all-1716139366 Flashcards

Question 1

Q

outline measures to control transnational companies

Answer

A

-requirment that they use local fop (labour + local suppliers)

regulkation of transfer pricing

-refers to pricing polciies adopted by groups of fimrs - each member firm
manipulates price charges on intra-grouo trades as a means of lowing the amount
of global corporate tax they pay - this should be blocked by govs

Question 2

Q

define external shock

Answer

A

unpredictable event such as significant price change for key commodities like
oil

Question 3

Q

significance of a fiscal deficit (national debt )

Answer

A

INCREASE INTEREST RATES

-demand for funds rises relative to their supply, price of borrowing is intrest
so intrest increases

RATE OF INFLATION

-if gov decides to print money rather than borrow to finance their esxpenditurew
when tax revanue isnt enough then inflation occours

CREDIT RATING

-countries recive credit ratinsg form private investment companies

-best is AAA worst is D

-bad credit rates means that in future the government would recive worse rates
of interest when borrowing

Question 4

Q

outline non-government organisations that support economic devlopment across the
globe

Answer

A

WORLD BANK

-set up in 1944 to promote devlopment

-provides low-interest loans, interest free credit and grants to developing
cpuntries for firms, education and healthcare

-supports development of infrastructure

international monetray fund (IMF)

-each member country has quota of finacial resources thay have to make avlible
to imf - these resouces are then used as loans to poor countries

-fights poverty and improves living standards

-provides support and advice to developing countries that dont know how to
maintain stability

NON-GOVERNMENT ORGANISATION (NGO)

-private organisations like charity e.g. water aid

Question 5

Q

what is the role of the international monetary fund

Answer

A

international monetray fund (IMF)

-each member country has quota of finacial resources thay have to make avlible
to imf - these resouces are then used as loans to poor countries

-fights poverty and improves living standards

-provides support and advice to developing countries that dont know how to
maintain stability

Question 6

Q

outline role of world bank

Answer

A

WORLD BANK

-set up in 1944 to promote devlopment

-provides low-interest loans, interest free credit and grants to developing
cpuntries for firms, education and healthcare

-supports development of infrastructure

Question 7

Q

outline what is meant by the lewis model and how that can foster growth /
development for a nation

Answer

A

developing nation if agriculture focused typically

model assumes that there is excess labour in this sector - the same output could
be achived w less workers - hence there is no oppourtunity cost to move these
workers to industry (manufactering)

eval -

not that easy to transfer job - needs high investment in training + education

industry may end out being automated and not actually ctreate many new jobs

agriculture is seasonal and - demand is high during harvest hence the
presumptoin of excess labour nay not be true at all times

Question 8

Q

outline interventionist strategies to promote growth and development

Answer

A

INTERVENTIONIST - where gov seeks to support economy directly

Improve human capital / infrsatructure

-boost efficency

protestcionism

-protects domestic industries

buffer-stock schemes -

governments maintain stockpiles of commodities to stabalise price

joint venture w mnc

-directly encourage fdi by allowing firms to operate in a nation via a
partnership - this could higher wages lower unemployment and cause inflow of
efficent workers

Question 9

Q

outline martet based strategies to influence growth and devlopment

Answer

A

MARKET BASED = promoting market forces to boost economy

trade liberalisation

-increase access to foreign market influencing growth

promoting fdi

removal of gov subsidies

-subsidies may encourage inefficency + have oppoutunity cost for government

microfinancing scheme

-provides small loans and financial service to low-income individuals -
developing countries have weak fincnacial sector - improving it supports
entrapaneurship - developing countries have savings gap

Question 10

Q

outline confilcts between macroeconomimc objectives

Answer

A

encouraging ECON GROWTH by raising ad - creates INFLATIONARY PRESSURE + worsens
CURRENT ACCT defificit

REDUCING INFLATION using contractionary fiscal policy - could lead to RECCESION
and CYCLICAL UNEMPLOYMENT

LOWERING UNEMPLOYMENT via supply side reform (lowering welfare) - leads to
higher inequality

LOWERING UNEMPLOYMENT via supply side policy of buildimg infrastrcuture to get
people to work - leads to higher pollution

lowering CURRENT ACCT DEFICIT with protectionism - leads to possible
UNEMPLOYMENT in export industries as result of retaliation

Question 11

Q

drawbacks of supply side policies

Answer

A

may not address the issue of low consumer / producer confidence during reccesion

time lag

can lead to inequality (benifits cut to incentivise work)

can lead to exploitation (deregulation of industries may enable firms to exploit
workers)

Question 12

Q

supply side policies that aim to promote competition

Answer

A

privitisation

deregulation (controls such as saftey requirments inctrease barriers to entry)

competition policy (reduce power of monopolies)

Question 13

Q

define unemployment trap

Answer

A

benifits to working are outweighted by unemployment benifits

Question 14

Q

provide real world example where the government used fiscal policy

Answer

A

2008 financial crisis

started w subprime morgage lending which was offered to people w low credit
scores

to spread risk morgage was packaged up by banks and sold to other financial
institutions

when repayments werent made financial crisis started

uk:

2010-cut vat from 17.5%-15

qe introduced to encourage lending by banks

public money used to bail out banks

gob increased tax to reduce budget deficit

Question 15

Q

impact of economic growth on future living standards

Answer

A

leads to development of industries through improvements in technology /
infrastructure / capital stock which all leads to better goods/services and
better living standards

leads to POLLUTION

leads to INEQUALITIES

Question 16

Q

outline what a positive and negitive output gap is

Answer

A

negitive output gap

when actual output falls below trend output during reccesion due to fall in AD

chracteristics:

underutilised resources
high unemployment
low confidence
downward pressure on inflation

positive output gap

when actual output exceeds trend output during en economic boom

for a period of time an economy can produce beyond productive potential as fop
are overused

characteristics:

over-utilised resouces
upward pressure on inflation
low rates of unemployment
high confidence

Question 17

Q

provide examples and define injections and withdrawls

Answer

A

injections - inflows of money into economy that do not come from households
e.g.:

-exports (money from foreign country is entering)

-investment

-government spending

withdrawls - outflows of money from the economy (leakage) and can come from
firms and households e.g:

-imports(money goes to other economies)

-savings (adds to wealth but detracts from circular flow)

-taxes

Question 18

Q

factors influecning long run as

Answer

A

technological advances

changes in relative productivity due to innovation (shift from assembly line to
automated assembly line)

changes in education - increase quality of labour

changes in gov regulation - deregulation can allow for higher quantity of the
fop

demographic changes - more population = more productive capacity

Question 19

Q

what factors influence as in short run

Answer

A

changes to cost of raw materials

change in cost to labour

changes in tax rates

changes in exchange rates (importing raw materials)

R L T X

really lame teen x

Question 20

Q

WHAT FACTORS HAVE AN INFLUENCE ON NET TRADE

Answer

A

REAL INCOME

-more money = more buying imports

EXCHANGE RATE

widec / spiced

STATE OF THE WORLD

decline in economic growth in foreign country = they cop less exports

DEGREE OF PROTECTIONISM

NON-PRICE FACTORS

Question 21

Q

WHAT FACTORS INFLUENCE GOVERNMENT SPENDING

Answer

A

BUISSNESS CYCLE

During recessions, governments might increase spending to try and stimulate the
economy.

