4.1 International Economics Flashcards
1
Q
What is globalisation
A
The growing interdependence of countries and the rapid rate of change it brings about.
The increasing integration of the world’s local, regional and national economies into a single international market.
2
Q
What are the key factors that contribute to globalisation?
A
Improvement’s in transport infrastructure and operations.
Improvements in IT and communication
Trade liberalisation
International financial markets
TNC’s - large companies worldwide
3
Q
How do improvements in transport infrastructure and operations contribute to globalisation
A
Means there are quick, reliable and cheap methods to allow production to be separated around the world.
4
Q
How do improvements in IT and communication contribute to globalisation
A
Allow companies to operate across the globe
5
Q
How does trade liberalisation contribute to globalisation
A
Reduced protectionism has made it cheaper and more feasible to trade, which has been occurring since 1945. The breakdown of the soviet bloc and the opening of China has shown a whole area of the world for business to expand into.
6
Q
How do international financial markets contribute to globalisation
A
Have provided the ability to raise money and move money across the world, necessary for international trade.
7
Q
How do TNC’s contribute to globalisation
A
Have led to globalisation by acting to increase their own profit as they want to take advantage of low labour costs. They sell and produce their own goods all around the world and have the power to lobby governments.
8
Q
Positive impacts of globalisation on consumers
A
Have more choice as there are a wider range of goods available.
Lower prices as firms take advantage of comparative advantage and produce in countries with lower costs eg. Labour costs.
9
Q
Negative impacts of globalisation on consumers
A
Can lead to rising prices since incomes are rising and so there is higher demand for goods and services.
Many consumers worry about loss of culture
10
Q
Benefits of globalisation for workers
A
TNC’s tend to provide training for workers and create new jobs.
Positive employment opportunities for some
Increased migration leads to more skills which can increase Ad which increases the number of jobs.
11
Q
Negatives of globalisation for workers
A
Some have lost in terms of employment, for example large scale losses in the western world with jobs transferred to countries such as China and Poland.
Increased migration may affect workers by lowering wages.
As wages for high skilled workers increases, as there is more demand for work, inequality increases.
Those working in sweatshops will see poor conditions and low wages.
12
Q
Negatives of globalisation for producers
A
Firms who are unable to compete internationally will lose out.
13
Q
Positives of globalisation for producers
A
Firms are able to source products from more countries and sell them in more countries. This reduces risk since a collapse of the market in one company will have a smaller impact on the business.
They are able to employ low skilled workers much cheaper in developing countries and can exploit comparative advantage and have larger markets, both of which can increase profits.
14
Q
Positives of globalisation for governments
A
May be able to receive higher taxes as TNC’s pay tax and so do the people they employ.
If the government uses the correct policies they can maximise the gains and minimise the losses.
15
Q
Negatives of globalisation for governments
A
TNC’s have the power to bride and lobby governments which could lead to corruption.
16
Q
Positives of globalisation for the environment
A
Means the world can work together to tackle climate change and share ideas and technology.
17
Q
Negatives of globalisation for the environment.
A
The increase in demand for raw materials is bad for the environment.
The increase in trade and production leads to more emissions.
18
Q
What does globalisation increase?
A
Investment within countries. This incentivises countries to make supply-side improvements to encourage TNC’s to operate in their countries.
19
Q
How can the power of TNC’s cause political instability?
A
They may support regimes which are unpopular and undemocratic but that don’t benefit them or could hinder regimes which don’t support them.
20
Q
What May companies do in the long term which will have a negative impact? (Regarding globalisation)
A
As comparative cost advantages change over time, they may leave the country if it no longer offers an advantage. This will cause structural unemployment and reduce growth
21
Q
What does the theory of comparative advantage state
A
That countries find specialisation mutually advantageous if the opportunity costs of production are different.
22
Q
When does absolute advantage exist
A
When a country can produce a good more cheaply in absolute terms than another country.
23
Q
When does compatriot be advantage exist
A
When a country is able to produce a good more cheaply relative to other goods produced.
24
Q
Limitations of the theory of comparative advantage
A
Assumes there are no transport costs.
Assumes all costs are constants and there are no economies of scales.
Assumes all goods are homogenous, not realistic to real life.
Assumes that factors of production are perfectly mobile.
Wether trade will take place depends o the terms of trade between the countries.
25
Advantages of specialisation and trade
Comparative advantage shows how it can increase world output if countries specialise, increasing global economic growth.
