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economics > 4.2.6 international economics > Flashcards

4.2.6 international economics Flashcards

1
Q

state 5 causes of globalisation

A

containerisation
technological advances
tax system differences
removal of capital controls
trade liberalisation

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2
Q

explain how containerisation causes globalisation

A

containerisation is freight transport for sea shipping
it has decreased shipping costs making trade easier

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3
Q

explain how technological advances causes globalisation

A

improvements in communication makes the world more interconnected
makes business and thus trade easier

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4
Q

explain how tax system differences causes globalisation

A

countries may decrease corporation tax to attract inflows of FDI

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5
Q

explain how removal of capital controls causes globalisation

A

leads to international financial flows between countries
can make investment or trade easier

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6
Q

explain how trade liberalisation causes globalisation

A

WTO advocates for liberalisation which has contributed to the decline in trade barriers, promoting trade

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7
Q

state the key characteristics of globalisation (5)

A

increased fdi across borders
deeper specialisation of labour
global supply chains
high levels of labour migration
reduced trade barrietrs

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8
Q

define globalisation

A

the growing interdependence of countries and the rapid rate of change it brings about

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9
Q

define less developed economies

A

countries considered behind based on their economy, capital, infrastructure, etc

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10
Q

negative impacts of globalisation on less developed economies (4)

A

low paid workers in sweatshops
dominance of usa corporate culture (cocacolonisation)
brain drain to the more developed economies
overreliance on global markets will increase vulnerability to shocks

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11
Q

positive impacts of globalisation on less developed economies (4)

A

promotes trade, export led growth
transfers of tech or knowledge from devloped economies
developmental aid
more access to goods and services increasing standard of living

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12
Q

define developed economies

A

high economic development, high gdp per capita, high standard of living and high investment

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13
Q

negative impacts of globalisation on developed economies (4)

A

tax avoidance from mnc’s
structural unemployment due to specialisation
environmental degradation
competition, low prices, low profit, less investment

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14
Q

positive impacts of globalisation on developed economies (3)

A

economic growth from exports
more production leads economies of scale
migration to fill skills gap

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15
Q

what is a mnc

A

a mnc is a business that operates in several countries

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16
Q

an example of mnc

A

microsoft

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17
Q

how have mnc used division of labour

A

mc’s have built global supply chains by taking advantage of the global division of labour, increasing economic integration and thus globalisation

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18
Q

how have mnc’s used long term investment

A

mnc’s have undertaken lt investment flows which have seen technology transferred from developed economies to ldc’s helping to shift economic power and increasing economic integrate

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19
Q

how have mnc’s impacted employment

A

manufacturing has shifted to emerging economies in south east asia (due to cheap labour) which has resulted in structural unemployment in north america and europe however it has created jobs for china and india which has reduced absolute poverty

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20
Q

what is absolute advantage

A

the country can produce more of a good than other countries from the same resources

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21
Q

what may make complete specialisation not beneficial

A

if transport costs exceed the increase in output

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22
Q

what is comparative advantage

A

country with the lowest oppurtunity cost when producing the good
most productiveky efficient

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23
Q

how would you calculate the oppurtunity cost of Y when producing one more X

A

y/x of y

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24
Q

what is the difference between absolute advantage and comparative advantage

A

absolute is where you can produce more whereas comparative is at a lower oppurtunity cost

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25
Q

assumptions of comparative advantage (4)

A

factors of production are fixed and immobile between countries but perfectly mobile between industries
constant returns to scale
demand and cost conditions are stable
no barriers to trade

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26
Q

benefits of trade (5)

A

specilaisation increases efficiency
job creation H/E structural unemployment
peace creating less economic friction
choice for consumers
dynamic efficiency as competition drives innovation

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27
Q

define patterns of trade

A

the way in which goods and services are traded between countries

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28
Q

state 4 factors impacting the pattern of trade

A

comparative advantage
emerging economies
trading blocs
exchange rates

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29
Q

explain how comparative advantage influences the pattern of trade

A

countries will trade if they or another country has a comparative advantage
for example extreme whether conditions may impact the comparative advantage of a country with a large agricultural sector which will impact their pattern of trade