FISCAL POLICY

might use expansionary fiscal policy during periods of economic decline

Question 22

Q

outline the factors that influence investment

Answer

A

1) rate of econ growth

-if its a healthy rate business are likely to invest in new capital to meet
demand

2)confidence

3)animal spirit - Keynes

keynes voined term animal spirit to describe the emotional factors that
influence investment decisions

4)intrest rates

5)access to credit

Question 23

Q

what factors influence someone liklihood to consume

Answer

A

consumer confidence

intrest rate

Question 24

Q

outline types of unemployment

Answer

A

Structural Unemployment: Occurs when there is a mismatch between the skills
of the workforce and the requirements of available jobs.
Frictional Unemployment: Temporary unemployment when individuals are between
jobs or entering the workforce.
Seasonal Unemployment: Linked to seasonal variations in demand, e.g., tourism
or agriculture.
(Cyclical) Unemployment: Arises from a lack of aggregate demand during
economic downturns.
Real Wage Inflexibility: When wages are too high, leading to job cuts or an
unwillingness to hire.

Question 25

Q

outline measures of unemployment

Answer

A

claiment count - based on number of people claiming unemplopyed benfits such as
JSA

uk labour force survey

Question 26

Q

outline the effects of inflation on consumers, firms, government and workers

Answer

A

1) consumer

erodes purchasing power of money
reduced real income

2) firms

rising production costs
possible passing on of cost to consumers

3)gov

increase the cost of gov debt diverting funds from other parts of economy

4)workers

reduced realncome
labour unions would negoiate for more pay

Question 27

Q

outline what the rpi is

Answer

A

includes more products than cpi

Question 28

Q

limitations of using the cpi to calculate inflation

Answer

A

ignores quality changes - overestimation in price increase as it ignores that
object has gone up in fundemental value

substitution bias - assumes constant consumption patterns wheras in reality
consujmers purchasing behaviour changes as price changes

Question 29

Q

formula to calculate inflation using cpi

Answer

A

(Current CPI - Previous CPI) / Previous CPI] × 100

Question 30

Q

limitations of using GDP to compare living standards

Answer

A

doesnt acct for INCOME INEQUALITY

excludes non-market activities like informal economies / black market

ignores quality of life factors such as healthcare / education quality

Question 31

Q

what is measured by GNI

Answer

A

gross national income

measures total income earned by a countrys residents + buissnesses domestically
+ abroad

broader than gdp as it accts for overseas investment and remitences

Question 32

Q

what is the laffer curve

Answer

A

laffer curve infers that increasing tax rate increases gov revanue until it
reachers the OPTIMAL TAX RATE after which tax is so high that it discourages
economic activity

Question 33

Q

what is the significance of differing levels of public expenditure

Answer

A

PRODUCTITIVTY AND GROWTH

-enhances human capital

-long term econ growth

LIVING STANDARDS

-improve lving standards

CROWDING OUT

excessive gov spending can lead to crowding out where increased gov borrowing
increases intrest rate in economy to point that prohibits privatre sector
investment

LEVELS OF TAX

-higher spending requires higher tax which lowers disposable income which may
lower spending

EQUALITY

can reduce income inequality

Question 34

Q

what is the difference between capital expenditure, current expenditure and
transfer payments

Answer

A

capital expenditure - gov spending on long-term investments and assets that are
expected to provide benifit e.g. infrastructure projects

current expenditure - day to day gov spending on recurring items e.g. salaries +
operational costs

transfer payments - gov payments made to individuals or groups without any
expectation of a good / service in returm e.g. welfare spending

Question 35

Q

what is the role of the central bank

Answer

A

1)implementing monetary policy

2)banker to the government

manages gov bank acct and facilitates payments
oversee the issuance and redemption of gov bonds

3)banker to banks

central bank serves as lender of last resort to financial institutions
provide emrgancy funding

4)role of regulation in the banking industry

set and enforce risk managment standards to prevent excessive risk-taking by
banks

Question 36

Q

examples of financial market failures

Answer

A

ASYMETRIC INFORMATION -

-leads to adverse selection (when individuals with hidden info abt their risk
like poor credit history take out hella loans - leads to higher deault rates)

EXTERNALITIES

-negative - financial agencies may engage in risky practices like excessive
lending (this could effect entire eocnomy like 3008 financial crisi)

MORAL HAZRADS

-when one party takes risks because they believe they wont take the full
consequences of their action

SPECULATION AND MARKET BUBBLES

-speculation is buying of asets with the expevctation of an appreciation in
value

-bubbles occour when asset price rises significantly above fundemengtakl value
due to speculation - bubbles often burst causing market to crash

MARKET RIGGING

-manipulation of markets to gain unfair advantages e.g. insider trading (trading
based off of non-public info) , market manipulation (pump + dump schemes)

Question 37

Q

outline strategies to influence growth and development

Answer

A

MARKET BASED

trade liberalisation

-increase access to foreign market influencing growth

promoting fdi

removal of gov subsidies

microfinancing scheme

-provides small loans and financial service to low-income individuals

INTERVENTIONIST

Improve human capital / infrastructure

protestcionism

buffer-stock schemes -

governments maintain stockpiles of commodities to stabalise price

OTHER STRATEGIES

industrialisation - lewis model

development of tourism industry

aid

debt relief

Question 38

Q

outline non-economic factors that can influence development

Answer

A

war - loss of human / physical capital + lower confidence + disruption of supply
chain

disease - e.g. uganda is still heavily impacted by hiv + malaria

corruption - gov policies may be for personal gain = gov failure

geography - affects agriculture industry

poor government

polictical instability

Question 39

Q

outline the impact of various economic factors on different countries

Answer

A

primary product dependency

-some countries rely on export of primary materials

-vaunrable to price fluctuation

volatility of commodity prices

-commodity dependant economies face instability

savings gap (harrod-domar model):