Allows countries to benefit from economies of scale which reduces costs and decreases prices gloablly.
Allows countries to make use of their different factors of production.
Trade Enables consumers to have a greater choice.
Trade increases competiton which encourages innovation.
26
Example of a country that doesnt trade and specialise
North Korea isolated themselves for political reasons, countries like this find their economies tend to stagnate.
27
Disadvantages of specialising and trading
Can lead to over-dependence, can cause problems if their are price falls in exports or imports are cut off for political reasons.
Can cause structural employment.
The environment will suffer due to transporting goods
May be a loss of culture
28
How has specialising and trading caused problems for the UK
Areas such as Manchester suffer from unemployment as their traditional industries declined for example ship building
29
What two ways can patterns of trade be considered
Geographical pattern of trade (the countries a nation trades with)
Commodity pattern of trade (the types of products that are traded internationally)
30
What countries does the UK mainly export to
42% to EU
21% to US
31
Where do the UK mainly import from
50% EU
32
How has trade with China expanded
From 26th largest export in 1999 to the 6th largest export in 2020
33
Where in the world does the UK rank in terms of exports and imports
The worlds eleventh largest exporter
Fifth largest importer
34
What types if goods and services does the UK trade
39% business services
Main export is road vechiles
Export machinery and capital goods
35
What key things do the UK import
Non-monetary gold
Road vechiles
36
What factors influence the pattern of trade
Changes in comparative advantage (eg. Labour skills, human capital and productivity)
Emerging economies (China is now a major manufacturer)
Trading blocs and bilateral trading arrangements since 1945
Changes in relative exchange rates
37
How may changes in exchange rates affect patterns of trade
Depreciation helps exports
38
How has the UK pattern of trade changed recently
Since 2000 exports have fallen and imports have risen.
39
Why has there been a decline in UK exports recently
Similar to that seen in most other industrialised countries - is due to competition from emerging and newly industrialised economies such as China, India and Brazil
40
Why have UK imports tended to rise
Goods are cheaper to buy from less developed countries
41
Who has the comparative advantage recently
Developing countries have gained an advantage in the production of manufactured goods due to their low labour costs.
42
How does trading blocs and bilateral trading agreements affect the pattern of trade
Increase the level of trade between certain countries and so influence the pattern of trade because trade increases between these countries and decreases between others.
43
What does the terms of trade measure
The rate of exchange of one product for another when two countries trade
44
What does terms of trade tell us
The quantity of exports that need to be sold in order to purchase a given level of imports
45
When is movement in terms of trade favourable
If the terms of trade increases as the country can buy more imports with the same level of exports
46
What is a deterioration of the terms of trade
When export prices fall or import prices rise
47
Calculation for terms of trade
Average export price index / average import price index X100
48
What are the key four factors that influence the terms of trade
A rise/ fall in the world price of a country’s main exports of goods/services
Changes in the R/Ex
A fall in relative inflation rates
Tariffs
49
How does a rise or fall in the world price of a country’s main exports of goods/services affect the terms of trade
Countries become heavily reliant on primary commodities often see volatile terms of trade due to fluctuation in world prices
50
How does changes in the R/ Ex affect terms of trade
Brings about a rise/ fall in the prices of imported products
51
How does a fall in relative inflation rates affect terms of trade
An extreme example of this is a prolonged period of price deflation when domestic and export prices are falling - causing a deterioration in the terms of trade.
52
How can having rich resources in a country be a curse
The ownership of miners,s and fuels can cause a appreciation of the exchange rate (and an increase in the terms of trade)
This results in a loss of competitiveness of their manufactured goods and services leading ton slower economic growth
53
What is a trading bloc
A group of countries that have joined together to reduce or eliminate trading barriers between participating countries
54
What is a customs union
A group of countries agree to:
1. Abolish tariffs and and quotas between member nations to encourage free movement of goods and services.
2. Adopt a common external tariff on imports fro non-members.
55
Example of a customs union
Mercosur (Argentina, Brazil, Paraguay, Mexico, Venezuela)
The EU became a customs union in 1957 until 1992
56
What is a single market (common market)
Represents a deeper form of economic integration than a customs union
Free movement of factors of production - labour and capital added to the free movement of goods.
The concept is broadened to include economic policy harmonisation in the areas of health and safety legislation and monopoly and competition policy.
