inflation falls.
Can cheaper imports help the supply-side of the economy? How?
Yes, cheaper capital and inputs reduce production costs → ↑ SRAS → supply-side improvement
