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Theme 4 Globalisation > 4.1 International Economics > Flashcards

4.1 International Economics Flashcards

1
Q

What is Globalisation?

A
  • The increasing integration of countries and national economies into a single international Market
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2
Q

What are the 4 factors contributing to Globalisation?

A
  • Improved infrastructure
  • Technology (IT and communications)
  • Trade Liberalisation (Reduced protectionism)
  • TNC
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3
Q

What is Absolute Advantage?

A
  • When a country can produce a good more efficiently than another, using the same amount of resources
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4
Q

What is Comparative Advantage?

A
  • When a country can produce a good at a lower opportunity cost than others
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5
Q

What are 4 limitations on the theory of Comparative Advantage?

A
  • Assumes no transport costs
  • Assumes costs are constant
  • Assumes goods are homogenous
  • Assumes factors of production are mobile
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6
Q

What are the 4 disadvantages of specialisation of trade?

A
  • Over-dependance
  • Can cause structural unemployment
  • Environment Suffers
  • Loss of culture
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7
Q

What are the 4 factors influencing patterns of trade?

A
  • Comparative Advantage (countries trade where there is CA)
  • Emerging economies (countries grow at different rates)
  • Trading Blocs and Bilateral Trading Agreements (Increases trade between certain countries within blocs)
  • Relative Exchange Rates (WPIDEC, SPICED)
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8
Q

What is the Terms of Trade? What is the equation?

A
  • Measures the exchange rate of one product to another when 2 countries trade (

(i.e., how much one country gives to another to obtain their good)

  • Average Export Price Index / Average Import Price Index x 100
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8
Q

What is an improvement and deterioration to Terms of Trade?

A
  • Improvement (Country can buy more imports with less exports)
  • Deterioration (country can buy less imports for more exports)
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8
Q

What are the 4 factors affecting Terms of trade?

A
  • Essentially, anything that affects price of imports and exports*
  • Improvement to ToT
  • Deterioration to ToT
  • In the short-run: Exchange rates, inflation and changes to supply/demand of imports or exports
  • In the long-run: Improvement to productivity and changes to income
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8
Q

Why is an improvement to ToT likely to decrease GDP and increase unemployment?

A
  • Imports are cheaper, therefore Balance of payments worsen
  • There will be less exports (less production) therefore job losses
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8
Q

What is a Trading bloc?

A
  • Groups of countries who from trade agreements between themselves
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9
Q

What are the 4 types of trading blocs?

A
  • Free trade Areas (FTA): Countries abolish trade restrictions between themselves, but keep restrictions between other countries (e.g., CUMSA)
  • Customs Union: Tariff Free trade between countries with common tariff for countries outside
  • Common Market: Same as Customs union, except also allows free movement of the 4 factors of production E.g., Labour
  • Monetary Union: Same as Common market, but with a central bank (which establishes a common currency and controls monetary policy of all members)
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9
Q

What are the 6 benefits of Trading Blocs?

A
  • Encourage specialisation (comparative Advantage)
  • Larger growth potential in markets
  • Increased Competition (from removal of barriers)
  • Increased Jobs
  • Increased Choice
  • Protected firms (from firms outside the bloc)
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10
Q

What are the 6 costs of trading blocs?

A
  • Distortion of Worlds Trade (countries outside the blocs do not trade as much)
  • Reduction in competition
  • Regional inequalitites (more successful countries grow quicker and attract all the capital and labour)
  • Trade disputes (creation of blocs as retaliaton)
  • Loss of national sovereignty
  • Limited range of good (if bloc is weak)
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11
Q

What is Trade Creation?

A
  • Country moves from buying goods from a higher cost country to a lower cost country

(from joining trade union due to reduced trade restrictions like tariffs)

12
Q

What is trade diversion?

A
  • Country moves from buying goods from a lower cost country to a higher cost country

(usually occurs when trading with a higher cost producer inside compared to a lower cost outside)

13
Q

What is the role of the World trade Organisation? What are the 2 main aims?