57
Example of a single market (common market)
EEA - European economic area (27 EU members plus Iceland, Norway, Liechtenstein)
58
What is an economic/monetary union
Member adopt a single currency with a single official interest rate across the currency area
59
Example of an economic/ monetary union
Eurozone
60
What is trade creation
A shift in spending from a higher cost domestic source to a lower cost source within a trading bloc, as a result of the abolition of tariffs.
61
What is trade diversion
Membership of a trading bloc makes trade more attractive compared with trading with non-members
62
Advantages of trading blocs
More intense competition
Increased economies of scale
Technical diffusion
Increase in FDI
Trade creation
63
Disadvantages of trading blocs
Trade diversion
More mergers and acquisitions
Structural unemployment
Distortion of comparative advantage
Loss of independent monetary policy
64
What are the two main functions of the World Trade Organisation
Trade liberalisation: encourages countries to lower protectionist barriers
Responsible for ensuring that countries comply with signed trade agreements
65
What are the key challenges for the world Trade organisation
Shifting global economic power
Fragmentation of the global trading system
66
Criticisms of the world trading organisation
Allows rich countries to exploit third world workers
Environmentally natural resources can be plundered
Poorer countries are forced to lower trade barriers
Destroys native cultures replacing them with westernised culture
Exploitation of third world economies
Rules set by rich countries for own advantage
67
Costs of free trade
Exploitation of workers - low wage workers would be paid more in developed countries
Reducing trade barriers can cause unemployment as foreign competition forces some firms to close
68
What are the 6 reasons to restrict free trade
Infant industry restrictions
Job protection
Protection from potential dumping
Protection from unfair competition
Terms of trade
Danger of over specialisation
69
What is the infant industry argument?
WHy may it be a reason to restrict free trade
An infant industry is one that is just being established within a country. They need to be able to build up a reputation and customer base and will have to cover a lot of sunk costs, meaning their AC will be higher. Therefore, the industry would be unable to compete in the international market and so the government protect them until they are able to compete on an equal level. This has worked well in Japan but in general tends to be ineffective as firms grow to be inefficient and the government tend to have a poor record of ‘picking winners’. There may be other more effective methods, such as subsidies.
70
How many job protection be a reason to restrict free trade
Government may be concerned that as domestic producers lose out to international firms there willl be job losses.
This would have negative economic consequences and be politically unpopular
71
What is dumping
When a country or company with surplus goods sells these goods off to other areas of the world at very low prices, harming domestic producers in those countries.
72
Why may protection from potential dumping be a reason to restrict free trade
The government may need to intervene to protect domestic producers who are unable to to compete with firms that are willing to make a loss.
73
How can protection from unfair competition be a reason to restrict free trade
Domestic producers may be unable to compete with a firm that is heavily subsidised by the government, some will argue the government should intervene to protect domestic producers from this
74
How can terms of trade be a reason to restrict free trade
If a country buys a large amount of imports for a certain good, this will increase demand for that good and hence increase the price. This will worsen the terms of trade and so therefore they can buy less imports with the amount of exports. Restrictions will reduce supply of the good and lead to a fall in the price received by the importer, so improve the terms of trade.
75
How can danger of over specialisation be a reason to restrict free trade
Some people believe no country should be reliant on another for goods/services
76
What is a tariff
Taxes placed on imported goods which make them more expensive to buy, making people more likely to buy domestic goods
77
What is a quota
Limits places on the level of imports allowed into a country, meaning people are forced to buy domestic goods if they want that good and the quota is already filled up
78
How are subsidies used for domestic products
Payments to domestic producers which lower their costs and help them to be more competitive by enabling cheaper prices.
79
What are some examples of non tariff barriers countries can use
An embargo - a total ban on imported goods
Introduce import licensing when countries/firms need a license to be able to import. By reducing teh number of licenses they give out they can restrict the level of imports.
The use of legal and technical standards.
80
What is the impact of protectionist policies on consumers
There are higher prices for consumers as they are unable to buy imports at the cheaper price.
Domestic producers have less incentive to be efficient which means they can suffer from less choice and poorer quality.
81
Positive Impact of protectionist policies on domestic producers
Domestic producers mainly benefit as they have less competition
82
Negative impact of protectionist policies on domestic producers
May suffer from higher costs if there are controls on the imports they need for production
83
Impact of protectionist policies on foreign producers
Will lose out as they are limited in where they can sell their goods. Inefficient domestic producers are kept in production whilst efficient foreign ones one out.
84
Effect of protectionist policies on workers
Evidence suggests little difference to employment figures.
