4.1 International economics Flashcards
4.1.1 A)
Define globalisation
The process of greater intergration & interconnectedness between countries
4.1.1 A)
What are the char of globalisation
Growth of international trade
trade liberalisation
enchance mobility of capital & labour
^outsoucring
v transport costs
^ size & influence of mutinational corporations
4.1.1 B)
What are factors contributing to globalistation
Transport
internet
trade agreement
Rediced tariffs & protectism
expansion of global trading block
Improved technology
More globalised financial systems
greater labour mobility
improvements in transport
growth in mnc
openess of former closed economic
4.1.1 B)
What are factors contributing to globalistation
Transport
Quicker to move goods
4.1.1 B)
What are factors contributing to globalistation
internet
Quicker to move infomation
4.1.1 B)
What are factors contributing to globalistation
trade agreement
world trade org assists revoal of trade barriers > ^ trade
4.1.1 B)
What are factors contributing to globalistation
Rediced tariffs & protectism
Reduce tax on imports and allow trade
4.1.1 B)
What are factors contributing to globalistation
expansion of global trading block
reduced national barriers promoites trade
4.1.1 B)
What are factors contributing to globalistation
Improved technology
Revolutionalised comminication lowered labour costs allow for access to new market
4.1.1 B)
What are factors contributing to globalistation
More globalised financial systems
relaxation on rules & regulation capital can move freely or at low cost quicker
4.1.1 B)
What are factors contributing to globalistation
greater labour mobility
worker willing to move across national border
4.1.1 B)
What are factors contributing to globalistation
improvement in transport
Movement of people goods & servies easter & cheaper
4.1.1 B)
What are factors contributing to globalistation
growth on mnc
Org takes adv of trade barriers labour mobility cheap transport to grow rapidly and enter new markets
4.1.1 B)
What are factors contributing to globalistation
openess of former closed economic
Large and rapid developing countries such as india and china inc intergrated into global economy
4.1.1 C)
Pos impacts of globalisation
Standards of living inc in lic
cheaper goods
consmer choice
Improved allocation of rec
mulitpier effect
4.1.1 C)
Neg impacts of globalisation
Low wages in LIC
v working conditions to v costs
money stays in rich countries
mnc move around to find cheaper labour
pollute local area
put local busniesses out of busniess
4.1.3 A)
How does geographical location effect pattern of trade
further means more expensive
4.1.3 A)
How does commodities effect pattern of trade
Certain goods from diff places in the world
4.1.3 A)
How does trade blocks effect pattern of trade
Makes trading more accessable
4.1.3 A)
How does emerging economies effect pattern of trade
^pop, ^ ss of labour, v wage, v cost of production
4.1.3 A)
How does deindustrilisation effect pattern of trade
Finacial and tertiary markerting growing.
4.1.3 A)
What is absolute advantage
a coutry produce a good at a lower direct costs
4.1.3 A)
What is comparative advantage
country can produce a good servies at lower opp cost when country more efficent
4.1.3 A)
How does comparative advantage incluence POT
Developing country produce eacher
improvment in production and v inflation pressure
v manufacturing in devlopoing country v neg externalites
4.1.3 A)
How does the impact of NEE effect POT
^ trade made NEE participatete more eff in global trade
NEE find it hard to access large market
Growth in NEE led to rise in primary recources
4.1.3 A)
How does growth of trade effect POT
Trading block grow
allow free trade, removes barriers
agreements
4.1.3 A)
How does realtive exchange rate effect POT
Appreciaton in exhange rate will lead to a fall in exporet and price of goods aborad will rise
dependant on PED of product
4.1.4 A)
What does terms of trade measure
measures the rate of exhange of one product for another when two countries trade
it tells us the qty of exports that need to be sold in order to purchase given level of import
4.1.4 A)
What is favourable / unfavourable
movement in the terms of trade is favourable if terms of trade increaee as country can but more imports with same level if exports
visa versa
4.1.4 A)
calc of terms of trade
(avg export price index / avg import price index ) 100
4.1.4 B)
factors influcening a countries term of trade
^ exports prices or v import prices = improvment in terms of trade
versa visa is deterioation in terms of trade
improvments in productivity
changing income
exhange rates
4.1.4 B)
How does improvements in productivy influence terms of trade
In the LR improvements in productivity compared to trading partners, v terms of trade due to export prices falling relative to import prices due to new tech and more eff labour
4.1.4 B)
How does relative exhange rate influence terms of trade
In the SR exhange rates, inflation rates and changes in dd/ss of imports or exports all effect terms of trade
4.1.4 B)
How does changing income influence terms of trade
In the LR dd ^ = ^ terms of trade. LR prices of pirmary goods decline in proportion to manufactured goods those who depend on primary goods see v in terms or trade
4.1.4 C)
How does terms of trade effect economy
If ped of im/exports inelastic a favourable movement in terms of trade would improve current account balance of payment. Elastic would worsen
improvement in terms of trade v GDP and ^ unemployment. ^ export prices = v exports. v import prices = ^ imports. both reduce production in country. However in longterm v terms of trade suggests decline in std of living
improve due to ^ dd for exports benfits countryu.
if deterioation duie to improvement in competion also benfiits
import & export revenue more important than price.
