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Theme 4 Economics > A Global Perspective > Flashcards

A Global Perspective Flashcards

1
Q

Globalisation definition

A

Growing interdependence of countries economies

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2
Q

Factors for globalisation

A

Improvements in transport, improvements in technology, trade liberalisation (reduce protectionism), growth of TNCs, international financial markets (move money around the world)

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3
Q

Positive impacts of globalisation on consumers

A

More choice, can lead to lower prices (firms produce in countries with lower cost)

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4
Q

Negative impacts of globalisation on consumers

A

Cal lead to higher prices (rising incomes so greater demand), can lead to a loss of culture

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5
Q

How does globalisation effect employment in the manufacturing sector?

A

Jobs are lost in HICS, jobs grow in LICs as businesses move to countries where it’s cheaper to employ low-skilled labour

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6
Q

What is the impact of increased migration on workers?

A

Can lower wages as larger supply of labour, but skills provided can rise AD which may lead to improved wages

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7
Q

Impact of globalisation on inequality?

A

Increases, as wages for high skilled workers increase as demand for them rises as the global economy improves

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8
Q

What is the impact of globalisation on workers in LIC/developing countries?

A

Can increase jobs which may get them out of poverty, but workers can be exploited by TNCs and given low wages

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9
Q

Benefits of globalisation on producers

A

More countries to sell to reduces risk as AD not as negatively volatile, profits can increase as can exploit workers in LICs + produce in countries with comparative advantage

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10
Q

Negative impacts of globalisation on producers

A

Will lose out if unable to complete with international markets, may force some firms to close

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11
Q

Positive impacts of globalisation on the government

A

Greater tax revenue, as TNCs more willing to pay tax

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12
Q

Negative impacts of globalisation on the government

A

TNCs May create tax avoidance, also TNCs have the power to bribe weak governments which may create corruption

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13
Q

Positive impacts of globalisation on the environment

A

Countries can share technology+ ideas to tackle climate change and produce more environmentally friendly

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14
Q

Negative impacts of globalisation on the environment

A

Increased demand for raw materials + increased carbon emission through transport damages the environment

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15
Q

Positive impacts of globalisation on economic growth

A

Increased investment through TNCs, can be even greater depending on the size of the multiplier, also TNCs provide improved management and technology to improve productivity

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16
Q

What policies should the government implement to encourage TNCs investment?

A

Supply side, as would increase incentive for long-term investment

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17
Q

Negative impacts of globalisation on economic growth

A

Creates economic instability, the lack of loyalty of TNCs mean when costs rise they are likely to leave which creates structural unemployment and reduces growth

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18
Q

Comparative advantage theory for globalisation

A

Countries specialise in industries where they have comparative advantage as allows cheaper products

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19
Q

What does comparative advantage for globalisation rely on

A

Lots of global trade, so countries can still access goods for relatively cheap so they don’t have to produce them

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20
Q

Assumptions/limitations of the theory of comparative advantage for globalisation

A

No transport costs, assumes costs are constant ( doesn’t account for EoS), goods assumed to be homogenous, doesn’t assume for tariffs/barriers, dependent on the terms of trade between countries

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21
Q

Advantages of specialisation for global trade

A

Increase world output and economic growth, countries benefit from EoS, consumers have greater choice through trade, greater competition (this encourages innovation to lower costs)

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22
Q

Disadvantages of specialisation for global trade

A

Can lead to an overdependence on exports/imports, environmental issues, creates structural unemployment, loss of sovereignty/culture

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23
Q

How does specialisation for global trade increase structural unemployment?

A

Jobs in a domestic industry are lost to foreign firms who are more efficient - the less mobile the workforce the worse impact this will have

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24
Q

How does comparative advantage influence the pattern of trade?

A

Countries will trade where there is a comparative advantage - I.e there’s been a growth in exports of manufactured goods from developing countries to developed as lower price due to lower labour costs

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25
Q

How do emerging economies influence the pattern of trade?

A

Growing countries demand more imports/exports so take up a larger proportion of other countries imports/exports (I.e China’s growth)

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26
Q

Trading blocs and trade agreements influence on patterns of trade?

A

Increases level of trade with countered within these blocs agreements, but worsens trade for countries outside

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27
Q

Relative exchange rate influence on the patterns of trad

A

Prices determine where countered buy goods (stronger exchange rate, less demand for exports)

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28
Q

Terms of trade calculation

A

(Index of export prices divided by index of import prices) x 100

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29
Q

What does the Terms of Trade tell countries?

