4.1 international economics Flashcards
antonym of of globalisation
protectionism
globalisation definition
greater integration & interconnectedness between countries
tech factor of increased globalisation
drop in transport costs, death of distance
MNCs
has business operations in two or more countries. These companies are often managed from and have a central office headquartered in their home country
opportunities MNCs provide for the community
infrastructure (transport as well as training workers)
diversification of industries
negative of MNCs
impact on small firms
environmental impact
exploitation
taxation
free trade definition
no restrictions on the flow of goods and services between countries
absolute advantage
when country a can produce a good or service using fewer resources than that of another country
comparative advantage
an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners
SPICED
strong pound imports cheaper exports dearer
factors that influence patterns of trade CETE
comparative advantage
emerging economies
trading blocs
exchange rates
factors that influence patterns of trade: comparative advantage
cheap production/lower inflation pressure/general unemployment
factors that influence patterns of trade: emerging economies
integration in competitive markets & increased wealth for citizens
creation of jobs & reduction of poverty
factors that influence patterns of trade: growth in trading blocs
removes barriers to trade
factors that influence patterns of trade: exchange rates
appreciation in the exchange rate will lead to a fall in exports as the price as the price of UK goods and services abroad will go up
dependant on the elasticity of the product
formula for terms of trade
index of export prices / index of import prices
e/i
free trade areas
where members either reduce or elimate trade barriers. trade liberalisation
customs unions
members agree to remove trade barriers amongst themselves & agree on a common approach to trade barriers where other countries are involved. they act as a homogenous group
common markets
removal of trade barriers & freedom of labour & movement within the bloc.
usually also agreements of common economics policies & capital
monetary unions
independant countries that share a single currency
requirements to join the eurozone
fit in the convergence criteria eg. stable inflation, govt deficiet, exchange rates doesn’t change, interest rates
types of restrictions on free trade
tariffs quotes subsidies embargos
types of non tariff barriers to free trade
complex legal forms, inspections
reasons for protectionism to protect lay people
protect domestic jobs
externalities (like illegal goods entering the country)
prevent dumping
country nationalism
govt reasons for protectionism
protect infant industries
revenue from tariffs
balance of payments
country nationalism
graph for tariffs highlights
increase in consumer surplus outside triangle
lost govt revenue in teh middle
net welfare gain on each side
FDI
foreign direct investment. the establishment of operations in other countries. long term capital investment flow. more active
portfolio investment
the purchase of financial assets in another country eg. bonds or securities
primary income
net income flow made up of investment income from profits, interest + dividents between countries
secondary income
current transfers of income arising from gifts brtween residents, donations + overseas aid + transfers between the uk and the eu
components of the balance of payments
current
financial
capital
net errors + ommissions
reasons for current acc deficit
high propensity to import
weak product + price competitiveness
high exchange rates
weak productivity
reasons for current acc surplus
low propensity to import
strong product + price competitiveness
low exchange rates
strong productivity
devaluation
reduction of the value of a currency against other by reducing interest rates or selling reserves
will boost price competitiveness + reduce demand for imports
deflationsionary poliices
reducing inflationary pressure on the economy
improves price competitiveness of exports
thus reducing demand for imports
direct controls as a response to current acc imbalance
seeking control of expenditure on imports. think bans quotas tarriffs
policies to reduce expenditure might work like
raising taxes to reduce disposable cinome + demand
encourage consumers to switch their demand to domestic goods eg. think buy british campaigns
worker focused way to balance current acc
increase producitivity
like investment in human capital , subsidies on tech
what does a global trade imbalance tell us
lack of competitiveness + general suffering
possible response to world trade imbalance
move to protectionism? protecting oneself
WTO rules to prevent move to protectionsim
offset by other accounts
depreciation of currency
marshall lerner condition
states the current account will only improve if the sum of elasticities of imports + exports is >1
if demand is highly inelastic, thus will not be sensitive to price and therefore deficit may worsen before it improves. think smiley face
three systems of exchange rates
fixed floating mixed
different between appreciation and revaluation
appreciation under floating
revaluation under fixed
difference betweeen depreciation and devaluation
depreciation under floating
devaluation under fiixed
3 bad boy factors influencing terms of trade
exchange rates
inflation rates
price elasticity
impact of change in terms of trade
idrk could go either way. think it through
big 4 factors impacting the growth of globalisation
trade agreements
improved tech
reduced tariffs & protectionism
global trading blocs
