2.4 Life in a Global Economy

Question 1

What’s globalisation

Answer 1

the process through which an increasingly free flow of ideas, people, products and capital loads to integration of economies and societies

Question 2

What’s FDI

Answer 2

Foreign Direct Investment - Businesses and governments investing in other countries

Question 3

What 3 things does globalisation bring

Answer 3

Increased FDI
World trade increased (higher global GDP)
Increased migration

Question 4

Name 2 things people see bad about globalisation and 2 things they see good

Answer 4

Bad - Dominance of Western economies, exploitation of emerging economies (low-paid sweatshops)

Good - Wealth and development across the globe, interdependence binds countries and encourages peace.

Question 5

How can increased exportation raise incomes

Answer 5

Exports generate higher GDP
Investments into new projects
Jobs are created
Incomes rise

Question 6

How do the IMF, world bank and WTO help regulate world trade and increased globalisation

Answer 6

International monetary fund - helps to police the trade that happens in the world. The world bank lends to countries which are struggling financially. World trade organisation help remove trade barriers.

Question 7

Give an example of where interdependence has been a bad thing

Answer 7

The financial crisis of 2008 caused reverberations across the globe, it didn’t just affect those in the USA where it happened

Question 8

How has improved communication made trade easier

Answer 8

If countries can communicate effectively and cheaply, this drives trade and improves transportation methods. This is a main contributor to the increased globalisation

Question 9

What’s an MNC

Answer 9

Multi-national corporation

Active in more than one country.

Question 10

Why do MNCs occur

Answer 10

In most domestic markets, the level of saturation is high. There’s nobody left to sell to. Therefore, the business will expand abroad and tap into new markets. This is more common now as a result of globalisation

Question 11

What’s outsourcing and what are the main benefits of it

Answer 11

Paying someone else (might be abroad, might not) to do the work for you. May be able to find low cost labour and locate production near raw materials, or find countries with lower tax rates

Question 12

What is BRICs

Answer 12

Brazil, Russia, India, China and South Africa all have emerging economies and are a part of the g-20

Question 13

Why has globalisation increased the success of the BRICs economies

Answer 13

More demand worldwide and increased trade has opened up more trade opportunities and sales. Resulting in higher output and GDPs

Question 14

What are the main 2 indicators of growth

Answer 14

GDP per capita
Gross domestic product / population
Doesn’t show inequality (only an average of everyone)

HDI - human development index
Income - PPP (indicates cost of living and respective wealth)
Life expectancy
Years at school - education

Question 15

What other 3 measures could be used to measure the level of development

Answer 15

Literacy rates
Health indicators (water, infant mortality)
Mobile phone use

Question 16

Name 2 characteristics of developed, developing and emerging economies

Answer 16

Developed - high income, advanced tech and infrastructure.

Developing - Early stages of industrialisation, low HDI/GDP

Emerging - In transition between developing and developed, growing PPP/GDP

Question 17

Why is median a better indicator of growth than mean

Answer 17

It doesn’t include the outliers and inequalities of an economy.

Question 18

What is specialisation

Answer 18

Economies make the most of their skills/resources by concentrating on the goods/services they already have an advantage in (land, climate, raw materials). Skilled workers produce more, higher output = higher GDP. Trade is essential for this to work.

Question 19

Advantages and disadvantages of specialisation

Answer 19

A - Increased output and efficiency, economies of scale, cheaper costs, competitive advantage.

D - Over-reliance on one economy (if India makes all cars for example, if they shut down or can’t export, we have no cars), all eggs are put into one basket, the value of the good may influence your GDP, if demand falls - structural unemployment/waste of resources/skill.

Question 20

What 2 ways can a trading bloc run in regard to trade

Answer 20

• Free trade between those countries (NAFTA)

- Common market - free market within but set tariffs with countries outside the bloc (EU)

Question 21

What are visible and invisible exports/imports

Answer 21

Visible is a good

Invisible is a service

Question 22

What’s the difference between the balance of trade and the balance of trade for services

Answer 22

The BOT is the difference between the visible exports and visible imports

the BOTFS is the difference between the invisible exports and invisible imports

Question 23

Why are cheap imports good and then, why are they bad

Answer 23

Good - higher standards of living, more choice, cheaper raw materials for businesses, keeps inflation low

Bad - harms domestic industries, unemployment may rise

However, creative destruction may occur because as jobs are lost from structural change, new ones are created from the increase in GDP

Question 24

How is the exchange rate determined by demand and supply

Answer 24

Demand for the pound (those who buy our exports and FDI), supply for the pound comes from those in the UK who import and those who want to buy foreign currency. If demand goes down, less will be supplied.

Question 25

How does an increasing exchange rate affect firms

Answer 25

SPICED (Imports cheap, exports dear)

Domestic businesses will lose competiveness due to cheaper imports
Those who export will lose out

Question 26

What have China been accused of doing in the past with their exchange rates

Answer 26

keeping their exchange rate really low (WPIDEC - Imports dear, exports cheap) so they can sell their exports everywhere (competitive) and nobody in their domestic country buys from abroad