4.1.6 A)
Why restrict free trade
Infant industry
job protection
protection from dumping
protection from unfair comp
over specalisation
4.1.6 A)
Why restrict free trade
Infant industry
new est company they will have high sunk costs / ac. Therefore unable to compete international market. So govt protects them untill they can. Can be ineff as firms grow to be ineff. subsides may be more eff.
4.1.6 A)
Why restrict free trade
job protection
govt may be concered that allowing imports will mean domestic produicers will lose out. > losing jobs
4.1.6 A)
Why restrict free trade
protection from dumping
country / company w/ surplus goods sell there good to place at low price harming domestic producers
4.1.6 A)
Why restrict free trade
protection from unfair comp
domestic may not be able to produce for as cheap due to regulations. for example labour costs
4.1.6 A)
Why restrict free trade
over specalisation
no country should be entierly relant on another for important products / mats
4.1.6 B)
Types of restictions too free trade
Tarrifs
quotas
subsides to domestic producers
non tariff barriers
4.1.6 B)
Types of restictions too free trade
Tarrifs
Tax placed on imported goos making them more expensive making people more likley to buy domestic goods. Graph in redbook
4.1.6 B)
Types of restictions too free trade
quotas
Limits placed on the level of imports allowed into a country. Forcing people to buy domestic Quotas lead to welfare loss.
4.1.6 B)
Types of restictions too free trade
subsides to domestic producers
will lower costs allowing them to be more competitive can subside for exporting to international market. subsides to compete with imports can subsides R&D helps firm have most up to date tech.
4.1.6 B)
Types of restictions too free trade
non tariff barriers
-Embrago total ban on imported goods
-importing lisences, restirc level of imports
-legal / tech std - product cannot be sold in that country
-volunatart restriant agreement, limit exports betweeb 2 countries over a agreed time to allow domestic growth
4.1.6 C)
who is Impacted by protectionist policy
Consumers
producers
workers
govt
living std
equality
4.1.6 C)
who is Impacted by protectionist policy
Consumers
higher prices
less choice
4.1.6 C)
who is Impacted by protectionist policy
producers
sell more goods @ higher price
^ price if they need imports themselves
forigen produce lose out
4.1.6 C)
who is Impacted by protectionist policy
workers
little diff
4.1.6 C)
who is Impacted by protectionist policy
govt
SR tariff revenue
LR can lead to ineff economy small growth
4.1.6 C)
who is Impacted by protectionist policy
living std
tariff graph show deadweight welfare loss
trade wars - retaliation
4.1.6 C)
who is Impacted by protectionist policy
equality
regressive effect on distribution of income as ^ effect poor but not really rich
4.1.7 A)
Components of BOP
Capital and financial account and current account
4.1.7 A)
what is current a/c
A record of a countries international transactions.
Value of X-M
Trade in servies, trade in goods, primary income, secondary income
primary income - earning from forigen investment - profit, intrest or dividends
secondary income - redistribution of income ex: overseas aid
4.1.7 A)
what is capital and financial a/c
capital - records transfers of immigrants and emigrants taking money abroad or brining money in. or govt transfers ex; debt forgivness
finanical spilit into fdi, portfoili investment and other investment.
4.1.7 B)
Causes of deficit and surplus in SR
High lvl consumer dd ^ income ^ imports - exports.