Arguably allowing inefficient firms to l close would be better for workers in teh long run.
85
Impact of protectionist policies on the government in the:
- short run
- long run
In the short run governments benefit as they gain tariff revenues and they are politically popular
However it can lead to an inefficient economy which stifles growth
86
Impact of protectionist policies on living standards
The imposition of import controls results in deadweight welfare loss.
Trade wars - breakdown in international relations as other countries retaliate. This can cause a reduction in both trade and growth.
87
Impact of protectionist policies on equality
Has a regressive effect on the distribution of income.
The rise in price affects the poorest members of society far more than the well off.
88
What does the balance of payments do
A balance sheet which Keeps track of transactions and the money a country is sending and receiving due to foreign trade
89
What is the current acccount split inot
Trade in goods, trade in services and income and current transfers
90
What is the capital account
Relatively unimportant as it mainly records transfers and emigrants taking money abroad or bringing to the UK, or government transfers such as debt forgiveness to Thurd World countries.
91
What is the financial account
More important than the capital account, it is split into three main parts; foreign direct investment, portfolio invest,ent and other investments.
Foreign direct investment is the flow of money to purchase part of a foreign firm. Portfolio investments are the same thing but where they buy less than 10% of the company. Other investments include loans, purchasing of currency and bank deposits.
92
Which countries have a:
Current account balance
Current account surplus
Current account deficit
France and Child
China and Germany
Britain and USA
93
What are short term causes of deficits and surpluses
High levels of consumer demand.
If household spending grows more quickly than the supply side of the economy can deliver, the only way of meeting this demand is by importing those goods and services.
94
How can the exchange rate impact deficit and surpluses
A strong exchange rate reduces the Uk price of imports and leads to an expenditure switching effect away from domestically produced output. The high value of the pound improves the terms of trade between the UK and other countries, allowing us to buy and consumer more imports with each pound. It increases the price of exports so leads to a fall in the value of exports.
95
What does high inflation do to deficit and surpluses in the balance of payments
Will decrease exports since it will increase their price compared to goods produced by other countries
96
What is a medium term cause for deficits or surpluses on the balance of payments
As a country loses its comparative advantage, people will transfer their purchases to other countries and the UK will need to switch resources to production of other things. Similarly, the growth of cheap imports from countries like China has caused a substitution effect.
97
What are the long term causes of trade deficits or surpluses
Lack of capital investment
Deindustrialisation
Natural resources
Competitivity
Corruption
98
How does lack of capital investment effect trade
Means firms use older and more out of date technology. This contributed to a lack of productivity.
99
How does deindustrialisation affect trade
Deindustrialisation in the The Uk has led to a decrease in the relative importance of industry and manufacturing in the economy. This makes it more difficult to export, since services are harder to export.
100
What is trade like for countries with more natural resources
Tend to export more
101
What makes a country more competitive and how does this affect trade
More exports
High labour productivity or a reputation for high quality
102
How does corruption in a country affect trade
Find it more difficult to export
103
What are the two main policies of reducing imbalance
Demand side policies
Supply side policies
104
What are demand side policies that reduce imbalance
Monetary or fiscal policy can be used to reduce AD. This reduces income so reduces demand for imports. It should be effective since there is high income elasticity for imports.
105
What is the negative of using demand side policies to reduce imbalance
They are only short term and limit output of the economy, causing a reduction in living standards and growth
106
What are examples of supply side policies to reduce imbalance
Measures to improve productivity and efficiency or improve quality. This could include competition policy, improving labour of improving infrastructure.
Seek and encourage industries to exploit opportunities in export market overseas and focus resources on industries where the UK has a real comparative advantage, accepting some industries should close. Q
107
What is the problem with supply side policies to reduce imbalance
Politically unpopular and will cause job losses in the short term
108
What are forms of expenditure switching policies for reducing imbalance
Tariffs or quotas will reduce the attractiveness of imports
Attempt to control inflation
Devalue the pound to make exports cheaper
109
What is the problem with using tariffs or quotas as a method of control
Likely to cause trade wars as other countries implement protectionist policies.
110
What is the problem with controlling inflation as method of reducing imbalances
Will lead to a fall for domestic goods and therefore could cause unemployment and a fall in growth
111
What is the problem with devaluing the pound to rebalance trade
Will not always work
112
Why did brexit make people question the balance of payments
Uncertainty and fear, due to fears over the response of the financial markets
113
What happens if a country builds up a constant surplus
Tend to build up a stock of assets abroad
114
What happens if a country has a constant deficit
They will owe more and more to foreign creditors.