A
  • To reduce protectionism
  • Bring about trade liberalisation
  • To ensure countries stick to their trade agreements
14
Q

What are the 2 ways to liberalise trade?

A
  • Conferences to reduce protectionism
  • Dealing with violations of agreements
15
Q

What are 2 conflicts of the WTO?

A
  • May be too powerful and ignore developing countries (that do not trade with developed countries)
  • FTA’s and custom unions can be seen violating WTO’s principles
    (because not all trading partners are treated equally)
16
Q

What are the 6 reasons for restrictions to free trade?

A
  • Infant Industry Argument
  • Job protection
  • Protection from Dumping
  • Protection of unfair competition]
  • Terms of trade
  • Too much dependancy
17
Q

What are the 4 types of Restrictions to trade?

A
  • Tarrifs (Taxes placed on imported goods)
  • Quotas (Limits placed on the level of imports allowed into the country
  • Subsidies
  • Non-Tarrif Barriers
18
Q

What are the 4 types of Non-tarrif Barriers?

A
  • Embargo (Ban on imports)
  • Import License
  • Legal and technical standards
  • Voluntary export restrain agreements (agreements to limit exports to a country to allow domestic producers to grow)
19
Q

What are the 4 components of the Balance of payments?

A
  • Current Account
  • Capital Account
  • Finance Account
  • Balancing Item
20
Q

What are the 2 ways to balance of payment deficits?

A
  • Demand-side Policies (short-term solution)
  • Supply-side Policies (more long-term solution)
20
Q

What are the 3 types of Causes for Deficits and surpluses in the Balance of payments?

A
  • Short-term causes (E.g, high consumer demand for imports and exchange rates)
  • Medium term causes (e.g., loss of comparative advantage)
  • Long-term causes (e.g., Lack of investment)
21
Q

What are the 3 types of exchange rate systems?

A
  • Free-floating (e.g., UK)
  • Managed floating (e.g., Yen)
  • Fixed System
22
Q

What is a free floating exchange rate system?

A
  • Currency is purely determined by supply and demand
    (i.e., no government intervention)
23
Q

What is a fixed exchange rate system?

A
  • Exchange rate set by the government
24
Q

What is a Managed Floating System?

A
  • Determined by supply and demand, but with central bank intervention
    (by selling currencies and exchanging interest rates)
25
Q

What is appreciation/ depreciation?

A
  • Increase/ Decrease in the value of currency using floating exchange rates
26
Q

What is revaluation/ devaluation?

A
  • Increase/ decrease in value of currency against another fixed system
27
Q

What affects floating exchange rates in the short run?

A
  • The level of imports and exports, investments, holidays and speculation
    (i.e., the demand and supply of british goods against foreign goods)
28
Q

What are the 2 main government intervention methods for Exchange rates?

A
  • Interest rates (to increase/ decrease demand for the pound)
    -> Weaken by buying gold reserves, strengthen by selling (only short-term solution)
  • Competitive devaluation/depreciation (Direct intervention in foreign exchange markets to drive the value of their currency down)
29
Q

What are the 4 impacts of changing exchange rates?

A
  • Current Account on the Balance of payments (J-Curve)
  • Economic Growth and Unemployment (WPIDEC = increased growth and employment)
  • Inflation (WPIDEC = inflation)
  • FDI (WPIDEC = increased FDI as its cheaper to invest)
30
Q

What are the 2 measures of international competetiveness?

A
  • Relative Labour costs (higher labour costs = lower competitiveness)
  • Relative Export Prices (Higher export prices, compared to other countries = lower competitiveness)
31
Q

What are the 4 benefits of competitiveness?

A
  • Current account surplus
  • Attract FDI
  • Increased Employment
  • Economic Growth
32
Q

What are the 3 problems with competetiveness?

A
  • Overdependence
  • Less competitive countries may put barriers
  • Competitiveness can be easily lost (due to rise in exchange rates)

Theme 4 Globalisation (5 decks)

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