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Economics > Unit 6 > Flashcards

Unit 6 Flashcards

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1
Q

what is globalisation

A

the process of interaction and integration among the people, companies and governments of different nations

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2
Q

what are MultiNational Corporations

A

businesses which have their operations in more than one country

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3
Q

advantages to home country of MNC’s

A

Creates opportunities for marketing the products throughout the world
creates employment opportunities
aids and encourages economic growth
helps to maintain favourable balance of payments

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4
Q

advantages of MNC’s to host countries

A

provides employment and training
transfer of skill and expertise
adds to the host countrys GDP through spending
Competition from MNC act as an incentive to domestic producers
extend consmer and business choice in the host country
bring efficient business practices,technologies and standards which influence industry
source of significant tax revenue

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5
Q

disadvantages of MNC’s to home country

A

they transfer capital from the home country to host country
may not create employment opportunities to home country
they can neglect the home industry and economic development

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6
Q

disadvantages of MNC to host country

A

domestic businesses may not be able to compete with MNC
may not act ethically or in a socially responsible way
may be accused of imposing their culture
profits earned by MNC may be remitted rather than reinvested
may use tax avoidance measures to reduce the amount they pay

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7
Q

what is free trade

A

when there are no restriction for trade between economies

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8
Q

advantages of free trade

A

allows countries to benefit from specialisation
increases consumer choice
increases competition and efficiency
creates new business opportunities
enables firms and economies to benefit from the best workforces,resources and technology
increases economic interdependency

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9
Q

disadvantages of free trade

A

may reduce opportui

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10
Q

disadvantages of free trade

A

may reduce opportunities for growth in less developed economies and threaten jobs in developed economies
cause rapid resource depletion
exploitation of workers and their environment
income inequality worsens

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11
Q

what is protection

A

involves the use of trade barriers by governments to restrict international market access and competition

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12
Q

what are the types of trade barriers

A

tariffs
subsidies
quotas
embargo
excessive quality standards

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13
Q

explain tariff

A

indirect taxes imposed on imported or exported goods to discourage consumer demand

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14
Q

explain subsidies

A

given to domestic producers so that prices for their goods are reduced and demand increases

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15
Q

explain quotas

A

limit on the number of imports allowed into a country in a given period of time

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16
Q

explain excessive quality standards

A

imports may only enter a country after extensive quality checks which are costly. foreign producers will be discouraged and imports are reduced

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17
Q

what are reasons for protection

A

to protect infant/sunset industries
protect strategic industries
limit overspecialization
protect domestic firms from dumping(predatory pricing)
correct a trade imbalance

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18
Q

consequences of protection

A

restrict consumer choice
restrict new revenue and employment opportunities
can cause cost push inflation
protect inefficient domestic firms
other countries may retaliate with their own policies

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19
Q

what is the foreign exchange rate

A

the value or price of a currency expressed in terms of another currency

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20
Q

how is foreign exchange rate determined

A

by the market demand and supply of the currency

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21
Q

when does demand for a currency exist

A

when foreign consumers want to buy and import goods and services from the country.
overseas companies will buy the countries currency to invest in the country

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22
Q

when does supply for a currency exist

A

when domestic firms buy foreign currencies to invest abroad/ buy and import foreign goods.
the domestic currency is being supplied abroad