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30
Q

explain how emerging economies influences the pattern of trade

A

countries grow at different rates so their will be differences in their pattern of trade
more growth, more imports (eg machinery to develop)
AND more exports to finance the imports
EG: China imported a lot of capital when they were emerging and are now in a trade surplus

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31
Q

explain how trading blocs influences the pattern of trade

A

trading blocs increase trade within the bloc
however decreases with non members
eg EU members trade a lot with members but not a lot with non members eg Australia

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32
Q

explain how exchange rates influences the pattern of trade

A

ER affects the prices of goods between countries which massuvely impacts imporrts and thus impacts pattern of trade

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33
Q

prodcutive efficiency

A

prdocuing for lowest cost

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34
Q

allocative efficiency

A

distributing resources according to consumer preference P=MC

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35
Q

what is a tariff

A

a tax on imports allowed into the country

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36
Q

what is a quota

A

a restriction on the number of imports allowed into a country

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37
Q

what is an export subsidy

A

payments to domestic producers to reduce costs and thus increase competitiveness

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38
Q

3 strengths of tariff

A

more domestic supply increases employment
better CA balance
prevents dumping

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39
Q

2 weaknesses of tariff

A

deadweight loss
loss of efficiency

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40
Q

4 causes of protectionism

A

response to allegations of export dumping
reposnse to peristent large trade deficit
employment protection
raise tax revenues to help with fiscal balance

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41
Q

what is dumping

A

exporting a product at a price lower in the foreign market than in the exporters domestic market
EG China dumping steel

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42
Q

what is an infant industry

A

new industry struggling to compete
EG 19th century steel

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43
Q

what is a sunset industry

A

industry in decline
EG UK shipbuilding

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44
Q

5 disadvantages of protectionism

A

loss of allocative/productive efficiency
retaliation, trade war, less growth, decreased SoL
high prices has a regressive impact
higher costs decreases competitiveness
increased barriers for domestic firms

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45
Q

3 advantages of protectionism

A

higher domestic wages due to less low cost labour
less structural unemployment in infant/sunset
less competition, high prices, high profits- more invetsment and higher wages

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46
Q

what is a customs union

A

a free trade area with a common external barrier

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47
Q

example of a customs union

A

EU customs union

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47
Q

what can customs union lead to (2)

A

trade creation
trade diversion

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47
Q

what is trade creation

A

when consumption shifts from a high cost producer to a low cost producer
leads to an efficiency gain and lower prices for consumer

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48
Q

eg of trade creation

A

WINE- uk joining the EU, Italy/france

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48
Q

what is trade diversion

A

where consumption shifts from a low cost producer to a high cost producer

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49
Q

eg of trade diversion

A

FOOD- uk bought food from USA, joined EU

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49
Q

what is a single market

A

eliminate all barriers between each other and harmonize rules and regulations
goods services capital and labour can move freely across national borders

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49
Q

when and how was the eu established

A

established via the maastricht treaty in 1993

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50
Q

what is the largest single market

A

THE EU!!

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51
Q

gdp of eu single market

A

13 trillion euros
#wtf

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52
Q

what is the eu currency and how many members use it

A

euro
20 members

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53
Q

what is the free travel area in the eu and how many members

A

schegen area
26 members

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54
Q

5 benefits of the eu single market

A

import tariff free access to a single market of 500 mill people
easy access to eu fdi
access to eu structural funds
access to eu capital markets, makes borrowing easier
more competition , innovation

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55
Q

richest eu country

A

germany

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56
Q

poorest eu country

A

malta

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57
Q

when was the wto established

A

1995

58
Q

what came before the wto

A

General Agreement of Tariff and Trade

59
Q

role of wto

A

make sure other countries follow their trade agreements and solve trade disagreements through negoitiation