-high levels of extreme poverty makes it almost impossible to generate enough
savings to provide the finance for investment projects - model states that
economic growth depends on the amount of capital investment and the level of
producticity of that capital

foriegn currency gap:

-situation where countries expenditure in foreign currency (via imports /
servicing foregin debt) exceeds its foreign currency earnings from exports

-leads to trade deficit, currency depreciation and economic instability

capital flight

-refers to situatrion in which investors move assets out of a country due to
economic instability or unfavourable conditions

-leads to financial crisies as recources are depleated

demographic factors

Question 40

Q

evaluate the usefullness of hdi

Answer

A

pro

holistic

simplicity

allows for global comparisons

shows policy makers where country is lacking

con

limited indicators - ignores dimensions of development such as enviormental
sustainability, gender equality and income distribution

this could be rectified by using a diff measure than hdi - gini coefficent for
income inequality or gii (gender inequality index)

weighing issues - the 3 criteria are equally weighed yet this doesnt refelct the
countries priorities

Question 41

Q

causes of income / wealth inequality between countries

Answer

A

globalisation - uneven benfifits of globalisation such as outsourcing and
offshoring can widen income disparities

historical factors - if country has history of colonialism / trade imbalances /
unequal acces to rescources will leave lasting

geographical factors - wars and political instibility (disincentivises FDI)

Question 42

Q

outline measures of income inequality

Answer

A

1) LORENZ CURVE - visual indicator

2) GINI COEFFICENT - numerical indicator

gini coefficent = section a/ section a + b

Question 43

Q

outline measures of international competitiveness

Answer

A

relative unit labour cost = avg wage of country / productivity of country

compare the costs of labour between countries
lower number = good

relative export prices

vompares price of countries exports to another
lower number = good

Question 44

Q

impact of changes in exchange rates

Answer

A

1) change to current account

marshall leraner condition - a depreciation will improve trade balance if ped
for exports + ped for imports > 1
j curve effect - in short run this wwill worsen balance as people struggle to
adapt instantly

2) economic growth and employment

depreciation = widec = more exports sold = more employment + growth

3) rate of inflation

depreciation = widec = firms that import raw materials see higher cost which
is passed onto consumers

4)FDI

weaker currency = more attractive for FDI because foriegn firms would need to
use that currency to pay for land labour capital

Question 45

Q

what is the difference between revaluation of currency and appreciation of
currency

Answer

A

Revaluation: A revaluation is an increase in the official exchange rate of a
currency set by the government or central bank. It is a deliberate policy
move to strengthen the currency’s value.
Appreciation: Appreciation refers to a natural increase in the value of a
currency due to market forces, such as increased demand for the currency in
the foreign exchange market.

Question 46

Q

outline what is meant by a managed exchange rate system

Answer

A

A managed exchange rate system is a hybrid approach where authorities
occasionally intervene to influence the exchange rate.

Question 47

Q

what is the significance of a trade imbalance on the balance of payment

Answer

A

this occours when some countries run persistant surplus or deficits

mercantillism - notion that the wealth of a nation was based on how much it
could export in excess of its imports

if you run a current acct deficit you must run a surplus on the financial
account,

however this means overseas investors have a large claim on your countries
assets

Question 48

Q

impact of protectionism

Answer

A

consumer

pro - domestic producers now have ability to gain more revanue which could be
now spent on research and devlopment = better products

con - higher price on imports

producers

pro - sheild domestic producers

con - over-reliancecan lead to inefficency due to lack of competition

government

pro - gov revanue from tariffs

con - may cause bad relations w other govs

living standrads

pro - protect jobs

con - lowers affordability

equality

pro -

con - exagerate income inequality if it benifits specific groups

Question 49

Q

consequences of trade agreements / trading blocs

Answer

A

con

trade diversion - lower cost goods from nonmember countries are substituted w
higher cost goods from mebers

inefficent producers in bloc are protected

retaliation of non members - may form their own trade bloc

pro

trade protection - members producers are protected from non members

trade creation - high cost domestic goods replaced by imported goods of member
countires

Question 50

Q

what fafctors affect patterns of trade

Answer

A

1) comparative advantage -

2) emerging economies - these countries often become major exporters of
manufactered goods

3) growth of trading bloc / bilateral trading agreement - members enjoy reduced
barriers and reduced tarrifs

4) change in relative exchange rates - spiced + widec

Question 51

Q

consequences of specialisation and trade in a international context

Answer

A

pro

higher efficeny + Producticity

higher allocative efficeny - countries can allocat rescources into products they
have comprative advantage in

EOS - specilisation lowers cost of production

international relations - specialisation leads to international trade which is
swag bcs trade = lower chance of killling each other at war

con

DEPENDANCY - specialisation = narrow range of goods so they would have to import
the rest this could b bad if they import neccessities as they are vaunrable to
price fluctuations or supply disruptions

JOB DISPLACEMENT - specialisation leads to this for the industries in which a
country realises it does not have comparative advantage in producing

INCOME INEQUALITY - profits from trade is likely to not be distributed equally

Question 52

Q

define eurobond market

Answer

A

a debt that is denominated in a currency which is foriegn to the country the
debt was issued in

this came about in the city of ldn when ppl saw that china and saudi sat on lots
of USD (this is becasue oil must be sold in usd) and these poeple wanted their
fdi so they was like hold on i can sell my own bonds that are denominated in usd

this lead to city pf london being finacnical capital -arguably of the world

Question 53

Q

outline what is meany by repo

Answer

A

repos - lend money (£100) in exchange for security - collateralised loan

the next day the borrower will pay back (£110) and the security will be
returned to the lender

Question 54

Q

what is the role of financial markets

Answer

A

where buyers and sellers can trade financial assets

-to facilitate savings - banks + credit uniojs provides safe + convient service

-to lend to businesses and individuals - banks act as intermediaries between
lenders and borrowers

-to provide forward contracts for currency or commodities

Question 55

Q

what is crowding out

Answer

A

when gov decides to spend money by borrowing it shifts d curve for loanable
funds to the right this increases market price (market intrest) rate from i1 to
i2 - this increase in intrest rate will likely translate to loans in general
which will hault growth as it makes it more expensive for firms to borrow and
lowers AD as it lowers i spending

