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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
Define absolute advantage
When one country is more efficient at producing a good than another
26
What does the law of comparative advantage say?
Countries should specialise in the good for which they have the lower opportunity cost
27
Name 4 assumptions made when using comparative advantage
No transport cost Free trade Perfect mobility of factors of production Constant returns to scale (no excess cost to produce more)
28
Name 2 limitations of comparative advantage
Assumptions unrealistic (e.g transport costs) Static model - doesn’t consider potential gain in comparative advantage
29
Name the 5 convergence criteria to join the Eurozone
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
Name 2 Eurozone accession criteria
Stable, democratic institutions Functioning market economy without asymmetries and corruption
31
Name 2 advantages of monetary unions
Increased productiivity - more competitions as easier to compare supplier prices Attracts inward FDI
32
Name 2 disadvantages of monetary unions
Monetary policy may not suit individual economies e.g inflation Asymmetric shocks e.g oil affect countries differently - cannot use MP to fix
33
What is the WTO?
A group of countries that agree to follow certain rules when trading with each other
34
Name 3 rules of WTO membership
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
Name an example of WTO dispute
Mexico accused US of breaking rules as it imposed tariffs on steel exports from Mexico to protect US steel industry
36
Name 3 ways the WTO is not fit for purpose
Free trade benefits developed more than developing countries (cannot grow infant industries) Slow progress negotiations Doesn’t consider environment
37
Name 4 reasons for protectionism
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
Name 4 types of protectionism
Tariffs Quotas Subsidies Non-tariff barriers
39
Name 4 arguments against protectionism
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
Name 2 ways to measure inequality
Lorenz curve - within country Gini coefficient - between multiple countries
41
What is the level of the gini coefficient which anything above is associated with high inequality?
0.4
42
Name 4 causes of inequality in developed economies
Pay differentials e.g CEO vs avg worker Tax systems e.g progressive (income) or regressive (VAT) Welfare + benefits Ownership of wealth Unemployment
43
Name 4 causes of inequality in developing countries
Economic growth (globalisation disproportionately benefits wealthy) Urban/rural divide Lack of trade unions Low quality of public services
44
What is the Prebisch-singer hypothesis?
Terms of trade for countries with primary product dependency will deteriorate over me
45
Name 4 causes of inequality between countries
Exploitation of low wage workers Low terms of trade for countries with primary product dependency Geography e.g landlocked Natural disasters
46
Name 2 advantages of a degree of inequality in an economy
Incentive to work hardwr Innovation due to profit motive
47
Name 3 disadvantages of inequality
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
Give 3 things that make up the capital account
Debt forgiveness Transfer of ownership of assets e.g patents Sale of fixed assets e.g land
49
Define expenditure switching
Substitution of imports to reduce their trade deficit
50
Gove 3 expenditure switching policies
Trade restrictions Subsidise domesstic producers Reduce corporation tax
51
Define experpnditure dampening policies
Policies that stop imports to reduce a trade deficit
52
Name 4 ways a country can improve its terms of trade
Exchange rate Improve productivity Reduce inflation Protectionism to reduce imports (risk)
53
What happens to the current account if demand for X/M is elastic and the terms of trade deteriorate?
Current account improves
54
What happens to the current account if demand for X/M is inelastic and the terms of trade deteriorate?
Current account worsens
55
Name 2 consequences
Lower living standards Either improve/worsen current account depending on elasticity of exports and imports
56
What are the two main aims of the WTO?
Trade liberalisation Ensure countries act accordingly to agreements they have signed

Economics Theme 4 (5 decks)

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