115
When May imbalances become a problem
If imbalances are large
116
Today what is conuntrys outlook on having deficits
Less of a concern
The US and UK have no problem financing their deficits and borrowing has not built up unsustainable debts
117
When do current account imbalances become a problem
When governments can’t repay their foreign currency debts
118
Stereotypes for coutnrys with deficits and surpluses, are these true?
Countries with large deficits are seen as having a problem, whilst those with large surpluses are seen as being successful but in reality, those with surplus cause just as much instability as those with deficits.
119
How many current account surpluses cause losses for citizens in a country
If they don’t see the high living standards which they could enjoy for consuming more
120
What is the exchange rate
The purchasing power of a currency in terms of what it can buy of other currencies
121
What is the spot exchange rate
Teh actual exchange rate for a currency at current prices, which can change in a minute and minute basis
122
What are froward exchange rates
Involve providing a currency at some point in the future for an agreed rate. It is usually used by companies who want to reduce uncertainty and know the actual cost they will pay.
123
What is the bilateral exchange rate
The value of one currency agaisnt another eg. £1=$2
124
What does the exchange rate index show
Teh value of a currency agaisnt a basket of currencies weighted against the proportion of trade that that country does with each currency and gives an indication of the overall strength of the currency in the market. (The us, Uk and euro would be heavily weighted in the basket of currencies)
125
What is a free floating system
Where the value of the currency is determined purely by market demand and supply of the currency, with no target set by the government and no official intervention in the currency markets.
Affected by both trade flows and capital flows.
Uk has a floating exchange system
126
Arguments for floating exchange rates
Mean the central bank doesn’t need to maintain a particular exchange rate so doesn’t need to buy pounds in the market to keep it at the target.
It is able to auto correct a trade deficit as a large trade deficit will cause a fall in the value of the pound, since supply of pounds is high and demand is low. The fall in the pound will make exports cheaper and imports more expensive so many reduce the trade deficit.
Reduces the risk of currency speculation, since speculation is most attractive when the currency is over or undervalued, and floating exchange rates reduces this because the price is determined by the market.
127
What is managed floating
Where the value of the currency is determined by demand and supply but the central bank will try to prevent large changes in the exchange rate on a day to day basis.
128
How is managed floating controlled?
By buying and selling currency and by changing interest rates
129
What currencies have managed floating
Brazilian real, Swiss franc, Japanese yen
130
What is a fixed system for exchange rates
When governments set their currency against another and that exchange rate does not change.
131
Arguments for a fixed exchange rate
Avoids currency fluctuations, which encourages trade and investment as firms/ individuals know the true costs of the deal.
Reduces the cost associated with trade, as firms have to spend less on currency hedging which is the process of agreeing on forward exchange rates.
Stable exchange rate may reduce inflation as there is not a sudden reduction in the value of the currency leading to a rise in imports and therefore inflation.
132
Arguments agaisnt a fixed exchange rate
Can cause conflicts with objectives, if the rate falls below the governments set level they have to intervene by raising interest rates which will have a negative effect on other policies.
Less flexibility and it is diffficukt to respond to temporary shocks
133
What is an appreciation of the currency
An increase in the value of the currency using floating exchange rates
134
What is a depreciation of the currency
Fall in the value of the currency under floating exchange rates
135
What is a revaluation of the currency
When the currency is increased against the value of another under a fixed system
136
What is a devaluation of the currency
A decrease in the value of one currency agaisnt another under a fixed system
137
factors affecting floating exchange rates
Changes in demand and supply of pound
Speculation
138
What are the two main methods the government can use to influence the value of their currency?
Use interest rates
Use fold and foreign currency reserves
139
How can the government use interest rates to influence teh value of their currency
An increase in interest rates will strengthen the pound as people will convert their money to pounds to put them in English banks, so demand for pounds to put them in English banks, so demand for pounds will rise. Falls in interest rates will decrease demand for the pound so weaken the currency
140
How can the government use gold and foreign currency reserves to manipulate the value of their currency
If the value of the pound is too high and they want to weaken it, they can increase supply by buying foreign currency or gold with pounds. To
strengthen the pound, they can increase demand by selling their foreign currency or gold in exchange for pounds. Central banks have found that this method tends to have little impact on currencies in the long term. They are also able to limit supply of currency by introducing currency controls, and by doing so they can fix the value of the currency.