60
Q

example of legal sanction

A

emabargo on russia after ukraine war from eu

61
Q

conflicts of the wto

A

regional agreements contradict wto principles
wto strives to ensure non members can trade freeky and easily with bloc members

62
Q

3 accounts of balance of payments

A

current account
capital account
financial account

63
Q

4 sections of current account

A

trade in goods
trade in services
net primary income/investment incomr
net secondary income/current transfers

64
Q

eg of net primary income

A

dividends

65
Q

eg of net secondary income

A

foreign aid
remitances

66
Q

2 sections of capital account

A

capital transfers
non produced transactions

67
Q

eg of capital transfers

A

migrant transfers of assetts

68
Q

4 sections of the financial account

A

direct investment
portfolio investment
other investments
reserve assetts

69
Q

eg of non produced assetts

A

patents

70
Q

eg of direct investment

A

FDI

71
Q

eg of portfolio investment

A

bonds

72
Q

eg of other investments

A

loan s

73
Q

what is a current account deficit

A

value of countries exported goods and services, investment inflows and transfer inflows are less than the value of imported goods and services, investment income outflows and outward transfers

74
Q

what is a current account surplus

A

value of countries exported goods and services, investment inflows and transfer inflows are more than the value of imported goods and services, investment income outflows and outward transfers

75
Q

4 causes of CA deficit (structural)

A

underinvestment
inadequate r and d
low productivity
low cost competition

76
Q

5 causes of CA deficit (cyclical)

A

overvalued exchange rate
boom in domestic demand
recession in key export market
slump in global export prices
increased demand for imported technology

77
Q

benefits of investment flows between countries (4)

A

increased trend growth, increased per capita income, less absolute poverty
investment in physical productive capacity will increase the size of capital stock, which will increase productivity
increased productivity, more competitive, more exports, increased AD
FDI can create jobs and reduce unemployment

78
Q

consequences of investment flows between countries (3)

A

MNCs may take advatage of weak environemntal laws
MNCs have been criticised for poor working conditions
profits often go to shareholders in host countr (outflow from circular flow)

79
Q

policies to correct a CA deficit (5)

A

contractionary fiscal/monetary to reduce AD
devaluation of the pound
subsidise businesses to increase exports
supply side policies
protectionism

80
Q

explain the marshall lerner condition when DEVALUEING TO REDUCE CA DEFICIT

A

PED for exports and imports combined must exceed 1
currency devalued, demand is inelastic due to a time lag and consumers not reacting immediately
as the prices have increased but demand hasn’t this will first worsen the CA deficit
however consumers will then react to the price changes and demand will be elastic, decreasing the CA deficit

81
Q

what is the difference between expenditure switching and expenditure reducing policies

A

expenditure reducing aim to reduce ad and reduce overall spending, eg contractionary monetary policy
expenditure switching policies aim to switch spending towards domestic firms, eg protectionism

82
Q

policies to reduce CA deficit impact on UNEMPLOYMENT

A

less demand, “labour is derived demand”, unemployment

83
Q

policies to reduce CA deficit impact on INFLATION

A

less spending, less demand pull inflation
increased productivity, less demand pull

protectionism could lead to commodities being more expesnive, cost push inflation

84
Q

policies to reduce CA deficit impact on fiscal balance

A

spending on export subsidies, worsen
import tariffs, better
more domestic businesses, more corp tax income
less demand, less income, less income tax

85
Q

disadvantages of CA deficit (4)

A

fall in AD as (X-M) is negative
downward pressure on exchange rate
reflects supply side weakness
loss of output and employment

86
Q

advantages of CA defict (3)

A

cyclical causes reflect booming demand
can be financed by other accounts
CA surplus could lead to friction (eg USA-China)

87
Q

evaluation of CA deficit (4)

A

can it be financed
size
persistence
if capital is imported it can lead to future surplus (eg China)