A

The relative value and quality of their exports against their imports

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30
Q

What can be indicated by a worsening/improvement of the terms of trade?

A

Worsening - relative value/quality of export decreases (either export worsens or imports improve), improvement relative value/quality of export increases (either export improves or imports worsen)

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31
Q

Short-run factors influencing the Terms of Trade

A

Exchange rates and inflation

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32
Q

Long run factors influencing the terms of trade

A

Improvement/worsening of productivity levels- improvement of productive can worsen ToT although as export prices decrease + change in incomes can increase demand for imports raising their price

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33
Q

Which macroeconomic objective do Terms of Trade directly change?

A

Balance of Payments

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34
Q

What is the impact of an improvement in the terms of trade?

A

Can lead to fall in the GDP and a rise in unemployment as demand for exports will fall

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35
Q

What is the long-run impact of a worsening of the terms of trade?

A

Suggests a long term decline in living standards, worsens economy as less faith so less investment

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36
Q

What is a free trade area?

A

Countries inside the trading bloc have free trade, and are allowed their own trading restrictions with other countries

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37
Q

What are the 4 types of Trading Blocs?

A

Free trade areas, customs union, common markets, monetary union

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38
Q

What is a customs union?

A

Free trade between members, they also share mutual trading restrictions with countries outside the union (allows them to trade outside as a bloc)

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39
Q

What is a common market trading bloc?

A

Same as a customs union, but also free movement of all factors of production with the aim to create one common market

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40
Q

What is a monetary union trading bloc, with an example?

A

When countries share one currency, meaning they share a trading bloc (I.e Eurozone and Europe central bank)

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41
Q

What are the issues with a monetary union

A

Expensive to start up and high costs if the union break up, also a loss of policy independence for the member countries so can use policies to benefit themselves

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42
Q

Advantages of trading blocs on consumers

A

Increased specialisation + competition lowers prices, greater choice,

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43
Q

Advantages of trading blocs on firms

A

Firms benefit from EoS due to specialisation, also protected from cheaper imports outside of the trading bloc, increased competition encourages innovation and improved efficiency

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44
Q

Advantages of trading blocs on firms

A

Increased specialisation + protection means more jobs available for domestic firms, so increased employment

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45
Q

Disadvantages of trading blocs on global trade

A

Counties outside the blocs are damaged, created trade diversion so inefficient producers in the blocs are protected over efficient producers outside the blocs

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46
Q

Other disadvantages of trading blocs

A

Reduction in competition, gains distributed unequally (usually developed countries benefit most), leads to retaliation, heightened regional inequalities, less choice for consumers, lessen national sovereignty, can worsen efficiency

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47
Q

Trade creation in a trading bloc

A

When consumption shifts from a high cost domestic producer to a lower cost producer inside the trading bloc, as costs lower due to reduced tariffs?

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48
Q

How can trade creation be shown in a diagram?

A

By reducing the tariff, which increases consumer surplus

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49
Q

Trade diversion in a trading bloc

A

Countries go from buying from a low cost producer to a higher cost producer within the trading bloc, as the lower cost producer + a tariff is more expensive than the free trade with the higher cost producer within the bloc

50
Q

Impacts of trade diversion on the global economy

A

Reduces global efficiency as countries aren’t improving from counties with comparative advantage

51
Q

When is trade diversion likely to exist within a trading bloc?

A

Trade diversion likely to exist when there is a high external tariff or a small cost difference between the 2 producers

52
Q

Role of the WTO

A

Encourage trade liberalisation, ensure countries respect trade agreements as of a country complains, can hold meetings regarding the issue and if decide country has not respected agreement the other country can implement trade sanctions on them

53
Q

Issues with the WTO

A

Both counties must agree to an agreement taking place - countries can just not agree therefore no action is taken

54
Q

Conflicts with the WTO

A

Regional trade agreements conflict their principles of trade liberalisation, can ignore developing countries as developed countries don’t really trade freely with them

55
Q

What does the infant industry argument state the reason for restrictions on free trade?

A

New industries need opportunity to grow, as early on their AC will be higher so can’t compete with international firms - government should protect them to help them grow

56
Q

Why are restrictions on free trade needed for job protection?