Question 56

Q

are improvemnts in terms of trade always good for a nation

Answer

A

theory assumes that quantity levels of exports remain the same - as a result of
that assumption it believes an improvement means a nation has the ability to
import a larger amount of the basket of imports - this theory only holds if an
improvement in tot tranlates into higher export revanues

e.g.

relative inflation causes tot improvments

BUT the elastcicty of the nations exports must be inelastic in order to cause
higher levels of revanue

Question 57

Q

what factors affect the terms of trade

Answer

A

sr

change in demand/ supply for exports and imports (e.g.taste/fashion)

relative inflation rate(inflate price of exports yet reduce competitivness of
nations exports)

exchange rate movements (spiced/widec)

lr

prebisch-singer hypothesis - incomes (if pattern in income increase tot for
developing nations is bad bcs they export primary commodities which dont rise as
quickly as the imports they get from developed nations which is manufactured
goods )

productivity

technology

both of these decrease cost and price pf exports which deteriorates tot but it
makes exports more competitive

Question 58

Q

what is the formula for terms of trade

Answer

A

weighted average of export prices/ weighted average of import prices x 100

Question 59

Q

benifit of monetary union trade agreement

Answer

A

pro: non fluctuating exchange rate for small nations - makes it more likely they
will recive trade

reduced cost from currency conversion - money saved can be used for investment
or consumption

con:loss of monetary policy autonomy -problem if yu have unique economic
poistion which is not helped by monetray union currenyt monatary policy

no potential for altering exchange rate to boost trade performance in exports

Question 60

Q

outline what trade diversion is

Answer

A

movement from a low cost foriegn producer to a high cost procuder within the
custom union

Question 61

Q

define trade creation

Answer

A

movement from high cost domestic producer to a low cost producer inside the
custom union

hypothetical:

uk is out of eu

france wants to import good from uk where they have comparative advantage but
due to the tarrifs from the custom union of the eu this would be less efficent

BUT i fuk joins eu

tarrifs are abolished between them

this contracts france domestic supply and expands french domestic demand as they
can now freely trade with the more efficent uk suppliers who hold the
comparative advantage

as a result of uk joinning ue there is a movement from high cost domestic
producer to low cost producer inside the custom union CREATING TRADE

Question 62

Q

define bilateral/multilateral trade agreements

Answer

A

agreement to reduce tarrifs and quotas on trade between the countries that agree
to it

Question 63

Q

define a trading bloc + provide examples

Answer

A

group of countries that join together and agree to increase trade ebtween
themseleves

6 diff types of trading blocks / economic intergration:

1) preferential trading area - countries join to reduce quotas/ tarifs on
certain goods / services

2) free trade area - eliminate all types of barriers for exlusivley all members
within the agreement yet countries can freely choose how they trade w outside
countries e.g. nafta (agreement between mexico usa and canada)

3)custom union - is a free trade area but w out freedom of trade for countries
outside of union as any trade w outside countries must involve a common external
barrier such as tarrifs which would be put on all non-member nations e.g. EU

4)common market - allows for free movement of capital, labour or any buisness
type shit e.g. EU

5)economic monetary union - countries adopt a universal central bank and same
currency and therfore same monetary policy e.g.eurozone

6)full economic intergration - harmonize all policies and all power to almost
one body - e.g. UK governing england and wales and scotland and ni

Question 64

Q

define economic intergration

Answer

A

procces wherby countries coordinate to reduce trade barriers and to harmonise
monetary monetary and fiscal policy

6 diff types of trading blocks / economic intergration:

1) preferential trading area - countries join to reduce quotas/ tarifs on
certain goods / services

2) free trade area - eliminate all types of barriers for exlusivley all members
within the agreement yet countries can freely choose how they trade w outside
countries e.g. nafta (agreement between mexico usa and canada)

3)custom union - is a free trade area but w out freedom of trade for countries
outside of union as any trade w outside countries must involve a common external
barrier such as tarrifs which would be put on all non-member nations e.g. EU

4)common market - allows for free movement of capital, labour or any buisness
type shit e.g. EU

5)economic monetary union - countries adopt a universal central bank and same
currency and therfore same monetary policy e.g.eurozone

6)full economic intergration - harmonize all policies and all power to almost
one body - e.g. UK governing england and wales and scotland and ni

Answer 65

A

floating :

1) lowers need for reserves

2)freedom for domestic monetary policy (some fixed systems manipulate intrest
rates to keep exchange rate fixed)

3)can help correct current account deficit

4)less chance for currency to be over/undervalued as rate is

BUT

-it could be volitile as it is left open to forces of demand and supply - this
reduces incentive from foriegn investors

fixed:

1)more stability / certainty - makes trade easier and investment more
incentivised

2)reduction in cost of trade - to protect agasinst unstable floating exchange
rates firms may purchase in the future exchange market as they predict that in
future the currency of the country they are tyrading with may appreciate- this
whole procces is v costly and there is no need for this in fixed exchange rate
econmomy

3)disicpline in domestic producers (exporting industries know they cant rely on
a fall in exchange rate to become competitive in the global market to they focus
on R&D)

but-

-large levels of reserves needed

-if intrest rate is used to maintain a fixed exchange rate altough a achange to
intrest would effect the exchange rate it may also have other harmful efefcts to
economy

Answer 66

A

currency is exchanged and then compared to the price of a big mac in the USA

Answer 67

A

ppp shows purchasing power of a currency and it refelects the basket of goods
and services one could buy at a certain wage which reflects standards of living

hypothetical situation:

uk basket = £1,000 us basket = $1,600

floating exchange rate (nominal exchange rate) = £1:$1.60

in the situation of inflation in USA which rises value of basket to $1,700 we
would say that the pound is now UNDERVALUED against dollar as the pound cannot
buy the same amount of goods and services in the usa

this means the real exchange rate is actually £1:$1.70

IN THEORY this should self adjust as americans see that the dollar can go
further in uk so they buy uk goods and services as they are relitivley cheaper
this increases supply of $ and increase of demand for £ this causes APPRECIATION
of pount to £1:$1.70

Answer 68

A

in theory widec caused by depreciation should help recitfy current acct deficit

currency deprectaion will only correct a current account deficit if PED for
exports + PED for imports > 1 if this is not the case current acct would worsen

in the short run ped for both imports and exports will be inelsatic as
consumers/ firms take time to adjust to new exchange rate and forigen consumers/
firms take time to notice lower prices in ones country. this is known as j curve
effect