88
Q

define exchange rate

A

the price of one currency in terms of another
external value of the currency

89
Q

how are floating exchange rates determined

A

by demand and supply

90
Q

where is the value of the currency determined

A

in the FOREX market

91
Q

in a floating exchange rate what is it called when currency gets stronger/weaker

A

appreciate/depreciate

92
Q

in a flixed exchange rate what is it called when currency gets stronger/weaker

A

revalue/devalue

93
Q

who demands pounds

A

foreigners

94
Q

who supplies pounds

A

domestic citizens (eg gov consumers bank producers)

95
Q

factors influencing demand for £ (increase)

A

interest rates increase
low corp tax leading to FDI
more exports due to export subsidy
speculation
tourism (eg olympics)
low domestic inflation
good macro performance

96
Q

factors influencing supply of £ (increase)

A

removal of tariffs, increasing imports
bad macro performance domestically
fall in interest rates
better corp tax abroad (ourtwards investment)
speculation
QE
increased IR overseas

97
Q

impact on £ if uk inflation rises

A

increased supply as uk citizens want to import cheaper goods and so will sell their pounds
dcreased demand as uk exports are less competitive
therefore £ dpereciates

98
Q

impact of currency depreciation oninflation

A

increased import prices, increased cost of production, increasd prices, inflation (cost push),

99
Q

impact of currency depreciation on economic growth

A

less imports more exports leading to increased AD
H/E dependent on PED

100
Q

impact of currency depreciation on unemployment

A

increased exports so more deomestic production meaning more jobs

101
Q

foreign currency reserves

A

bought by government to manipulate the exchange rate
eg if the pound is overvalued the government will buy up foreign currency reserves or gold with pounds which will increase the supply of the pound devaluing it

102
Q

competitive devaluation

A

country deliberately intervenes in the FOREX market to drive down the value of their currency to boost export competitiveness
eg china did this

103
Q

what is a fixed exchange rate

A

typically pegged against another currency or gold
used to stabilise the currency its pegged against making trade between two countries easier
means there is less risk to big fluctuations or speculation

104
Q

if the £ is too strong in a fixed ER

A

Fixed: £1= $1.50
but ER1= £1= $1.60
thus £ is too strong
BoE needs to buy up foreign currency reserves to increase supply of pound and thus devalue back to fixed amount

105
Q

if the £ is too weak in a fixed ER

A

fixed: £1= $1.50
but ER1= £1= $1.40
pound is undervalued
authorities will use foreign currency reserves to buy up the £ in the market increasing demand and thus revalue back to fixed amoount

106
Q

managed exchange rate

A

exchange rate can change but past a certain point the government will intervene
eg China

107
Q

if Yuan is above upper bound in managed exchange rate

A

due to increased demand eg tourism
authorities will buy up foreign currency reserves increasing supply of pound devalue it back within bounds

108
Q

advantages of a free floating exchange rate

A

adjusts easier to economic shocks
more freedom to focus monetary policy on domestic objectives
less sepculative attacks as ER is determined by market forces
can help self correct trade balance
no need for central bank to hold large currency reserves

109
Q

disadvantages of a free floating exchange rate

A

potential for exchange rate volatility which can lead to uncertainity for businesses and less FDI
exchange rate changing can lead to changes in import prices and thus reducing SRAS and causing cost push inflation
cannot be used to deliberately icrease competitiveness

110
Q

advantages of a fixed exchange rate

A

price stability due to less fluctuations which makes a more predictable environment for firms
less uncertainty can increase FDI
discipline on monetary policy can prevent excessive money supply growth

111
Q

disadvantages of a fixed exchange rate

A

lack of flexibility on monetary policy
trade balance must be maintained by other means such as through fiscal policy
vulnerable to speculative attacks
need to hold large currency reserves

112
Q

advantages for a country of joining a currency union

A

eliminates exchange rate fluctuations between member countries encouraging trade
single currency makes it easier for consumers and businesses to compare prices across the member countries leading to more comp and efficiency of firms
credibility of a central monetary authority (e.g., the European Central Bank for the Eurozone). This can result in lower inflation rates and more stable interest rates, promoting economic stability.
stability and predictability of a shared currency can attract foreign investment

