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Economics Theme 4 > 4.1 International Economics > Flashcards

4.1 International Economics Flashcards

1
Q

Define globalisation

A

The increasing integration and interdependence of economies through international trade

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2
Q

What are the 4 characteristics of globalisation?

A
  1. Free trade – the movement of goods and services
  2. Free movement of labour- more emigration and immigration
  3. Free movement of capital – in this case capital means money
  4. Free movement of technology and intellectual capital
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3
Q

Name 4 factors contributing to globalisation

A

Reduced cost of transport

Better communication

Falling tariffs (WTO and trade blocs)

Transnational Corporations

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4
Q

Name an example of the benefits of globalisation

A

In Mexico, firms that export most goods paid wages over 50% higher than that of non-exporting firms

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5
Q

Name an example of the drawbacks of globalisation

A

At least 40 oil spills in Nigeria from Shell

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6
Q

Name 4 advantages of globalisation

A

Specialisation (comparative advantage)

Efficiency due to more competition

Reduces poverty in developing countries

Growth (prof hans rosling)

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7
Q

Name 4 disadvantages of globalis

A

Inequality, urban/rural divide

Macroeconomic instability due to overreliance

Trade imbalance

Unemployment

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8
Q

Define patterns of trade

A

What is being traded and with whom

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9
Q

What happens to pattern of trade as comparative advantage shifts and why?

A

P.o.T shifts as well, due to specialisation and therefore goods made changing

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10
Q

Define emerging economy

A

Low to middle income countries with high GDP growht

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11
Q

Name each MINT and BRIC country

A

MINT: Mexico, Indonesia, Nigeria, Turkey

BRIC: Brazil, Russia, India, China

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12
Q

Name 2 examples of changes in comparative advantage resulting in changes in trade

A

UK deindustrialisation - shift to services

Manufactured goods shift to India and China

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13
Q

Give an example of a free trade area

A

NAFTA

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14
Q

Give an example of a Customs Union

A

EAC (East African Community)

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15
Q

What is the difference between a customs union and a free trade area?

A

Customs union has common external tariff AND no internal trade barrier, FTA is just no internal trade barrier

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16
Q

Give an example of a single market

A

European Union

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17
Q

Give an example of a monetary union

A

Eurozone

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18
Q

Give an example of an economic union

A

United States

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19
Q

What three kinds of trade bloc have free movement of factors of production?

A

Single market, monetary union, economic union

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20
Q

Name 3 advantages of a regional trade agreement (trade bloc)

A

Trade creation

Increased market size

Liberalised service markets

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21
Q

Name 3 disadvantages of a regional trade agreement (trade bloc)

A

Asymmetries (e.g Germany and Euro)

Trade diversion

Vulnerable to external shocks

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22
Q

Name the 4 factors affecting pattern of trade

A

Comparative advantage

Impact of emerging economies

Growth of trade blocs

Changes in relative exchange rates

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23
Q

Name an example of relative exchange rates affecting pattern of trade

A

China trying to keep RMB weak in order to make exports cheaper

24
Q

Define specialisation

A

When a person, business or country narrows down the range of tasks completed, and focusses their production, then trades the surplus

25
Q

Define absolute advantage

A

When one country is more efficient at producing a good than another

26
Q

What does the law of comparative advantage say?

A

Countries should specialise in the good for which they have the lower opportunity cost

27
Q

Name 4 assumptions made when using comparative advantage

A

No transport cost

Free trade

Perfect mobility of factors of production

Constant returns to scale (no excess cost to produce more)

28
Q

Name 2 limitations of comparative advantage

A

Assumptions unrealistic (e.g transport costs)

Static model - doesn’t consider potential gain in comparative advantage

29
Q

Name the 5 convergence criteria to join the Eurozone

A

Inflation not exceeding HICP (avg eurozone inflation)

Annual debt not exceeding 3% of GDP

National Debt:GDP ratio not exceeding 60%

Currency not forcefully devalued against Euro

Long term interest rates not above 2% higher than avg of 3 lowest eurozone interest rates

30
Q

Name 2 Eurozone accession criteria

A

Stable, democratic institutions

Functioning market economy without asymmetries and corruption

31
Q

Name 2 advantages of monetary unions

A

Increased productiivity - more competitions as easier to compare supplier prices

Attracts inward FDI

32
Q

Name 2 disadvantages of monetary unions

A

Monetary policy may not suit individual economies e.g inflation

Asymmetric shocks e.g oil affect countries differently - cannot use MP to fix

33
Q

What is the WTO?

