4.1 International Economics Flashcards
1
Q
What is globalisation?
A
Globalisation refers to the growing interdependence of countries and the rapid rate of change it brings about.
The OECD defines it as the geographic dispersion of industrial and service activities.
2
Q
What are the key characteristics of globalisation?
A
- Geographic dispersion of industrial and service activities
- Increasing integration of local, regional, and national economies into a single international market
- Movement towards free trade, free movement of labour and capital, and interchange of technology and intellectual capital
3
Q
What factors contribute to globalisation?
A
- Improvements in transport infrastructure
- Advancements in IT and communication
- Trade liberalisation and reduced protectionism
- Development of international financial markets
- Actions of transnational corporations (TNCs)
4
Q
How does globalisation impact consumers?
A
- Increased choice of goods
- Potential for lower prices due to comparative advantage
- Rising prices due to increased demand
- Concerns about loss of culture
5
Q
What are the employment impacts of globalisation on workers?
A
- Job gains for some and losses for others
- Large-scale job losses in manufacturing sectors in developed countries
- Increased migration affecting wages
- Wage increases for high-skilled workers leading to inequality
6
Q
What is the role of TNCs in globalisation?
A
- Increase profits by taking advantage of low labour costs
- Lobby governments
- Provide training and create new jobs
- Contribute to poor working conditions in sweatshops
7
Q
What are the environmental impacts of globalisation?
A
- Increased demand for raw materials
- Higher emissions due to production and trade
- Global cooperation on climate change and technology sharing
8
Q
What is the theory of comparative advantage?
A
Countries find specialisation mutually advantageous if the opportunity costs of production are different.
Absolute advantage exists when a country can produce a good more cheaply than another.
9
Q
What are the assumptions and limitations of the theory of comparative advantage?
A
- No transport costs
- Constant costs without economies of scale
- Homogenous goods
- Perfectly mobile factors of production
- No tariffs or trade barriers
10
Q
List the advantages of specialisation and trade.
A
- Increases global economic growth
- Benefits from economies of scale
- Greater consumer choice
- Increased competition leading to innovation
11
Q
What are the disadvantages of specialisation and trade?
A
- Over-dependence on exports/imports
- Structural unemployment
- Environmental degradation
- Loss of sovereignty and culture
12
Q
What factors influence the pattern of trade?
A
- Comparative advantage
- Growth of emerging economies
- Trading blocs and bilateral agreements
- Relative exchange rates
13
Q
What are the terms of trade?
A
The terms of trade measures the rate of exchange of one product for another when two countries trade.
It indicates how many exports are needed to purchase a certain level of imports.
14
Q
What factors can cause an improvement in the terms of trade?
A
- Rise in export prices
- Fall in import prices
15
Q
How is the terms of trade calculated?
A
(average export price index / average import price index) x 100
16
Q
What is absolute advantage?
A
Absolute advantage exists when a country can produce a good more cheaply in absolute terms than another country.
17
Q
What is the impact of TNCs on government revenue?
A
Governments may receive higher taxes from TNCs and their employees, but may also lose out through tax avoidance.
18
Q
What is the effect of globalisation on economic growth?
A
- Increases investment within countries
- Encourages supply-side improvements
- Introduces world-class management techniques
- Trade increases output through comparative advantage
19
Q
What is the relationship between globalisation and cultural loss?
A
Many consumers worry about the loss of culture due to the influx of foreign ideas and products.
20
Q
True or False: The UK has shifted from manufacturing to services as a result of deindustrialisation.
A
True
21
Q
Fill in the blank: The increase in world production has led to increased demand for _______.
A
raw materials
22
Q
What is one example of a country with an ageing population affecting its wage competitiveness?
A
China
23
Q
What happens to the terms of trade if a country’s productivity improves compared to its trading partners?
A
The terms of trade decrease since export prices will fall relative to import prices.
This can be caused by new technology or more efficient labor.
24
Q
How do changing incomes affect the terms of trade?