113
Q

disadvantages for a country of joining a currency union

A

Countries within a currency union must adhere to the policies set by the central authority, so may not beable to use MP in times of inflation/recession
In a currency union, countries cannot adjust their exchange rates to restore competitiveness. If a country’s economy is underperforming, it cannot devalue its currency to boost exports and reduce imports.
constraints can limit a country’s ability to use fiscal policy (e.g., government spending or tax cuts) to stimulate the economy during a recession or to address social or infrastructure needs.
A country within a currency union is somewhat dependent on the economic performance and fiscal health of the other members. If a more dominant member experiences an economic crisis, the entire currency union could face difficulties, even if other members are performing well.

114
Q

difference between economic growth and development

A

growth is measured purely by real gdp and productive potential whereas development is about standard of living

115
Q

characteristics of less developed countries

A

low gdp per capita
low per average incomes
high percentage of people in primary industries
low life expectancy
conflict and weak governance
low quality of life

116
Q

amartya sen said

A

development is about improving peoples freedom and capabilities

117
Q

HDI

A

created by amartya sen
geometric mean looks at
income (GNI per capita)
health (life expectancy at birth)
education (mean years of schooling and expected years of schooling)

doesnt consider longevity or inequality

118
Q

3 other measures of development

A

inequality adjusted HDI
multidimensional poverty index
genuine progress indicator

119
Q

barriers to development

A

primary product dependency
savings gap
foreign currency gap
external debt
financial barriers
human capital
property rights
corruption
infrastructure

120
Q

primary product dependency

A

extracting and exporting a narrow range of primary commodities
2/5 PPD countries are located in sub saharan africa

121
Q

prebisch singer hypothesis

A

over the long run real prices of primary commodities
such as coffee and cocoa decline relative to the prices of manufactured goods
exports are income inelastic ( for developed countries) as they are necessities
imports increase supply due to tech advances
so overall price of commodities fall reducing terms of trade
however could be challenged as commodities prices can fluctuate and manufactured goods can get cheaper due to globalisation

122
Q

terms of trade

A

index of X prices/ index of M prices x100

123
Q

dutch disease

A

find natural resources
world price is high
investment into that sector and thus less investment into other sectors, increasing exports
appreciating exchange rate
less price competitive
infant manufacturing industries cant compete so decline
premature deindustrialiation

124
Q

savings gap

A

less developed countries with extreme poverty having less savings to fund investment projects
thus they must rely on overseas borrowing

125
Q

rate of gdp growth

A

savings ratio/ capital output ratio

126
Q

harrod domar model

A

increased national savings
increase in net capital investment
increased capital stock available
increased productivity
increase in real GDP
increased per capita income
and so on

127
Q

foreign currency gap

A

currency outflows persistently exceed currency inflows
due to persisent CA deficit, capital flight, reduced inflows of remittances
can lead to not enough foreign currency to pay for imports such as medicine or capital
can lead to capital flight

128
Q

capital flight

A

rapid outflows or large scale movement of capital (money/assetts) from one country to another as a response to instability
effects are less domestic investment, weakened currency, less tax revenues (leading to less infrastructure)

129
Q

external debt as a barrier to development

A

the money that a country owes to foreign creditors
eg loans or bonds
effects:
have to make regular principal payments so budget is diverted from infrastructure
macroeconomic instability as they may use EMP, fiscal austerity or currency devaluation to fix
lower credit rating so harder to invest in the future

130
Q

financial barriers

A

such as access to bank accounts, loan finance and insurance
poor people rely on informal loans with high interest rates so they have lower real incomes reducing standard of living

131
Q

human capital as a barrier to economic development

A

knowledge skills and experiences possessed by individuals in a population that add economic value
effects of low human capital:
less productivity and efficiency
less technological advancements
less likely to engage in entreupereship
less attractive to FDI