141
What is competitive devaluation/ depreciation
where a country deliberately intervenes in foreign exchange markets to drive down the value of their currency to provide a competitive boost to their exporting industries. A weaker currency will encourage exports and discourage imports and therefore the balance of payments should improve assuming the Marshall-Lerner condition.
142
What is the problem with competitive devaluation/ depreciation?
Can cause inflation and this may reduce competitiveness, leading to a fall in the balance of payments.
Other countries may follow and reduce their currency as well.
143
What is the Marshall Lerner condition
States that a depreciation/ devaluation of the exchange rate will lead to a net improvement in the trade balance provided that the sum of the price elasticity of demand for exports and imports > 1
144
What are impacts of changes in exchange rates
Economic growth and unemployment
Rate of inflation
FDI
145
How can changes in exchange rates cause economic growth an unemployment
A weaker exchange rate is likely to increase exports, since they become cheaper, and decrease imports so lead to an increase in AD. This will increase employment and economic growth.
146
How can changes in the exchange rate affect the rate of inflation
Falls in the exchange rate will increase inflation as imports become more expensive, causing a rise in prices and a fall in SRAS. Also, the net exports section of AD will increase and so inflation will rise further.
147
How does a change in exchange rate change FDI
A fall in the currency may increase FDI because it becomes cheaper to invest. However, if the currency is continuing to fall then this is an indication that an economy has serious economic difficulties which will discourage investment.
148
What do goods need to be competitive internationally
Cheap, good quality design or after sales and good marketing
149
What are the two main measures of international competitiveness
Relative unit labour costs: Unit labour costs are total wages divided by real output: the cost of employing workers for each unit of good. These are measured in an index number with one year chosen as a base year. Unit labour costs in the UK are compared to other countries. A rise in relative unit labour costs in the UK shows that labour cost per unit is rising faster in the UK compared to other countries and so the UK is becoming less competitive.
Relative export prices: This is the price of UK exports compared to the exports of the UK’s main trading partners. A rise in relative export prices means UK export prices have risen more than other countries’ export prices and so the UK has become less competitive.
150
What are the main factors influencing international competitiveness
Exchange rates
Productivity
Regulation
Investment
Taxation
Inflation
Flexibility
Competition and demand at home
Factors of production openness to trade
151
How do exchange rates influence international competitiveness
A rise in the pound will cause exports to become more expensive and thus make goods less competitive as their price changes
152
How does investment influence international competitiveness
Investment infrastructure improves productivity and ensures firms can deliver and produce their product reliably, cheaply and efficientl. Investment in research and development allows firms to develop new products, which increases competitiveness as countries won’t have these products and new technology which reduces costs and increases efiiciency
153
How does inflation effect international competitiveness
Low levels of inflation increase competitiveness since UK goods increase in price by less than goods in other countries and so they become more competitive over time
154
How will flexibility influence international competitiveness
If the labour market is flexible it will improve competitiveness as the labour can respond to changes in demand.
155
How can competition and demand at home influence international competitiveness
A good level of domestic demand will mean that firms in the country will already be producing in large numbers, experiencing economies of scale. Similarly high levels of competition will mean firms will have to have good quality or cheap products to survive.
156
How does openness to trade influence international competitiveness
If trade barriers are low other countries are likely to have low barriers on goods coming from the Uk, meaning it is easier and cheaper to export.
157
Benefits of competitiveness
By being competitive a country will experience current account surpluses. This allows them to invest overseas and build up a surplus of assets overseas, on which interest, profit and dividends can be earned.
More likely to attract inflows of foreign investment
Employment likely to increase because more goods are being produced, since more goods are exported and less are imported, so more are sold internationally and domestically. A rise in demand for labour will lead to a rise in wages.
Economic growth due to efficieny and investment a
158
Problems with being internationally competitive
Competitiveness can be easily lost.
A current account surplus may lead to a rise in the exchange rate reducing competitiveness
Countries may become more dependent in overseas countries and will suffer is
F there is a global recession
159
What effects demand for the pound
Amount of British good foreigners want to buy
Numbers of foreigners wanting to invest in UK
those who want to visit UK
Those who want to place money in British banks
160
Factors affecting supply of pound
Amount of foreign goods people in the UK want to buy
Number of British firms that want to invest abroad
Amount of British people wanting to go on holiday
Amount of British people who want to place money in British banks
