Unit 4

Question 1

4.1-Where one country has a lower opportunity cost of producing a good than another country.

Answer 1

Comparative advantage

Question 2

4.2-A payment is made by the government to producers on each unit they export.

Answer 2

Export subsidies

Question 2

4.1-This occurs in an international trade situation when one country is more productively efficient than another country in producing a good.

Answer 2

Absolute advantage

Question 3

4.2-Where the government imposes excessive rules, regulations and bureaucracy on imported goods.

Answer 3

Administrative trade barriers

Question 4

4.2-Taxes on imported goods as they enter the domestic economy have to be paid by the individual or organisation importing the good.

Answer 4

Tariffs

Question 5

4.2-A method of trade protection where a domestic government sets either a value or a quantity limit on imported goods into the domestic economy.

Answer 5

Quota

Question 6

4.4-An agreement between countries means free trade between members, but they set a common external tariff against non-members.

Answer 6

Customs union

Question 7

4.4-A situation in a trading bloc where a member country switches from importing an efficiently produced low-cost import from outside the bloc to importing a less efficiently produced high-cost import from inside the bloc.

Answer 7

Trade diversion

Question 7

4.4-Where members of a trading bloc adopt a single currency and have a central bank that sets monetary policy for the countries in the union.

Answer 7

Monetary union

Question 7

4.4-A trade agreement between a group of countries to remove trade barriers between them and they set their own tariffs against non-members.

Answer 7

Free trade area

Question 7

4.4-Agreement between two countries to increase the volume of trade between them.

Answer 7

Bilateral trade agreement

Question 8

4.4-Where there is free trade between members and there is also free movement of labour and capital.

Answer 8

A common market

Question 8

4.4-Where lower-cost producers inside a trading bloc replace higher-cost producers outside the bloc.

Answer 8

Trade creation

Question 8

4.4-An agreement between two or more countries in a particular area of the world.

Answer 8

Regional trade agreement

Question 9

4.4-An agreement between three or more countries that aim to increase the volume of free trade between the countries in the agreement.

Answer 9

Multilateral trade agreement

Question 10

4.5-Where the value of two or more currencies has exchange rates that cannot change against each other.

Answer 10

Fixed exchange rate

Question 11

4.5- Where the government intervenes intermittently in the foreign exchange markets to affect the value of the currency through the central bank.

Answer 11

Managed exchange rate

Question 12

4.5-A decrease in the value of a country’s currency against another currency.

Answer 12

Depreciation of an exchange rate

Question 12

4.5-When there is an increase in the value of a country’s currency against another currency.

Answer 12

Appreciation of currency

Question 12

4.5-The value of a country’s currency is determined by the interaction of demand and supply in the foreign exchange markets.

Answer 12

Free-floating exchange rate

Question 12

4.5-The price of one currency in terms of another set on the foreign exchange markets.

Answer 12

Exchange rate

Question 13

4.5-Where the central bank buys and sells the domestic currency to keep its value within set limits.

Answer 13

Direct intervention

Question 14

4.6-Where an individual or business buys an asset to manage it and earn a stream of future income from the asset.

Answer 14

Direct investment

Question 14

4.6-Inflow and outflow of transfer payments from the domestic economy are recorded on the current account.

Answer 14

Net current transfers

Question 15

4.6- The purchase of shares and bonds to earn interest and dividends from the assets and make a gain on any increase in the value of the assets.

Answer 15

Portfolio investment

Question 15

4.6-The purchase and sale of non-produced, non-financial assets (intangible assets

Answer 15

Capital account

Question 15

4.6-Price elasticity of demand of exports + price elasticity of demand imports > 1

Answer 15

Marshall-lerner condition

Question 16

4.6-When the value of inflows of funds on the current account is less than the value of outflows of funds.

Answer 16

Current account balance deficit

Question 16

4.6-When the value of inflows of funds on the current account is greater than the value of outflows of funds.

Answer 16

Balance of payments current account surplus

Question 16

4.6-A record of the monetary inflows and outflows of funds from trade in goods and services, investment incomes and transfer payments.

Answer 16

Balance of payments current account

Question 17

4.6-Using contractionary fiscal and monetary policy to reduce a balance of payments current account deficit.

Answer 17

Expenditure-reducing policy

Question 18

4.6- Where the central bank devalues the exchange rate to increase the price of imports and decrease the price of exports to reduce a balance of payments current account deficit.

Answer 18

Expenditure-switching policy

Question 19

4.6-An account that records the inflow (credit items) and outflow (debit items) of funds to and from the domestic economy which results from a country’s financial transactions with other countries in the world.

Answer 19

Balance of payments

Question 20

4.7-The sustained rise in the welfare of a country’s population over time.

Answer 20

Economic development

Question 21

4.7-Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Answer 21

Sustainable economic development

Question 22

4.8-Combine a number of criteria expressed as an index number to measure economic development.

Answer 22

Composite indicator of development

Question 23

4.8Measures a country's achievements in three basic aspects of human development: a long and healthy life, wide access to education and a decent material standard of living.

Answer 23

Human Development Index (HDI)

Question 23

4.8-Measures economic development in the same way as HDI but makes an allowance for inequality.

Answer 23

Inequality-adjusted Human Development Index (IHDI)

Question 23

4.8- Measures gender inequality as an indicator of economic development.

Answer 23

Gender inequality index (GII)

Question 24

4.8-Measures gender inequality as an indicator of economic development.

Answer 24

Happy planet index

Question 25

4.9-The output from the primary sector of the economy which includes agricultural production, forestry, fishing and mining.

Answer 25

Commodities

Question 26

4.9-The value of borrowing incurred by households, firms and governments.

Answer 26

Indebtedness

Question 27

4.9-When there are large withdrawals of money from an economy

Answer 27

Capital flight

Question 28

4.9- Transport connections, energy and water supplies, telecommunications and internet services and buildings for commercial and residential use.

Answer 28

Infrastructure

Question 29

4.9-Small operations that work outside the normal legal framework of business.

Answer 29

Informal economy

Question 30

4.10- Using the benefits of free trade to facilitate economic development.

Answer 30

Trade liberalisation

Question 30

4.10- Small loans to people who do not normally qualify for traditional banking credit.

Answer 30

Microfinance or microcredit

Question 30

4.10-A development strategy where a country switches away from imported manufactured goods and develops an industrial base to produce these products in its own country.

Answer 30

Import substiution

Question 30

4.10-The government is actively involved in the economy through its own expenditure and activities to facilitate economic development in an ELDC.

Answer 30

Interventionist development

Question 31

4.10-Where businesses that have significant production operations in at least two countries.

Answer 31

Multinational corporations MNCs

Question 32

4.10-Aid is given to a recipient country who in turn agrees to something of benefit to the donor country.

Answer 32

Tied aid

Question 33

4.10-Aid is given by Non-Governmental Organisations (NGOs).

Answer 33

Unofficial aid

Question 34

4.10-Loans made in an aid situation where the recipient country is charged below the market rate of interest.

Answer 34

Soft loans

Question 35

4.10-Aid is given to a country by an agency such as the World Bank.

Answer 35

Multilateral aid

Question 36

4.10-Aid is given by one country to another.

Answer 36

Bilateral aid

Question 37

4.10-A development strategy that involves a country concentrating its resources on the production of manufactured goods primarily for export.

Answer 37

Export promotion

Question 38

4.10-Financial and non-financial support given to countries by governments or agencies of other countries.

Answer 38

Foreign aid

Question 39

4.10-Investment in production in one country by a business from another country.

Answer 39

Foreign direct investment (FDI)