132
Q

property rights as a barrier to economic development

A

why theyre important:
- stimulated investment in farmland, increasing standard of living in rural areas
- gov can generate land based tax which can help fund infrastructure projects
- help protect environment
- people with land can use it as collateral when borrowing which can help entreuperenership

133
Q

corruption as a barrier to economic development

A

deters FDI
leads to allocative inefficiencys
increased poverty

134
Q

infrastructure as a barrier to economic development

A

importance of infrastructure:
- reduces supply costs, lower prices, higher real incomes
- geographical mobility of labour reduces structural unemployment
- more attractive for FDI
- less vulnerable to natural disasters

135
Q

market based strategies for growth and development

A

trade liberalisation
promotion of FDI
removal of subsidies
floating exchange rates
microfinance privatisation

136
Q

trade liberalisation to promote economic development

A

promoting export led growth through the removal of tariffs, quotas or joining a trade bloc
it allows for more free trade so businesses are able to import products to help them grow
can lead to trade creation
h/e infant manufacturing industries may be undercut by international firms , other countries may reciprocate by reducing tariffs

137
Q

promotion of FDI to promote economic development

A

FDI is investment by a private comopany in one country into another private comoany in another country such as setting up factories or accquiring local businesses
gov can provide tax breaks to businesses setting up in their country to encourage investment
h/e can appreciate exchange rate, exploitation, tax avoidance, bring their skilled workers
EG vietnam had FDI from nike

138
Q

removal of subsidies to promote economic development

A

adam smiths invisible hand suggests that the market is the most efficient mechanism and intervention will lead to inefficient allocation of scarce resources
thus increased efficency helps LT growth
h/e small businesses may not be able to set up without subsidies in a developing economy as small businesses lack availability to credit which is needed to set up especially when sunk costs are high
h/e increased prices for consumer is regressive

139
Q

floating exchange rate to promote economic development

A

will remove the need for government reserves and allows for more spending in the local economy
h/e can lead to uncertainty for businesses, thus less FDI, and fluctuates M and X prices leading to unstable AD

140
Q

microfinance to promote economic development

A

schemes aim to give poor households access to financial services promoting consumption and investment leading to higher AD
also can give people oppurtunity to start up businesses

141
Q

privatisation to promote economic development

A

where previously nationalised firm is sold off to multiple small investors
can end corruption in a government owned firm and promotes competition which gives efficiency
h/e consumers may be exploited by profit maximising private firms

142
Q

interventionist policies to promote economic development

A

improving human capital
protectionism
managed exchange rate
infrastructure
promoting joint ventures with global companies
buffer stock systems

143
Q

improving human capital to promote economic development

A

funding trainibg courses and investing in education to increase productivity which can improve efficiency and increase the LRAS
h/e takes a while to show the impact and developing economies may not have the funds

144
Q

protectionism to promote economic development

A

allows domestic industries to grow by protecting them from efficient, foreign competition
especially important when growing infant industries
h/e retaliation could limit exports
eg US-China trade war

145
Q

managed exchange rate to promote economic development

A

less uncertainty which encourages FDI
could devalue to boost competitiveness
h/e requires a large amount of currency reserves which developing countries may not have access to
eg China

146
Q

infrastructure projects to promote economic development

A

investment in roads and cities will allow for more economic growth
it can increase LRAS
h/e government may not have the money to finance investment
eg China: good transport and major cities

147
Q

promoting joint ventures with global companies to promote economic development

A

government may insist firms setting up production plants in their country find a local partner to create a jointly owned company with
creates jobs and stimulates AD
h/e could mean big companies have power over the economy and threaten the government

148
Q

buffer stock systems to promote economic development

A

attempt by government to keep agricultural market prices fair as they are volatile
they have to stay within a bound
making sure consumers aren’t exploited but businesses remain profitable
h/e expensive and requires large reserves
eg ivory coast and ghana with cocoa

economics (9 decks)

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