Unit 3 - Global Economic Activity Flashcards Preview

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Flashcards in Unit 3 - Global Economic Activity Deck (45)
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1

Multinational

A multinational company/enterprise (MNC/MNE) is one that operates in more than one country. It has a headquarters in one country and branches or production facilities located worldwide.

2

MNC - Example

Apple Inc. - Headquarters in San Francisco, CA. Manufacturing facilities in China

3

MNC - Reasons for locating

Access to resources - natural resources or cheap labour
Quality of resources - e.g. highly skilled labour
Proximity to market
English speaking (in the case of the UK)
Access to EU - now in jeopardy
Grants offered by governments
Transport links - ports/roads/rail/airports

4

MNC - Advantages to host country

Jobs are created - unemployment reduced
Increased exports
Benefits to related businesses/suppliers
Increased tax revenue for government
Reduced benefit payments
May bring ideas and innovations that can be used by other firms

5

MNC - Disadvantages to host country

Negative impact on competing firms
External costs - pollution, traffic congestion etc
Repatriation of profits to home country
The MNC may leave
Cost of government incentives
MNC may only provide low paid "screwdriver" jobs
Senior positions may be brought in from home country

6

Exchange Rate

The value of one currency in terms of another
e.g. £1 = $1.26

7

Exchange Rates - Appreciation

An increase in the value of a currency
e.g. £1 = $1.26 becomes £1 = $1.50

8

Exchange Rates - Depreciation

A decrease in the value of a currency
e.g. £1 = $1.50 becomes £1 = $1.26

9

Determinants of Exchange Rates

FOREX Market : Factors affecting supply and demand
UK unemployment
FTSE Market Trends
Economic Growth
Speculation
Interest Rates

10

Appreciation Impacts - Individuals

Stronger £1 buys you more foreign currency
Increases a UK citizen's purchasing power abroad
Cheaper to import goods from abroad
Cheaper to go abroad on holiday

11

Appreciation Impacts - Firms

If the firm exports, then demand for exports will fall
If the firm imports raw materials and components for production, then it is cheaper - and this represents a fall in the costs of production

12

Appreciation Impacts - Economy

Imports will increase - meaning a worsening of the current account deficit
Exporters will lay off workers
Importers can reduce prices so inflation may fall

13

Depreciation Impacts - Individuals

Weaker £1 buys you less foreign currency
Decreases a UK citizen's purchasing power abroad
Dearer to import goods from abroad
Dearer to go abroad on holiday

14

Depreciation Impacts - Firms

If the firm exports, then demand for exports will rise
If the firm imports raw materials and components for production, then it is dearer - and this represents a rise in the costs of production

15

Depreciation Impacts - Economy

Exports will increase - meaning a reduction of the current account deficit (or a surplus)
Importers may lay off worker due to an increase in the costs of production
Inflation may rise because importers increase prices to protect their profit margins

16

Features of the EU - Single Market

There are no trade barriers between the 27 member countries
(27 after Brexit)

17

Features of the EU - Shengen

Workers can move freely to work in other EU countries. Also there is free movement of capital

18

Features of the EU - Common External Tariff

All goods imported to any country in the EU (from outside) face the same tariff

19

Features of the EU - Maastricht

Set workers rights - for example there is a maximum number of hours workers can work for each week

20

EU - Reasons for trading

Proximity
Culture
Single Market
Demand

21

Eurozone - Features

Countries which use the euro as their currency
Currently 19 member countries
They all have a common monetary policy
The interest rate is set by the European Central Bank

22

Global (Free) Trade - Advantages

Allows countries to benefit from specialisation
Increases consumer choice
Increases competition - and therefore efficiency
Creates additional business opportunities
Enables firms to benefit from the best workforces, resources and technologies from anywhere in the world

23

Global (Free) Trade - Disadvantages

Protectionism :
International trade with low cost economies is threatening jobs in many developed economies and reducing opportunities for growth in less-developed economies
Contributing to rapid resource depletion and climate change
May increase the exploitation of workers and the environment
May be increasing the gap between the rich and the poor countries

24

Trade Barriers

Import Quota - Limit on amount
Import Tariff - Indirect Tax on imports
Higher Standards - e.g. stricter health and safety regulations)
Campaigns to buy local goods
Subsidies - protects infant industries so they can go on to compete with MNCs
Embargoes - complete ban on imports from another country

25

Developing Countries/Economics - Characteristics

Low GDP per capita
Lack of human capital
Lack of investment in infrastructure
Lack of education and training
Dependency on agricultural products
Reliance on on or two exports
High unemployment
Poor level of healthcare

26

Aid to Developing Economies

Free trade - e.g. reduce trade barriers
Debt relief - allowing non-repayment of debt interest
Capital equipment - providing machinery
Tied Aid - Giving cash provided it is used to buy UK exports
Technical expertise - provide people who can help e.g. with engineering projects
Education - provide teachers, books etc
Military Aid - provide equipment and personnel
Emergency Aid - e.g. provide food in a drought or flood

27

NIC (Emerging Economy)

Newly Industrialised Country : i.e. BRICMINT
Brazil
Russia
India
China
Mexico
Indonesia
Nigeria
Turkey

28

NICs - Characteristics

High level of foreign direct investment
Availability of cheap labour
Moving from primary to secondary industry
High Levels of Exports
High Rates of Economic Growth
Increased Infrastructure
Increased levels of education
Reduced poverty and higher living standards
Favourable tax and regulatory regimes
Improved Healthcare

29

UK Main Exports

Machinery (including computers)
Vehicles
Pharmaceuticals

30

UK Main Imports

Cars
Transportation
Textiles