Answer 69

A

-as country demand imports they are increasing the supply of their currency as
it is exchanged for imports

-shifts supply right which causes a decrease from p1 to p2

-this is known as depreciation

-WIDEC occours as depreciation occours

-widec causes imports to fall which corrects currenct account deficit

EVAL - this is only in theory but in reality speculation gets in the way of
supply and demand forces when determinig exchange rate

Answer 70

A

1) gov spending on infrastructure (supply side policy) - infrastrcuture has the
ability to attract FDI - improves effeicencies of buisnesses this lowers cost of
production which may be passed down to the consumers making them more price
competitive

eval - high cost which has high oppourunity cost

2)tax incentives (lower corp tax or higher tax allowence so more money can be
reinvested to increase efficeny which lowers cost which lower prices which makes
it more competitive)

eval- no guarentee firms would use this money to invest

3)deregulation (taking away unnecesary laws which increase cost top buuinsess
which lowers cost which lowers price )

4)gov spedning on education (supply side policy) - e.g. spenidng on
apprecticeship scheme so ppl can get more efficent at skilled labour

eval - high cost which has high oppourunity cost

-time lag (curricu;lum reform would take yeras to work as the public would have
to go through the whole schl system)

Answer 71

A

international competiviness is determined by a nations price competiivness,
non-price competitiveness and ability to attract FDI (ability to attract factors
of production from abroad)

1)unit labour cost

2)labour skills

3)labour flexibility (ease of changing working arranmnets)

4)tax regime (corp tax being low attracts foriegn firms to nation income tax
being low attracts workers from abroad + domestic non-workers to leave welfare)

5)infraructure (incentivises FDI)

6)innovation (non price competitiveness)

7)regulation

Answer 72

A

1)unit labour cost - total labour cost / output

(dtermines price competitiveness)(this is affected by skill, productivity and
regulations)

2)global competitivness index

3)terms of trade (index of export prices / index of import prices x 100) (lower
number = higher price competiivness as it shows export prices have fallen)

Answer 73

A

demand side:

1)strong domestic growth

2)reccesion overseaes

3)strong exchange rate

supply side: all about rising cost of exports

1)low investment

2)low producticity

3)high relative inflation

4)high labour cost

5)depletion of rescources

Answer 74

A

usa = current account deficit

china = current acct surplus

countries like china are sitting on alot of money from ca surplus so they use
this and invest in countries with a ca deficit like USA this may be done by
buying us gov bonds or us firm shares

this causes potitve inflows for the USA financial account and outflow from
chinas financial account

usa = financial account surplus

china = financial account deficit

Answer 75

A

international organisation that regulates world trade

-164 member states

according to WTO trade shouold be

non-distrciminitory (cant have tarifs for one country not another)

free from barriers

predictable

promoting fair competition (sometimes tariffs are needed to protect domestic
industry)

benificial for developing countries

1)sets and enforces these rules (could be done via fines)

2)resolve trade disputes (act as mediator to stop tit for tat protectionism)

3)provide a form for negotiationg trade liberalisation (done in headquaters in
geneva to create meetings between countries where diplomats can discuss trade)

4)monitor free trade liberalisations(check is countries are sticking to free
trade agreemnet)

5)increase transparency of decision making proccess (countries have ability to
ask wto questions and challenge deciosns)

6)help developing countries benifit from free trade

Answer 76

A

-greaqter efficeny in world market and improvemnt in allocation of world
rescources (caused by comparative advantage)

-access to wider variety of goods

-lower prices for consumers that increases consumer surplus (due to competition
or higher ability to gain EOS)

-econmoic growth for countries with comparative advantage

Answer 77

A

1) perfect knowlege - assumes that we know where the lowest prices are

2)no transport cost - distorts CA (huge transport costs may exist like if tryna
cop from uk to australia)

3)no economies of scale - (fails to account for economies of scale )

4)rates of inflation are ignored - (comparative advantage may be eroded if
inflation exists)

5)no import controls - (tarrifs could erode price and cost advantage)

6)non-price competitiveness ignored (e.g. durability )

Answer 78

A

focus more on firm spenidng than consumer like multiplyer does

changes in investment can be directly linked to changes in the rate of GDP
growth

when rate of gdp growth increases firms will be more willing to invest because
firms are hopefull of future rates of growth hence if rates of gdp growth
decreases firms will holdback on investment

Answer 79

A

SHORT RUN:useful to show the conflict between employment and inflation

SHORT RUN:useful to depict demand pull inflation

this also has the ability to show staglfation - if sras shifts srpc (short run
philips curve) shifts in the opposite direction

LONG RUN - has the ability to show how economy self - heals (economy will always
return to natural rate of unemployment and at NAIRU non accelerating inflation
rate of unemployment which is point at emplyment where inflation is stable )

in the case of a boom ad shifts right causing a movement up the srpc (a-b)

over time workers realise they can bargain for higher wages shifting sras left
which causes srpc to shift right (srpc reacts in opposite direction of sras)

this crates a new equilibrium (c) back at NRU / NAIRU

Answer 80

A

keysesian disagreed w classical as he thinks wages dont become variable in long
run

Answer 81

A

assumption:

1) sras = cost of production

2) lras = quantity / quality of output

3) sr = wages are fixed (due to trade union, laws, unemployment benifits so high
if wages go low ppl j quit)

4)lr = wages are variable (after a while workers will realise they have the
bargaining power/ will realise they neeed to lower their wage expectations)

in the case of RECCESION (AD shifts left)

-new equilibriuem with lower output (yfe - y2) and deflation (p1-p2) causing
unemployment

-firms may not accept this new output level as they are not willing to reduce
work force due to amount of money spent on training

-firms must lower cost of production to shift sras right to create new
equilibrium back at yfe

-they cant cut wages bcs its the short run (due to trade union, laws,
unemployment benifits so high if wages go low ppl j quit)

-overt time wages become variable bcs w persistant unempoyment ppl lower their
wage expectations

-this lowers cost shifting sras with the side effects of lower demand pull and
cost push inflation

Answer 82

A

1)[if it was caused by high AD]

contractionary monetary / fiscal policy

reduces AD

reduces level of spending in economy = less spending on imports

BUT - conflict of growth decrease and unemployment decrease (some govs may say
these objectives are more important)

2)[caused by low import price/ high export price]

protection measures (artifically rise imporrt price via tax or quotas
restricting amount allowed or lower export price via subsidy)