A

Allowing too many imports reduces the need for domestic products, so unemployment would rise unless some domestic jobs are projected

57
Q

What is the argument that restrictions on free trade are needed to protect potential dumping?

A

Countries with a large surplus are likely to sell these internationally at a very low price that firms can’t compete with, so firms need to be protected from this

58
Q

Why is protection from unfair competition an argument for restrictions on free trade?

A

Some countries have low labour costs that other firms can’t compete with, so need protecting

59
Q

Why are the terms of trade an argument for restrictions on free trade?

A

If a country buys lots of imports it raises their price through demand, which will lead to a worsening of the terms of trade

60
Q

Why else are restrictions on free trade needed?

A

To stop overspecialisation - over dependence on imports for other goods

61
Q

What is a tariff?

A

A tax placed on imported goods

62
Q

What is a quota?

A

Where only a certain number of imports are allowed

63
Q

What is an embargo?

A

Total ban on imports

64
Q

What is import licesneing?

A

Where firms must have a license to import

65
Q

How do subsidies to domestic producers provide restrictions?

A

Lowers domestic costs, reducing AC of domestic firms so less demand for imports

66
Q

What are the impacts of protectionism on consumers?

A

Higher prices, less choice

67
Q

What are the positive impacts on producers from protectionist policies?

A

Goods can be sold at a higher price to increase profits, greater security of business

68
Q

What are the negative impacts of protectionist policies on producers?

A

May suffer from higher costs if imports are needed for production, foreign producers also lose out

69
Q

Long-run impact on workers due to protectionism

A

Decreased job security as allows inefficient businesses to run, however does allow greater employment in export led industries

70
Q

Short run impact of protectionist policies on the government

A

Increase revenue from tariffs

71
Q

Long-run impact of protectionist policies on the government

A

Inefficient economy, hurts growth

72
Q

Impacts of living standards due to protectionist policies

A

Increase deadweight welfare loss, retaliation causes a reduction in trade+growth, inequality worsens as poorest can’t afford goods

73
Q

Short term causes of deficits/surplus in the BoP

A

High levels of consumer demand worsens the deficit - higher incomes lead to more imports but has no effect on exports

74
Q

Why does the deficit worsen in the UK with an increase in income?

A

The UK has a high income elasticity for imports - however imports inelastic

75
Q

Exchange-rate impact in the short-run on the BoP

A

Stronger the pound, the smaller the deficit as imports become cheaper ( and vice-Versa)

76
Q

Inflation levels effect on the BoP

A

Higher inflation decreases export demand , worsens deficit

77
Q

Medium term cause of deficit/surplus in the BoP

A

Loss/gain of comparative advantage

78
Q

Long term causes of deficits/surplus in the BoP

A

Lack of investment, lack of productivity, deindustrialisation, availability of resources, levels of competition, corruption

79
Q

Why may a weaker exchange rate have a secondary effect benefitting the BoP?

A

Exports become cheaper, which increased demand ( useful for the Uk as imports inelastic and exports elastic)

80
Q

Demand-side policies effects on reducing BoP deficit

A

Reduce AD, so provides short term benefits, however creates a conflict of objectives as increases unemployment and decreases economic growth

81
Q

Supply side policies effects on reducing the BoP deficit

A

Improved efficiency/quantity reduces export prices so may increased demand for them, however no guarantee of success as exports may be inelastic and are a long-term solutionn

82
Q

Expenditure switching policies effects on reducing the BoP deficit

A

Tariffs/quotas reduce demand for imports, but create price wars

83
Q

How do deflationary policies impact the BoP deficit?

A

Improves export competitiveness + reduces demand for imports, but leads to a fall in growth

84
Q

What is the impact of a devaluation of the pound on the BoP

A

Import prices increase but the can lead to a surge in export competitiveness, can be evaluated by the J curve and the Marshall Lerner Condition

85
Q

Marshall Lerner Condition

A

Either imports or exports have to be elastic for a depreciation of the currency to be effective in reducing the deficit

86
Q

If a country has a current account deficit, must what it also have?

A

A capital account + financial account surplus

87
Q

What is the risk of relying on a capital account surplus?

A

The capital account is very volatile, can decrease very quickly as shown by the 2008 financial crisis

88
Q

What is the result of a consistent current account deficit?

A

Increase in debt, however only becomes an issue when countries can’t repay their debts

89
Q

Why is a current account surplus not always beneficial?