A

A group of countries that agree to follow certain rules when trading with each other

34
Q

Name 3 rules of WTO membership

A

All other members get Most Favoured Nation status (lowest tariff)

Non-discrimination between domestic and imported goods

Anti-dumping - cannot export products below price level to outcompete domestic supplier

35
Q

Name an example of WTO dispute

A

Mexico accused US of breaking rules as it imposed tariffs on steel exports from Mexico to protect US steel industry

36
Q

Name 3 ways the WTO is not fit for purpose

A

Free trade benefits developed more than developing countries (cannot grow infant industries)

Slow progress negotiations

Doesn’t consider environment

37
Q

Name 4 reasons for protectionism

A

Protect infant (sunrise) industries so they can grow

Prevent overspecialisation, which can make an economy vulnerable to shocks

Protect against dumping

Reduce current account deficit

38
Q

Name 4 types of protectionism

A

Tariffs

Quotas

Subsidies

Non-tariff barriers

39
Q

Name 4 arguments against protectionism

A
  1. Net welfare loss and allocative inefficiency
  2. Caused by increased consumer prices and loss in consumer surplus
  3. Increased cost of production for downstream industries => affects competitiveness of domestically produced goods
  4. Trade wars can start because of retaliation
40
Q

Name 2 ways to measure inequality

A

Lorenz curve - within country

Gini coefficient - between multiple countries

41
Q

What is the level of the gini coefficient which anything above is associated with high inequality?

A

0.4

42
Q

Name 4 causes of inequality in developed economies

A

Pay differentials e.g CEO vs avg worker

Tax systems e.g progressive (income) or regressive (VAT)

Welfare + benefits

Ownership of wealth

Unemployment

43
Q

Name 4 causes of inequality in developing countries

A

Economic growth (globalisation disproportionately benefits wealthy)

Urban/rural divide

Lack of trade unions

Low quality of public services

44
Q

What is the Prebisch-singer hypothesis?

A

Terms of trade for countries with primary product dependency will deteriorate over me

45
Q

Name 4 causes of inequality between countries

A

Exploitation of low wage workers

Low terms of trade for countries with primary product dependency

Geography e.g landlocked

Natural disasters

46
Q

Name 2 advantages of a degree of inequality in an economy

A

Incentive to work hardwr

Innovation due to profit motive

47
Q

Name 3 disadvantages of inequality

A

Growth stifled as low income workers cannot consume and high income workers hoard money

Productive potential not reached if public services are poor

Low incomes reduce incentive to work

48
Q

Give 3 things that make up the capital account

A

Debt forgiveness

Transfer of ownership of assets e.g patents

Sale of fixed assets e.g land

49
Q

Define expenditure switching

A

Substitution of imports to reduce their trade deficit

50
Q

Gove 3 expenditure switching policies

A

Trade restrictions

Subsidise domesstic producers

Reduce corporation tax

51
Q

Define experpnditure dampening policies

A

Policies that stop imports to reduce a trade deficit

52
Q

Name 4 ways a country can improve its terms of trade

A

Exchange rate

Improve productivity

Reduce inflation

Protectionism to reduce imports (risk)

53
Q

What happens to the current account if demand for X/M is elastic and the terms of trade deteriorate?

A

Current account improves

54
Q

What happens to the current account if demand for X/M is inelastic and the terms of trade deteriorate?

A

Current account worsens

55
Q

Name 2 consequences

A

Lower living standards

Either improve/worsen current account depending on elasticity of exports and imports

56
Q

What are the two main aims of the WTO?

A

Trade liberalisation

Ensure countries act accordingly to agreements they have signed

Economics Theme 4 (5 decks)

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