4.1 International Economies Flashcards

Question

What does measuring in index form mean?

Answer 1

'Index' is a statistical measure that tracks changes over time in the relative prices - so just tracks the average prices changes - from thousands of prices e.g 2020 is a base year of £100 for imports in 2021 prices are £120 for imports so the index price is 120/100 x 100 = 120 for imports

Answer 2

Changes in exchange rates Inflation in the economy Changes in demand for imports/ exports

Answer 3

Rise in productivity - leads to more production for cheaper, so cheaper import prices, deteriorating TOT Changes in incomes - rise = higher price imports = lower TOT

Answer 4

Exports and imports can be either elastic or inelastic Higher total value of exports = better current account Higher total value of imports = worse current account e.g If exports rise in price and they're inelastic: - TOT increases, as avg price of exports are higher - Current account improves as higher value of exports

Answer 5

A group of countries who signed an agreement to reduce or eliminate protectionist barriers, like quotas or tariffs, between themselves

Answer 6

The agreement countries make to create a trading bloc

Answer 7

A tax imposed on imported goods - makes imports coming in more expensive which lowers their demand So it's more expensive for domestics to buy foreign goods, to give domestic producers the edge - leads to less imports - higher current account remember 'ta' for tax

Answer 8

A limit of the amount of imports allowed to be imported into a country - Restrict imports to protect domestic producers or control the supply of foreign goods Leads to less imports, so higher current account remember 'qu' for quantity

Answer 9

Preferential trading areas Free trade areas Custom unions Common markets Economic unions

Answer 10

Where protectionist barriers are reduced on some but not all goods Members sign a Preferential Trade Agreement (PTA) to create this area

Answer 11

Where all tariffs and quotas are removed on trade in goods between member countries Members can impose their own tariffs/ quotas on goods they import from outside trading bloc

Answer 12

Free trade within the trading bloc members However, the group decides how all the countries trade with non-member countries - they impose a common external tariff (CET) for all members

Answer 13

A common tariff set by the group of members of a custom union, common market, or an economic union on their non-members - so all members have the same tariff imposed

Answer 14

Custom unions but allow free movement of factors of production: - labour - capital So deeper integration than custom unions through integrating markets for labour and capital Product standards and laws concerning free movement of goods/ services are common between countries

Answer 15

Highest level of economic integration Countries are as fully integrated as different unions within a country Has all traits of common markets + more Has a degree of fiscal union Has monetary union The EU is an economic union, but not a perfect economic union There are no perfect economic unions

Answer 16

Countries sharing fiscal policies within a trading bloc - taxation - gov spending - possibly a common budget

Answer 17

Where countries within a trade bloc share a currency, or share monetary polices at least e.g the EU share Euros or a central monetary authority (like a central bank) may manage the monetary policy for the entire union

Answer 18

Immediate, short-term gains achieved from better allocation of resources due to trade or integration E.g - Specialisation - Increased efficiency due to specialisation - Access to cheaper imports

Answer 19

Long term benefits achieved by changes in technology, innovation, and economic growth driven by market expansion E.g - Economies of scale - technology transfer - investment growth - productivity improvements

Answer 20

Establishing common rules on everything - from safety hazards to tariffs, taxes, currencies E.g - harmonise tax policies to prevent tax competition Harmonisation of economic polices are: - Always in economic union - Desirable in common markets - Possible in custom unions Not in Free and preferential trade Fiscal and monetary union can't exist without harmonisation

Answer 21

Most advanced form of integration between countries Where they unify their political systems, decision making and often have a central government Only real example was the Soviet Union, the proposed African Union which hasn't happened and the real one today is the United Kingdom (close to perfect)

Answer 22

The switch from high cost producers to low cost producers Seen in most integration of countries

Answer 23

The switch from low cost producers to high cost producers E.g - The uk buying foods for cheaper before EU then more expensive after EU from USA and New Zealand, due to high common external tariffs (CETs)

Answer 24

Economies of scale (EOS) - from companies expanding with foreign companies Increased competition on domestic firms

Answer 25

The central bank of the EU which has control over the Economic and Monetary Union (EMU) to set monetary and exchange rate policies They have several functions: - distributes euros throughout eurozone - sets interest rates - maintain stable financial system - manages currencies vs the Euro in Fx markets

Answer 26

The risk of countries in the EU going into too much debt or fiscal deficit could inflate the euro So the ECB set the GSP - becoming more flexible in 2025 There's 2 main rules: - Not exceeding fiscal deficit more than 3% of GDP - Not exceeding national debt of more than 60% of GDP

Answer 27

Fixed prices No exchange rate costs Greater price transparency - no imperfect information of consumers of prices Inward investment Price stability Closer to economic union

Answer 28

Transition costs starting monetary union Transition costs stopping monetary union Loss of policy independence Inability of change value of currency Structural problems - structure of different economies make it difficult to implement one-size-fits-all policies, e.g different employment rates

Answer 29

A group of countries where efficiency would be maximised by sharing a common currency

Answer 30

Should be free movement of labour Should have free flow of financial capital Should be automatic fiscal transfers - to help other countries should share same trade cycle

