4.1 International Economics Flashcards
1
Q
What is Globalisation?
A
- The increasing integration of countries and national economies into a single international Market
2
Q
What are the 4 factors contributing to Globalisation?
A
- Improved infrastructure
- Technology (IT and communications)
- Trade Liberalisation (Reduced protectionism)
- TNC
3
Q
What is Absolute Advantage?
A
- When a country can produce a good more efficiently than another, using the same amount of resources
4
Q
What is Comparative Advantage?
A
- When a country can produce a good at a lower opportunity cost than others
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
6
Q
What are the 4 disadvantages of specialisation of trade?
A
- Over-dependance
- Can cause structural unemployment
- Environment Suffers
- Loss of culture
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)
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
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)
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
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
8
Q
What is a Trading bloc?
A
- Groups of countries who from trade agreements between themselves
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)
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)
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)
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
What are the 2 ways to balance of payment deficits?
- Demand-side Policies (short-term solution)
- Supply-side Policies (more long-term solution)
20
What are the 3 types of Causes for Deficits and surpluses in the Balance of payments?
- 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
What are the 3 types of exchange rate systems?
- Free-floating (e.g., UK)
- Managed floating (e.g., Yen)
- Fixed System
22
What is a free floating exchange rate system?
- Currency is purely determined by supply and demand
(i.e., no government intervention)
23
What is a fixed exchange rate system?
- Exchange rate set by the government
24
What is a Managed Floating System?
- Determined by supply and demand, but with central bank intervention
(by selling currencies and exchanging interest rates)
25
What is appreciation/ depreciation?
- Increase/ Decrease in the value of currency using floating exchange rates
26
What is revaluation/ devaluation?
- Increase/ decrease in value of currency against another fixed system
27
What affects floating exchange rates in the short run?
- The level of imports and exports, investments, holidays and speculation
(i.e., the demand and supply of british goods against foreign goods)
28
What are the 2 main government intervention methods for Exchange rates?
- 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
What are the 4 impacts of changing exchange rates?
- 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
What are the 2 measures of international competetiveness?
- Relative Labour costs (higher labour costs = lower competitiveness)
- Relative Export Prices (Higher export prices, compared to other countries = lower competitiveness)
31
What are the 4 benefits of competitiveness?
- Current account surplus
- Attract FDI
- Increased Employment
- Economic Growth
32
What are the 3 problems with competetiveness?
- Overdependence
- Less competitive countries may put barriers
- Competitiveness can be easily lost (due to rise in exchange rates)