A
Changing incomes affect the pattern of demand for goods and services, leading to potential rises in prices in certain industries, impacting terms of trade.
A rise in world income increases demand for tourism, benefiting countries with strong tourist industries.
25
What does the Prebisch-Singer hypothesis suggest?
The long-run price of primary goods declines in proportion to manufactured goods, affecting terms of trade for countries dependent on primary exports.
26
What is the impact of inelastic PED on the current account when terms of trade improve?
A favorable movement in terms of trade improves the current account on the balance of payments.
27
What is the impact of elastic PED on the current account when terms of trade improve?
A favorable movement in terms of trade worsens the current account.
28
What is a potential consequence of an improvement in the terms of trade?
It may lead to a fall in GDP and a rise in unemployment.
29
What is a regional trading bloc?
A group of countries within a geographical region that protect themselves from imports from non-members by reducing tariffs and quotas.
30
What are preferential trading areas (PTA)?
Areas where tariff and other trade barriers are reduced on some but not all goods traded between member countries.
31
What characterizes free trade areas (FTA)?
Two or more countries agree to reduce or eliminate trade barriers on all goods among themselves.
32
What is a customs union?
A customs union involves the removal of tariff barriers between members and acceptance of a common external tariff against non-members.
33
What defines a common market?
Members trade freely in all economic resources, removing barriers to trade in goods, services, capital, and labor, with a common external tariff.
34
What are monetary unions?
Two or more countries using a single currency with monitored exchange rates and coordinated monetary policy.
35
What is the main goal of the Eurozone?
To maintain a stable financial situation and manage foreign currency reserves.
36
What fiscal criteria must EU governments adhere to?
A fiscal deficit of no more than 3% and a National Debt of no more than 60%.
37
What is a significant challenge for the EU's monetary union?
The lack of automatic fiscal transfers among member countries.
38
What are the static benefits of trading blocs?
Gains from specialization that increase output.
39
What are dynamic benefits of trading blocs?
Increased competition and resource transfer leading to innovation and lower prices.
40
What is trade diversion?
When consumption shifts from a lower-cost producer outside the trading bloc to a higher-cost producer within it.
41
What is trade creation?
When a country shifts from buying goods from a high-cost to a lower-cost country due to joining a trade union.
42
What are the two main aims of the World Trade Organisation (WTO)?
To promote trade liberalisation and ensure compliance with trade agreements.
43
What happens if a country fails to follow WTO agreements?
A complaint can be filed, and the WTO will attempt to resolve the issue through negotiations or rulings.
44
What is the infant industry argument?
Newly established industries need protection to build reputation and compete internationally.
45
What is dumping in trade?
When a country sells surplus goods at very low prices in other markets, harming domestic producers.
46
What is the danger of over-specialization in trade?
Reliance on another country for important products or materials may lead to vulnerabilities.
47
What is the impact of restrictions on supply of goods?
It leads to a fall in the price received by the importer, improving the terms of trade.
48
What is the danger of over-specialization in international trade?
Countries may become too reliant on others for important products, necessitating protectionism.
49
What are tariffs?
Taxes placed on imported goods to make them more expensive and encourage the purchase of domestic goods.
50
What happens to consumer surplus when a tariff is imposed?
It falls from BP1C to LP2C, with areas of deadweight loss introduced.
51
What are quotas?
Limits on the level of imports allowed into a country, forcing buyers to purchase domestic goods.
52
What is the effect of subsidies on domestic products?
Payments to domestic producers that lower costs and make them more competitive.
53
What are non-tariff barriers?
Regulations such as embargoes, import licensing, and legal standards that restrict trade.
54
What is the impact of protectionist policies on consumers?
Higher prices, less choice, and limited access to cheaper imports.
55
How do producers benefit from import controls?
They face less competition and can sell more goods at higher prices.
56
What is the effect of protectionist policies on workers?
Little difference in employment figures; inefficient firms may be kept alive, hindering new job creation.