Answer 31

In 1947, 23 countries signed the GATT and was replaced by the WTO in 1995 for deeper integration GATTs rules were: - Countries couldn't increase degree of protection - A country cutting taxes on one country had to do the same for all - Nothing on reducing protectionism

Answer 32

Negotiations from countries aimed to reduce tariffs and quotas

Answer 33

The Uruguay round, 1986-1994 (8th round of world trade) expanded international trade rules, successfully promoting the establishment of WTO in 1995 WTO has 2 main functions - Encourage trade liberalisation - Ensure countries act according to trade agreements, and any complaints can go to an international court

Answer 34

Due to the rise of regional trade agreements (RTAs) and bilateral deals, which often involve deeper integration and faster progress than global WTO negotiations

Answer 35

RTAs don't need approval from WTO Type of trading bloc Don't produce anywhere near the economic gains that can be achieved by the WTO

Answer 36

Allows rich countries to exploit developing countries' workers Poorer countries struggle as not given as much back in return Destroys native cultures for materialistic American lifestyle

Answer 37

As there is a significant amount of supply they can have compared to one domestic firm, so its said they can produce as much as possible at a given price

Answer 38

There is a deadweight welfare loss, as the decrease of consumer surplus is greater than increase of producer surplus

Answer 39

Domestic producers are assumed to get the share before where the 2 supplies meet

Answer 40

Policies by the gov to restrict imports which aren't tariffs Imposing product standards licences to import custom delays quotas

Answer 41

Infant industry arguments - new domestic firms cant compete Job protection Dumping - may increase prices after exploiting unfair competition Cheap labour Terms of Trade - may reduce demand for imports, bringing their prices down, increasing TOT

Answer 42

Selling goods at a lower price than the cost price by foreign producers in domestic markets Bad as firms may increase prices after exploiting unfair competition Or cause trouble repaying debts

Answer 43

Consumers - cant buy imported goods cheaper - restricted choice Producers - domestic producers gain output, sales and profits - but have higher costs and lower efficiencies Workers - loose jobs short term Govs - Benefit short term due to higher tax rev from tariffs and protected jobs - may loose long term as less efficient and less competition, with higher costs, leading to less innovation and lower growth, increasing unemployment Living standards - may protect in short run as no loss of jobs - decrease rate of increase as less growth in long term

Answer 44

More efficient allocation of resources Encourages competition Maximises welfare as no tariffs or quotas in place

Answer 45

The act of making high-risk investments in financial markets with the hope of making short-term profits from price fluctuations not typically invest for long-term growth or income but seek to profit from market volatility, such as changes in: Stocks Currencies Commodities Real estate Speculators are individuals or groups who engage in speculation

Answer 46

Exports increase, as its cheaper to produce goods domestically, leading to more exports being produced Imports decrease, as domestic goods are more competitive and cheap, so more proportion of demand goes to domestics instead of imports Hence, balance of payments improve

Answer 47

Financial and capital accounts are associated with saving, investment, speculation and currency stabilisation are recorded

Answer 48

Records almost all flows of financial capital In and out of the uk Split into 3 main parts - FDI -Foreign Portfolio investment (FPI) - other investments such as trade credit, loans, purchases of currency and bank deposits

Answer 49

When a firm or individual invests in business interests in another country Only FDI when purchasing/ controlling 10% or over the firm

Answer 50

Flows of money to purchases foreign shares where it's less than 10% of the company Over 90% of uk's FPI is debt securities like bonds and long term loans issued by the gov

Answer 51

Records the transfer of assets and capital between countries. Focuses on one-off asset transfers and non-produced assets Relatively unimportant largest recorded are from immigrants and emigrants bringing financial capital to the uk or abroad

Answer 52

If a country is in currency account deficit, it must borrow money or attract investments, which are recorded in the financial and capital accounts So the total flow should equal If the don't, the remaining is the balancing item, which is the sum of the failed transactions bro be officially recorded

Answer 53

Expenditure switching policy Expenditure reducing policy Supply side policies Protectionism

Answer 54

Imbalances on current account of balance of payments Imbalances in assets owned abroad or borrowing from abroad

Answer 55

Relative unit labour costs - in index form with a base year of 100 Relative export prices Export prices vs import prices

Answer 56

The cheaper it is for them to produce goods, they are more internationally competitive

Answer 57

Exchange rates - high exchange rates lead to lower import prices and higher export prices, overall reducing competitiveness Productivity Wage and non-wage costs Regulation - less regulation, possibly meaning cheaper to produce, increasing competitiveness Research and Development (R&D) - More R&D, the better influence for long term international competitiveness Taxation

Answer 58

Current account surplus - leads to higher national income, more growth and employment Increased investment Employment Wage growth Higher domestic purchasing power - higher incomes leads to more power to buy abroad - however, changes when exchange rates adjust, leading to increased import prices, decreasing competitive advantage

Answer 59

Supply side policies - increases competition domestically and internationally Exchange rate policies - low exchange rates increase competitiveness - not many countries do this however Control inflation and macroeconomic stability - low, steady inflation keeps import quantity lower and doesn't change exchange rates

4.1 International Economies Flashcards

(83 cards)