BUT - 1- retaliation may occour from another gov

2-import inflation firms who rely on imports will suffer

3-domestic firms may become lazy

3)[caused by a strong currency]

weaken currency by telling central bank to reduce intrest rate OR sell currency
in forex market which increases supply and decreases value

this allows WIDEC to work

BUT - import inflation which copuld effect domestic firms who use it to produce
and lowers choice for consumers

4) supply side policies to increase productive capacity thus puts downward
pressurfe on prices - this will make exports more competitive

BUT -

expensive

time lag

depends on perfect information

all of these cause conflict of objectives apart from supply side policies
current acct deficit may be allowed to occour (if value is small) bcs of the
unwillingness to contradict other objective

Answer 83

A

1-exploit comparative advantage - if a country has acces to natural recources

-boosts exports = boosts ad = economic growth = development

2-consumers benifit from lower prices

-higher standard of living

3-more choice

-todaro states freedom of choice is devlpment

4-greater political relations from trade agreements

-this may leasd to the lowering of other barriers to trade

5-EOS benfiits - lower cots bcs market is bigger = higher profits = higher tax
rev = higher welfare spending

Answer 84

A

18 months - 2 years (this is known as time lag)

Answer 85

A

No back content

Answer 86

A

sen

-procces of improving people well-being

-e.g. reduce poverty , higher standrads of living

todaro

-life sustaining goods like foood water and shelter must be provided for all

-access to education for standards of living

-freedom to make economic and social choices

Answer 87

A

1) lower ad

reduction in growth

increase in unemployment

eval - depends on size of deficit as peerfecnt of gdp (if its small will barley
have effect)

2)when current acct is in deficit it must be balanced by financial acct surplus

-selling bonds e.t.c = debt

-more debt = lower confidence on ability of a country to pay back debt

-foreign invedstors pull out

-public fear that economy will defult on debt

-public sell their currency due to thus fear- CURRENCY CRISIS as deprectation
causes more ppl to selll their currency which becomes a cycle

3)exchange rate decrease

-if a country imports too much it is essentially selling more of its currency

-this increases supply of currency

-think about WIDEC

-insinuates that depreciation in exchange rate could fix current acct deficit

-BUT we can assume that if a country got into this problem in the first place
they probably lack competitiveness in their exports so it wont fix current acct
deficit

Answer 88

A

is growth…

-sustainable growth

-inclusive growth

Answer 89

A

1) inflation

higher demand pull inflation will lower living standards

2)income inequality

if groth if from one dominate sector high incomes will be contained to that
sector
if growth comes from capital intensive production rather than labour
intensive production than profits only go to capital owners
if gov had no reditribution of wealth policy some will continue to live in
relative / absolute poverty despite growth existing

3) enviormental costs

deforestation from increase pal oil productiopn in indonesia
air pollution
negative externalities in production that cause a welfare lost

4)current acct deficit

when income rise people import more
this widens current acct deficit

Answer 90

A

1) higher disposable income

possibly due to

more ppl getting into work in first place
firms increase profit is leads to increase wages

2)higher employment

possibly due to

more demand leads to more need for workers - derived demand

3) higher profits for firms

-firms can invest in capital continuing profits overtime - possibly triggering
excelerator effect

4)fiscal dividend for gov

(increase in tax revanue)

possibly due to

vat rises from increased consump
tariff rev rises from more spending on imports
income tax rises from higher disposable income
corporate tax increase

Answer 91

A

things that occour that no-one can forsee

demand shocks:

facrors that reduce ad e.g.

-sudden increase in intrest rate

-sudden cut to gov spending

-su

supply shocks:

factors that reduce SRAS / LRAS e.g.

sudden increase in price of raw materials
sudden increase in wages / corp tax

these shocks cause fluctuations to the ECONOMIC CYCLE hencve why the growth
curve is wavy not straight

Answer 92

A

BOOM - when growth is faster than trend growth

high profits
low unemployment
high consumer confidence
high buissness confidence
high imports
demand pull inflation

RECESION

high unemployment
declining consumer + business confidence
firms de-stock goods and discount prices

Answer 93

A

2 succesive quaters of negative growth

Answer 94

A

actual growth - SHORT RUN GROWTH

an increase in AD that uses up spare capacity of economy

this is caused by:

1) lower intrest rates [↑c ↑ i ↑ (x-m)]

2)lower income / corp tax [↑c↑i]

3)higher consumer / buissness confidence [↑c↑i]

4)higher government spending [g]

5) weaker exchange rate [(x-m)]

potential growth-

long run expansion in productive potential of economy

Answer 95

A

this is achived through the improvements of the quality / quantity / efficency
of one of the FOP

improve labour force education
allow for migration
improvment in tech
more investment into machinery
discovering of more natural rescources
incentive enterprise via tax breaks

Answer 96

A

an increase in REAL GDP in an economy in a year

casued by an increase in AD or an increase in LRAS

signifies expansion of economies productive capacity

Answer 97

A

1) eoconomical - cheap and easy to collect

2)equitable - fair and based on taxpayers ability to pay

3)convenient - it should be easy for taxpayers to pay

4)certain - taxpayer should know the size anf timing of tax

5)efficent - tax should improve economic incentives(encourage work discourage
consumption)

6)flexible - easily adjusted to economic circumstances

Answer 98

A

Globalisation is a process by which economies and cultures have become more
inter-connected through global networks of trade that allow the movement of
goods, services, labour and capital

global trade is driven by trade agreements that areratified by the world trade
organisation

Answer 99

A

yeild refers to long term interest rate

bond prices and interest rate have an inverse relationship

this is because the fomula for yield (long-term interest) is coupon/ market
price x 100

so if bond price increases a larger amount is divided away from the interest
rate

Answer 100

A

long term rate of interest earnt

it is expresssed as a percentage of current the bond market price

coupon/ market price x 100

Answer 101

A

refers to date at which the borrower will repay the lender

Answer 102

A

the annual interest paid on a bond

Answer 103

A

debt based investment where the government would pay back a agreed upon interest
rate - this is done to raise funds for new projects

Answer 104

A

thgis is where diff currencies are brought and sold

this could be conducted in eithe rthe spot market or the forward market

spot market - immediate axchange of foreign currency

forward market - exchange scheduled for some time in the future - exists to
promote speculation

Answer 105

A

this is where the buyiong and selling of assets that have a maturity date of 1
year or less occours

this provides short term finance to governments and firms

this includes isuusuing of shres or corporate bonds or gov bonds

inter-bank lending occours in this part of financial market too

Answer 106

A

part of the financial market where financial assets that have a maturity date of
over a year.