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23
Q

what is the equilibrium market foreign exhange rate

A

the price at which demand and supply of the currency equals

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24
Q

what does increased supply and decreased demand mean in foreign exhange rate

A

it causes the exchange to fall

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25
what does decreased supply and increased demand mean in foreign exchange rate
causes exchange rates to rise
26
what is specialisation
when a nation concentrates its productive efforts on producing a limited variety of goods and services
27
what is absolute advantage
when one country can produce more efficiently than others
28
what is comparative advantage
when a country can produce with a lower opportunity cost
29
what are the advantages of international specialisation
economies of scale and efficiency job creation allows more international trade revenue for the government wider markets consumer sovereignty
30
disadvantages of international specialization
structural unemployment overexploitation of resources threat of foreign competition risk of overspecialisation strategic vulnerability
31
how do changes in demand and exports and imports affect foreign exchange rate fluctuations
when a country's import value is greater than the export(deficit), more currency is being supplied than demanded. the exchange rate for the currency will fall if theres a surplus, the exchange rate will rise
32
how does inflation cause foreign exchange rate fluctuations
if the inflation in a country is higher than that of other countries, the price of that countries goods in the international market will be higher the demand for the country's goods will fall so currency demand will fall, causing a fall in exchange rate
33
how do changes in interest rates affect foreign exchange rate fluctuations
if a country's interest rate rises, overseas residents may be keen to save or invest money in that country demand for the currency will rise and the exchange rate will rise if interest rates fall below that of other countries, currency will fall in value
34
How do MNC's cause foreign exchange rate fluctuations
investment in overseas production plants require the use of foreign currency
35
how does speculation cause foreign exchange rate fluctuations
foreign exchange traders and investment companies move money around the world to take advantages of higher interest rates and variations to make a profit. can cause exchange rate fluctuations if there is lack of confidence, demand will fall
36
how does government intervention cause foreign exchange rate fluctuations
central banks can sell reserves in the foreign exchange market to increase its supply and cause a fall in its value
37
what are the consequences of foreign exchange rate fluctuations
fall in the exchange rate causes import prices to rsie and export prices to fall a rise in the foreign exchange rate causes import prices to fall and export prices to rise
38
when will a fall in foreign exchange rate improve the trade balance
when the PED is elastic , a fall in foreign exchange rate will improve the trade balance by reducing the deficits as exports rise relative to imports
39
when is a rise in the foreign exchange rate worsen the trade balance
when the PED is inelastic, a rise in the foreign exchange rate will worsen the trade balance as imports will rise relative to exports
40
what is a floating foreign exchange rate
an exchange rate that is determined by market demand and supply conditions will fluctuate regularly
41
what is appreciation of currency
the rise in the value of one currency against others, on a floating foreign exchange rate
42
what is depreciation of currency
the fall in the value of one currency against others is known as depreciation
43
what are the advantages of floating exchange rate
automatic stabilization( any disequilibrium in BoP will be fixed by exchange rate) frees up internal policy insulated from external changes government doesnt need to hold too much foreign reserves
44
what are the disadvantages of floating exchange rate
uncertainty(investor lose confidence) lack of investment( due to uncertainty) speculation lack of discipline( short term problems may be ignored until a crisis)
45
what is a fixed foreign exchange rate
exchange rate that is fixed and controlled by the central bank they will intervene in the market by buying and selling its currency in the foreign exchange market
46
what is devaluation
a deliberate fall in the value of a fixed exchange rate
47
what is revaluation
a deliberate rise in the value of a fixed exchange rate
48
advantages of a fixed foreign exchange rate
certainty stability encourages investment keeps inflation low Balance of Payments stability
49
disadvantages of fixed foreign exchange rates
can conflict with other macroeconomic objectives less flexibility risk of overvaluation or undervaluation
50
what is the Balance of Payments
the balance of payments is a record of all the monetary transactions between residents of a country and the rest of the world over a given period of time
51
What are the components of the Balance of Payments
current account capital account financial account
52
what does the current account record
visible trades(goods) invisible trades(services) net income recieved or made in payment for the use of factors net current transfers(involves payments for non productive activities)
53
what is a current account deficit
when the financial outflows in the current account exceed the financial inflows
54
cause of a current account deficit
higher exchange rates( currency is overvalued, imports will be cheaper which increases imports. exports will become uncompetitive and there will be a fall in exports) economic growth decline in competitiveness inflation recession in other countries borrowing money
55
consequences of a current account deficit
low growth unemployment lower standards of living capital outflow loss of foreign currency reserves increased borrowing lower exchange rate
56
what is the effect of low export growth
unemployment
57
how can current account deficits be corrected
nothing because a floating exchange rate will correct it contractionary fiscal policy contractionary monetary policy protectionist measures
58
what is a current account surplus
when exports are more than imports
59
what are the causes of a current account surplus
improved competitiveness growth in foreign countries high foreign direct investment depreciation high domestic savings rate closed economy
60
consequences of a current account surplus
economic growth appreciation of currency employment better standards of living inflation(demand pull)
61
correcting a current account surplus
do nothing because a floating exchange rate will correct expansionary fiscal policy expansionary monetary policy remove protectionist measures

Economics (9 decks)

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