3.1.1 Growing economies Flashcards
1
Q
offshoring
A
Moving some/all production processes abroad; it could mean setting up a subsidiary company abroad or paying local contractors to manufacture the product or component
2
Q
rationalisation
A
Reorganising production to achieve efficiency and use fewer resources to get the same output; eg making single dep for a function
3
Q
nominal value
A
Value at current prices
4
Q
current prices
A
Apply to data given at the price level at the year concerned
5
Q
real values
A
Measure money values with the effect of inflation removed
6
Q
constant prices
A
Are the prices that would have been in use without inflation
7
Q
expansionary policies impact on borrowing
A
- Issues with fiscal: COVID and financial crisis borrowing makes it difficult for government to borrow in future due to the size of these events
- Issues with monetary: inflation is growing, so BoE puts interest rates up to keep spending down
8
Q
India (productivity, infrastructure, gov, capital)
A
- Similar population to China
- More service sector compared to manufacturing and tech like China: China can add value in foreign market
- India is largest democracy but with changing gov, so no long term planned economy
- No universal education or healthcare, so low levels of education
- Low quality housing in large cities compared to China, no centralised government building infrastructure
- Railway built during British rule, so antiquated infrastructure
- Not as productive as China, 6-7%
9
Q
why do some countries stay poor
A
- Primary sector countries —> resources without the ability to add value to it
- commodities have fluctuating prices
- Can’t effectively plan for future growth as prices fluctuate
- What do you do when these natural resources run out? Need to develop other sectors when this runs out for sustainable long term economic strategy
- Technology and capital lacking
- Lack of property rights → no collateral to borrow to start business/go to school
- If there are few skilled workers they wont attract investment
- Government, war, political turmoil
corruption → having to bribe officials may deter firms from investment in a country - May push domestic firms into black economy so they cannot access capital (banks wont loan to an illegal business)
- Lack of international trade - export led growth is needed for countries with a domestic population with lower incomes
- Geography
- Many poor countries are landlocked
- Climates can limit growth if crops cannot grow/trade is limited due to weather
- Inequalities
10
Q
growth in asia
A
- Growth of asian tigers, South Korea, Taiwan, Honk Kong and Singapore
- 1980 chinese gov decided to join in world trade to increase incomes
- 1990s indian gov reformed policies to increase trade
11
Q
increased economic power in africa
A
- 2014 oil and commodity prices fell, affecting GDP in Nigeria and other exporting african countries; brazil exports in agricultural and mineral commodities declined fast
12
Q
BRIC economic growth
A
- 1989 USSR collapse and new russia gov increased trade with the rest of the world
- 2000 emerging economies were industralising; people who worked in agriculture moved to cities where jobs were available and in manufacturing sector labour productivity was increasing fast
- BRIC countries increased trade
- 2010 china and india had 10% econ growth despite financial crisis
- India growth 6% in 2016 and china slowed to 6.5%
- Econ growth associated with volume of trade increases
13
Q
growth due to the financial crisis
A
- Growth slowed in developed countries after financial crisis of 2008-9, and this reduced demand for emerging markets
- China growth based on high investment levels; needed to rebalance economy and encourage more consumer spending
- India growth remains high
- Slow growth in developed countries after FC reduced demand for imports
14
Q
why patterns of trade are changing
A
- Public opinion may shift towards protectionism but this would reduce real incomes for wage earniers
- Brexit may alter trade patterns
- New tech may decrease offshoring
- Ageing pops may need more services not manufacturers
- Political changes may disrupt some change
15
Q
why is economic growth good
A
- Higher living standards
- Lowers unemployment
- Increases tax revenue and gov spending on welfare
- Accelerator effect: rising growth stimulates more investment
16
Q
economic growth and technological change
A
- Rise in productivity
- Increase in GDP per worker
- Lower costs
- Higher wages and profits
- New goods and services
- Lower real prices
- Increased standard of living
- Improved health
- Healthy life expectancy
- Labour force expands
- Increased productivity
- Healthcare costs decrease and can invest elsewhere like education, increase skill of workforce
17
Q
drawbacks of economic growth
A
- Economic growth has a risk of higher inflation and higher interest rates
- Fast growing demand can lead to inflation
- Central bank may increase interests rates as a result
- Supply side policies cannot act as fast as demand pull inflation
Environmental effects
- More negative externalities like pollution and waste
- Risk of unsustainable extraction of finite resources → fast growing countries may cause a long run depletion of natural resources
- eg beijing olympics and suspending car and economic activity to reduce emissions
- Depends on type of economy and dependence on primary sector (developing economies)
- Inequalities of income and growth
- Rapid increases in real national income can lead to a higher level of inequality and social divisions
- Many of the gains from growth may only go to a few people
18
Q
how does economic growth occur with production
A
- Higher national output
- Increased capital spending
- Increased output per head
- Increased wages/next incomes
- Rising consumer demand
- Higher national output etc
19
Q
individuals and economic growth
A
- Individuals will have widening range of job opportunities and will be able to increase their incomes
- People may migrate from agricultural areas to cities or other countries
- Economic growth may lead to better health care, education and welfare but only if gov take action to achieve this
20
Q
firms and economic growth
A
- Demand for people with scarce skills will be high as they need to enhance human capital cheaply; training may be available increasing productivity
- Patterns of employment may change as businesses fail to compete in existing markets (eg where there is structural change)
- Can they stay competitive with increased trade and interdependence? This makes markets more competitive in global markets (eg productivity, econ of scale etc)
- Can offshore production for labour costs to be lower, or can engage in non price competition (reputation, branding, advertising, reliability, design etc)
21
Q
how does FDI help emerging economies
A
- Outsourcing increases demand for manufacturers and ready supply of cheap labour keeps them competitive
- Economic growth leads to increasing incomes and labour costs
- Some businesses could thrive by investing and increasing prod, and increasing product range
- Globalisation does encourage mergers and takeovers: create scope for economies of scale and access to new markets
- Businesses that merge and rationslise will shut down departments that duplicate and cut costs
22
Q
global labour market
A
- Benefits thos with scarce skills but hurts those will little skill and no bargaining power
- Gobalisation has reduced poverty → 600 million chinese people
- Even without good jobs, they have increased spending power thay flows into an economy
23
Q
people who gain from the global labour market
A
- developed: Employees working in firms and highly skilled workers
- emerging: People who move from farm work to manufacturing, especially if they benefit from training
24
Q
people who lose from the global labour market
A
- developed: Low skilled workers in firms tgat cannot compete with foreign imports and shut down
- emerging: People without scarce skills who have little bargaining power and poor working conditions
25
Q
nominal and real values
A
- to see how much GDP/inflation has increased purchasing power_
- real val = (nominal/price index)*100
26
Q
how should we handle economic data
A
- Has it taken inflation into account —> real incomes
- Has it taken the size of the population into account —> per head/per capita
- Is it taking into account the income individuals can actually spend —> disposable income
27
Q
calculating and interpreting index numbers
A
- Indexes allow for making comparisons, ruling out differences in economies allowing for comparisons across countries and time
- In exam, comment on how data is recorded and why that is important
- Nominal means money
- Real takes into inflation
Index number in year Y = (data value in year Y / Base year Value) x 100