debt capital (payed via intrest) or equity capital (payed by dividends) can be
gained

primary capital market - where brand new bonds are issued e.g. via debt mangment
office in the uk

secondary capital market - new bonds / new shares can then be sold and brought
again

Answer 107

A

this includes all cash in circulation + all other less liquid assets (non-cash
financial asstets that can be converted to cash) + (all assets with maturity
date of 5 years or less)

Answer 108

A

the basic amount of notes and coins and operational deposits/ reserve balances
at the bank of england.

aprox equal to amnt of cash in circulation

Answer 109

A

portable

dividable

scare

acceptable

secure (hard to fake)

durable

Answer 110

A

a medium of exchange

a store of wealth and value - cant deteriate over time such as fruit

a measure of value/unit of account - indicates quality

a standard for differed payment - ppl who dont have money right now can borrow
money from those who do which they would pay back at later date

Answer 111

A

to facilitate savings
to lend to business or individual
to facilitate exchange of goods and services
to provide forward markets in currencies and commodities
to provide a market for equities

Answer 112

A

injections

investment
export of goods and services
gov spending

leakage

saving
imports
taxation

Answer 113

A

gov

firms

households

external sector (rest of the world)

Answer 114

A

economic model that explains the relationship between NATIONAL OUTPUT , NATIONAL
INCOME and NATIONAL EXPENDITURE

the 3 diff methods of measuring the level of economic activity using the cfi:

national out put (o)
national income (y)
national expenditure (e)

NATIONAL OUTPUT = total value of the goods and services the economy produces

NATIONAL INCOME = the money paid to households by firms to use their factors of
production

NATIONAL EXPENDITURE = money spent by households on goods and services

Answer 115

A

gov may lack perfect information on what the current state of the economy is
actually like
time lags - to increase spending it could take several months for a
government to filter through a decision
free market economits belive that the free market is most efficent hence gov
spending would be wasted on inefficent projects
may negativley effect budget deficit

Answer 116

A

this term describes what happens due to an increase in injections that itself
cause a bigger final increase in real GDP

multiplyer = 1/1-mpc

e.g.

if gov injects 100m and mpc = o.8

multiplyer = 5 and total final increase in gdp is 500m

Answer 117

A

name for all deliberate attempts by government to stabilise economy

e.g. boom in ecomoy leads to gov increasing taxes to reduce inflation

Answer 118

A

if the economy is growing ppl will auto pay more tax (VAT + income) and the gov
will auto spend less on unemplymkent benifits

+vice versa

Answer 119

A

the act of maintaining steady economic growth via fiscal policy

Answer 120

A

this refers to the stance chosen by the government either being contractionary
or expansioary

Answer 121

A

this involves decreasing AD

(AD=C+I+G+X-M)

to acgive this gov would cut spending (G)

and increase taxes which would reduce consumerism (C)

this would tend to improve the governments budget deficit

Answer 122

A

this involves increasing AD

(AD=C+I+G+X-M)

this is achived by governemnt increasing spending (G)

and cutting tax which increases consumerism (C)

This tends to worsen the governments budget deficit and the government will
increase borrowing

Answer 123

A

-stimulate economic growth

-keep inflation stable

-stabalise economic growth avoiding booms nd busts

Answer 124

A

AD = C + I + G + X - M

Consumer spending

investment spending

governemt spedning

exports - imports

Answer 125

A

the use of GOV SPENDING and REVANUE collection to influence the economy

this could include changes in

tax
gov budget

Answer 126

A

potential shock to economy

could worsen current acct situation

lower investment

Answer 127

A

a proccess by which liquidity in the economy is increased when the central bank
purchases assets from the commercial banks

this is done when intrest rate manipulation dont work because the banks dont
even have enough finance to issue out loans or bcs consumer confidence was so
low - both of these occoured in 2009 reccesion when dropping intrest rate to
0.5% failed

Answer 128

A

bonds are basicaly IOU’S that allow firms or government to boorrow money from
investors. when you buy a bond youre lending moeny to issuer in exchange
forregular interest payments in future

yield is effectivley interest rates on a bond

inverse relationship between price of bond and amount of yield

Answer 129

A

used when traditional approaches (cutting interest) to expansionary monetary
policy have failed

1) central bank creates money electronically

2)use this money to buy gov bonds and other assets from comercial banks

3)increase in demand for these bonds leads to an increase in their price

4)the higher the bond price the lower the yield on a bond(there is an inverse
relationship between bond prices and yield) - this leads to lower intrest rate
bcs yield = long term intrest rate

5)commerical banks recive cash from these purchases increasing their liquidity -
this in turn encourages them to lend out to customers - this would help
stimulate investments for firms

Answer 130

A

liquidity trap

inflation

widens current account deficit

Answer 131

A

occours during times of very low interest rates where consumers and investors
hoard cash rather than spedning or investing it preventing economic growth

Answer 132

A

BOE cuts base rate

↓

interest rate on buissness loans is decreased

↓

borrowing becomes cheaper hence increase in borrowing LEADING TO INCREASE IN
INVESTMENT

↓

investment can increase quantity/quality of capital and improve prodcutive
efficency

↓

rightward shift in LRAS

Answer 133

A

BOE increases base rate

this leads to:

INCREASED COST TO BORROW = decrease in consumption (of expensive goods) +
decrease in investment for firms

INCREASE RETURN ON SAVINGS = less consumption

STRENGTHENS EXCHANGE RATE = spiced

overall:

AD decreases

unemployment increases - because labour is derived from demand

Answer 134

A

BOE decreases the banks base rate

leading to:

REDUCED COST OF BORROWING - increase in consumption (of expensive goods) +
increse in investment for firms

REDUCED RETURN ON SAVINGS - more incentive to spend

WEAKENS EXCHANGE RATE- widec

overall - AD increases

unemployment decreases

Answer 135

A

to set interest rates in order to achive their taregt inflation of 2%

Answer 136

A

increase MONEY SUPPLY

decrease INTEREST RATE

shifts AD right

BOE would implement this to:

increase inflation
increase growth
reduce unemployment

Answer 137

A

increase INTEREST RATE

decreases MONEY SUPPLY

shifts AD left

BOE would implement this to:

reduced inflation
reduce excess debt + promote saving
reduce current acct deficit

Answer 138

A

Cost-push inflation occurs when the supply of a good or service changes, but the
demand for it stays the same.