57
What short-term benefits do governments gain from protectionist policies?
Tariff revenues and political popularity.
58
What is the effect of protectionist policies on living standards?
They result in deadweight welfare loss and can lead to trade wars.
59
What is a current account in the balance of payments?
It includes trade in goods, trade in services, income, and current transfers.
60
What are the components of the financial account in the balance of payments?
Foreign direct investment (FDI), portfolio investment, and other investments.
61
What can cause a current account deficit?
High consumer demand, strong exchange rates, and relative inflation.
62
What are medium-term causes of a current account deficit?
Loss of comparative advantage and the growth of cheap imports.
63
What long-term issues contribute to the UK's trade deficit?
Low levels of investment, deindustrialization, and lack of competitiveness.
64
What are demand-side policies to reduce a trade deficit?
Monetary or fiscal policy to reduce aggregate demand.
65
What are supply-side policies to address trade deficits?
Measures to improve productivity and efficiency.
66
What are expenditure-switching policies?
Tariffs or quotas aimed at reducing imports' attractiveness.
67
What is the significance of global trade imbalances?
Imbalances can indicate economic stability or instability depending on capital flows.
68
What is the definition of an exchange rate?
The purchasing power of a currency in terms of what it can buy of other currencies.
69
What is a free-floating exchange rate system?
A system where the value of the currency is determined purely by market forces.
70
What is the definition of the exchange rate?
The purchasing power of a currency in terms of what it can buy of other currencies.
71
What is a free floating exchange rate system?
A system where the value of the currency is determined purely by market demand and supply, with no government intervention.
72
What is a managed floating exchange rate?
A system where the value of the currency is determined by demand and supply, but the Central Bank tries to prevent large changes in the exchange rate.
73
What is an adjustable peg exchange rate system?
A system where currencies are fixed against another, but the level at which they are fixed can be changed.
74
What is a crawling peg system?
A form of adjustable peg system that allows the value to change gradually.
75
What does appreciation of a currency mean?
An increase in the value of the currency using floating exchange rates.
76
What is depreciation of a currency?
A fall in the value of the currency under floating exchange rates.
77
What does the Marshall-Lerner condition state?
The sum of the price elasticities of imports and exports must be more than one for a currency devaluation to positively impact the trade balance.
78
Fill in the blank: A _______ is when a government sets their currency against another and that exchange rate does not change.
[fixed exchange rate system]
79
What is competitive devaluation?
When a country deliberately intervenes in foreign exchange markets to lower the value of their currency to boost exports.
80
What are factors affecting floating exchange rates?
* Demand for British goods by foreigners
* Foreign investment interest in the UK
* Speculation on the pound
* Supply of pounds determined by foreign goods demand
81
True or False: A weaker exchange rate is likely to decrease exports.
False
82
What is the impact of a fall in the currency on foreign direct investment (FDI)?
It may increase FDI because it becomes cheaper to invest.
83
What is relative unit labour costs?
Total wages divided by real output, measured in an index number to compare labour costs across countries.
84
What factors influence international competitiveness?
* Exchange rates
* Productivity
* Regulation
* Investment
* Taxation
* Inflation
* Economic stability
* Flexibility
* Domestic competition and demand
* Factors of production
* Openness to trade
85
What is the relationship between international competitiveness and current account deficits?
The lower the level of international competitiveness, the more likely that the country will face a current account deficit.
86
Fill in the blank: A rise in relative unit labour costs in the UK indicates that the UK is becoming _______.
[less competitive]
87
What are the benefits of international competitiveness?
* Current account surpluses
* Attraction of foreign investment
* Increased employment
* Economic growth
88
What is a potential problem with being internationally competitive?
Competitiveness can be easily lost, especially if developing countries experience export-led growth.
89
What is the J-curve effect in relation to currency devaluation?
The current account will worsen before it improves after a devaluation due to initial inelastic demand.
90
True or False: High levels of taxation can enhance international competitiveness.
False