A

Consumers within the country don’t see the higher standards of living they could benefit from greater imports

90
Q

What is a free-floating exchange rate system?

A

Value of the currency is purely determined by demand and supply

91
Q

What is a managed-floating exchange rate system?

A

Value of the currency is determined by demand and supply, but the central bank actively tried to stop large changes to the currency’s value by using interest rates and buying/selling foreign currency

92
Q

Fixed exchange rate system

A

Government sets this currency against another and doesn’t change the exact age rate ( currency can be re valued if needed to)

93
Q

What is the demand for the pound determined by?

A

Amount of British goods foreigners demand, demand for FDI

94
Q

What is the supply of the pound determined by?

A

Amount of foreign goods people in the UK want to buy, British firm investment overseas, holidays

95
Q

What determines the short term value of a currency?

A

Speculation largely cause as if people fear a deprecation will sell the currency band buy another, which depreciates the value as more supply ( same for an appreciation)

96
Q

Long term determinants of the value of a currency

A

Economic fundamentals

97
Q

How do the government intervene to improve the exchange rate?

A

Rising interest rates to increase demand for the currency, use of gold/foreign currency reserves ( use gold to buy currency back and increase the supply of foreign currency)

98
Q

How do the government intervene to worse the exchange rate?

A

Decrease interest rates to reduce demand, use gold/foreign currency reserves ( use gold to buy back foreign currency + increase supply of currency)

99
Q

What does the J-curve show?

A

An depreciation of a currency initially leads to a worsening of the deficit as imports rise, however improves after as demand for exports increase ( shows demand for exports not immediate +
inelastic in the short run)

100
Q

Impact of exchange rates on economic growth and unemployment?

A

Weaker exchange rate will increase AD as increase exports and decrease imports, so increases employment + growth

101
Q

How does the exchange rate effect the rate of inflation?

A

Weaker exchange rate worsens inflation as import costs rise + rise in exports increased AD (also vice-versa)

102
Q

Impact of exchange rates on FDI in the short-term

A

Depreciation may increase FDI as cheaper to invest, whereas appreciation may decrease FDI as more expensive

103
Q

Impact of exchange rates on FDI in the long-run

A

Long run depreciation likely to decrease FDI as suggest economic issues

104
Q

Relative unit labour cost on international competitiveness

A

Cheaper labour, lower costs so more competitive

105
Q

Relative export prices on international competitiveness

A

Rise in prices decreases competitiveness

106
Q

How do exchange rates influence international competitiveness?

A

Lower the value of the currency, greater the competitiveness

107
Q

How does productivity impact international competitiveness?

A

Greater the productivity, greater the competitiveness

108
Q

How does regulation influence international competitiveness

A

Greater regulation worsened competitiveness as rises costs and slows business decisions

109
Q

How does infrastructure impact international competitiveness?

A

Greater infrastructure improves productivity

110
Q

How does investment impact international competitiveness?

A

Greater investment improves R and D and can also increase investment in technology so efficiency increases, firms can also develop new products so a smaller market to compete with - improves competitiveness

111
Q

Impact of taxation on international competitiveness

A

Higher taxation, lower the investment to worsens competitiveness

112
Q

Impact of inflation on international competitiveness

A

Lower inflation, greater competitiveness

113
Q

Impact of economic stability on international competitiveness?

A

Less stability, lower investment as greater risk so less competitive

114
Q

Impact of flexibility of labour market on international competitiveness

A

Greater flexibility improves competitiveness as business can move labour to where is needed and prevent wage rises which increases costs

115
Q

Domestic demand impact on international competitiveness

A

Greater domestic demand allows business to benefit from EoS, so lowers cost improving competitiveness

116
Q

Domestic competition impact on international competitiveness

A

High levels of domestic competition means efficiency already high, so more competitive

117
Q

Factors of production impact on international competitiveness

A

Greater quality and quantity, more competitive

118
Q

Trade barriers impact on international competitiveness

A

Lower barriers, more competitive

119
Q

Benefits of international competitiveness

A

Current account surplus (which can be invested overseas to gain interest),attracts FDI (which improves technology + may create new firms), increased employment (may also rise wages as increased demand for labour), greater economic growth (as AD rises)

120
Q

Problems with international competitiveness

A

Can be lost easily (export-led growth lead to economic growth which can rise labour costs and inflation), overdependence on exports, rise in exchange rate (caused by current account surplus)

Theme 4 Economics (6 decks)

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