strong exchange rate assume ped inelastic ^lvl of relatiuve inflation will decrease exporets since ^ price relative
v in comparative adv, transfers purchases to other countries
4.1.7 B)
Causes of deficit and surplus in LR
Lack of cap investment > v productivity
deindustrialisation = v exports less goods created
^natrual resources tend to export more
more competivite internationally
corruption/hard to set up busniess v exports
4.1.7 C)
reduce a country’s imbalance on the current
account
DD side policy
SS side policy
expenditure switching policy
4.1.7 C)
reduce a country’s imbalance on the current
account-DD side policy
Monetary or fisical policy can be used to reduce AD which reducing income so reducing demand for import effect due to ^ income elasticity to import
however only SR and limit output V std of living / growth
4.1.7 C)
reduce a country’s imbalance on the current
account-SS side policy
Improve productivity and efficency or import qual
4.1.7 C)
reduce a country’s imbalance on the current
account-expenditure switching policy
tariff/quotas
devalues/deprication pound imports more expensive
4.1.7 D)
Significance of global trade imbalances
-problems arise if FI refuse to lend to a country
- current a/c imbalce problem when govt cannot repay
- current a/c suplus causes loss for citizens in a country who does not see the high stand of living they could have by consuming more
4.1.8 A)
What is exchange rate
is the purchasing power of a currency in terms of what it can buy of another country.
4.1.8 A)
Exchange rate systems
floating
managed
fixed
4.1.8 A)
Exchange rate systems
floating & why
Where value of a currency determinded purley by market (ss&dd) of currency. No target, no govt intervention both trade and capital flow effect xchange floating rate.
why?
central bankdoes not need to try maintain particluar exchange rate will not need to use resevers to buy in market to keep it @ target.
IR can be used to control inflation rather then xchange rate. causes v in value of currency when large trade defict self corrects
4.1.8 A)
Exchange rate systems
managed
where value is determined by dd % ss but central bank triee to prevent large changed. Done by buying and selling currency and changing IR
adjustable peg - curriecny fixed againt another, level of fix can be changed
crawling peg - above + value can be changed
4.1.8 A)
Exchange rate systems
fixed 4 & against
govt sets currency against another and that exhange rate doesnt change country can devalue currency to improve internal competivciness
for
avoid flucuation > trade & investment
v trade costs v on currency hedging
v inflation due to no sudden reduction in value > ^ inport ^ inflation
against
conflict with other objectives increasing IR may lead to other policy failing
v flexablity
4.1.8 B/C)
apprication / deprecation
An apprication of the currency is an increasing in the value of the currency using floating exchange rate.
Deprecation is the opp
4.1.8 B/C)
revalutation / devaluation
A revaluation of the currency is when the currenci is increase against the value of another under fixed system.
Devaluation is opp
4.1.8 D)
Factors influencing floating exchange rate
+Change in dd&ss
-dd of £ determinds by amount of british goods that forigeners want. investment from forigers, visit uk, put money in uk banks
-ss of £ determinds by amount of forigen goods british people want. British investing abroad british going abroad putting money in forigen banks
+speculation
-Effects ss & dd of £ its most important in SR if speculators fear a fall in £ it will fall as they sell and buy another currency
+In LR currenct determined by econmic fundimentalies exports, imports and long term capital flow.
4.1.8 E)
Govt intervention if they want to ^/v dd for their currency
Can use IR, ^ IR strengthens £ as people convert money into £ to get better returns so dd for £ ^. visa versa if want to v dd.
4.1.8 E)
Govt intervention to mainipulate the value of their currency
govt can use and forigen currency. IF value of £ ^ they can weaken it by buying forigen currency + gold this will ^ ss of £ , v value, visa versa.
However in LR has little impact.
4.1.8 F)
How can countries use competitve devaluation/depreication
Delibrlaty intervenes in forigen exchange market to drive down value of their currency to provide competitve boost their exports.
v currency, ^ exports ,v imports ^ BOP
however can cause inflation v comp v bop
if a country has deficit in current a/c they wont follow but if they have surplus they likley to retaliate.
4.1.8 G)
Impacts of changes in exchange rate
-the current account of the balance of payments
(reference to Marshall-Lerner condition and J curve
effect)
-economic growth and employment/unemployment
-rate of inflation
-foreign direct investment (FDI) flows
4.1.8 G)
Impacts of changes in exchange rate
the current account of the balance of payments
(reference to Marshall-Lerner condition and J curve
effect)
Marshall-Lerner condition states the sum of PE of imports and exports must be more then one if current devaluation is to have a pos impact or trade imbalance
J curve states that current account worsenese before improvement. Takes time to realise that imports are cheaper so do not switch straight away as dd inelastic in SR
4.1.8 G)
Impacts of changes in exchange rate
economic growth and employment/unemployment
v in exchange rate ^ exports v imports ^ad , ^ employment + EG
4.1.8 G)
Impacts of changes in exchange rate
rate of inflation
v exchange rate ^ price of imports ,^ prices ^inflation
4.1.8 G)
Impacts of changes in exchange rate
foreign direct investment (FDI) flows
v currency ^ FDI cheaper to invest. However if they keep failing it wont be invested into.