if AD does this the BOE would increase INTEREST RATES

and decrease money supply (contactionary)

Answer 139

A

demand side policy

use of INTEREST RATES and MONEY SUPPLY to influence ECONOMIC GROWTH and
INFLATION

Answer 140

A

supply side policies lead to supply side improvements via increased labour
mobility due to training

[shifting LRAS further left]

structural unemployment decreases - increased labour mobility due to training

reduced income tax create incentive to work. workforce increases. this increases
overall productive capacity of economy

voluntary unemployment decrease - higher incentive to work

reduced cost-push inflation- lowers cosat of production -r reduces inflationary
preasures

Answer 141

A

supply side changes originate from the private sector without the help of the
government

Answer 142

A

gov intervention to overcome MARKET FAILURE

e.g.

higher gov spending on :

transport
education (think labour market failure)
infrastructure

Answer 143

A

policies to increase competitiveness and free-market efficeny

e.g.

privitisation

deregulation

lower income tax rates

reduce trade union power

reduce welfare benifit

lower corp tax (firms have more to reinvest)

Answer 144

A

supply side policies involve government intervention to ikmpkrove economic
incentives and the operation of markets to ultimatley increase LRAS

interventionist - designed to correct market failure

market based - removes factors that get in the way of the market growing
succesfully e.g. influencing most possible people to work

Answer 145

A

reduces fluxuation in price

It involves the creation of a stockpile, or buffer stock, of the commodity
during times of high supply, which can be used to regulate the market during
periods of low supply

Answer 146

A

economic growth

in sr measured in %change in GDP
in lr measured in potential econ growth driven by imporvemnts in productivity
(shift in lras)

price stability

measured in CPI

full employment

sum total of structural cyclical seasonal and frictional employment
4% unemployment

external stability

reduce current acct deficit (unsustainable for a country to import more than
they export)[uk this is sustainable due to fdi from strong services industry
that cause financial acct surplus]
stable exchange rate (appreciation and depreciation affects imports and
exports)
dont be in debt to foriegn counties

INCOME EQUALITY

measured in gini coefficent

PROTECTION OF ENVIORMENT

BALANCE OF PAYMENTS

Answer 147

A

rate at which banks borrow from boe

Answer 148

A

when trade unions or minimum wage has achived wage higher than the labour market
value

Answer 149

A

1) reduce VAT

(this would cut firms costs)

eval- gov is unlikely to do this as they would loose revanue

2)subsidy to firms

(this would cut firms cost)

Answer 150

A

DEMAND PULL-

contractionary monetary policy(increase intrest rate)

[decreases consumer and investment spending]

eval- this may slow growth as lower investment

contractionary fiscal policy(cut in gov spending )

[decreases gov spendinh]

Answer 151

A

persistant increase of prices in an economy in a year

Answer 152

A

when inflation is rising at a higher rate from year2-year3 than it did from
year1-year2

Answer 153

A

1) workers can bargain for higher wages

2)reduce real value of debt

Answer 154

A

1) less purchasing power

2) erosion of savings (when intrest rate is lower than inflation rate)

3)lower competativeness in forign markets (export competativeness) [WIDEC]?

Answer 155

A

1) increase in raw material prices

2) increase in wages

3) increase in buissnes tax

4)depreciation in exhange rate [WIDEC bcs if imports cost more there would be
higher costs for firms who import materials]

sras shifts left when there is an increase in cost of production to firms in an
economy

Answer 156

A

SRAS shifts left

sras shifts left due to increase of cost of production

they therfore pass on these costs onto consumers

Answer 157

A

AD = C + i + G (X-M)

AD = Consumer spending + Investment spending + Gov spending + (net exports)

1) decrease in intrest rate (C+I)

2)decrease income tax (c+i)

3)increase gove spenmding(g)

4)depreciation of exchange rate WIDEC

Answer 158

A

AD shift to right

this puts greater prerssure on existing FOP this makes them more scarce
increasing the price

(wage will go up (cost of labour) and price of capital)

this increases cost for firms

firms pass this increase in cost onto consumers

Answer 159

A

widec

Weak pound Import Dear Export Cheap

AD shifts right (net export is determinant of AD)

SRAS shifts left (firms who import materials )

1- employment increase in export industries

Answer 160

A

SPICED

Strong Pound Import Cheap Exports Dear

as a result of cheaper import and less exports

SRAS shift right

AD shifts left

1 - lower growth (current account deficit)

2- higher unemployment in export industrty

3- cheaper imports (higher standard of living)

4- domestic firms may become more efficent (as a competative response to their
increase in foreign competition)

Answer 161

A

sheet that measures

-portfolio investment

bonds
shares
derivitives

-foreign direct incestment

when foriegn firms invest

-reserves

either in currency or gold

Answer 162

A

measures

1)international debt forgiveness

2)inheretence tax that must be payed internationaly

3)sales of tangeiable assets abroad (machinary)

4)sales of nontangable assets (copyrights)

Answer 163

A

macroeconomic objective is to balance trade (no big surplus or deficit)

BOP is a gig account that measures inflows and outflows of money from a country

within the BOP we have 3 accounts (current, capital + financial)

all these accounts measure the flow of the amount of money entering and leaving
a country

the current account is what we look at for measuring TRADE

current account measures international trade in:

1) trade in goods

2) trade in services

3)income (if you work abroad and bring income back its a positive)

4)transfers (government paying fees to be part of EU is negative)

if you measure the total value of all 4 parts you would have your current
account (deficit or surplus)

Answer 164

A

demand : - factors that cause shifts in demand for currency

rise in foreign income (leads to buying more of a countries exports)
relative intrest rate (if uk has high intrest foriegners will think its a
good place t store their money so they put pounds in uk banks)
inflows of FDI (if fid occours in uk the forigns firms would have to make
purchases such as on wages for workers using pounds hence they would of had
to sell their own currency to buy pounds)
speculation (if speculators anticipate a rise in value they will buy that
currency so they can make a profit)
increase in international competitiveness ( make exports more competitive)

supply : - factors that cause shift in supply of currency

increase in domestic incomes - imports of goods and services
outflows of FDI
Speculation
decrease in relative intrest rate

Answer 165

A

mainly determined by the forces of supply and demand yet on occasion the
government may intervene to inlfuence its exchange rate

Answer 166

A

system where the government ties it exchange rate to the price of another
currency

imagine country a has a fixed exchange rate to country b (e.g. 1$ fixed to
1.50£)

a must hold lots of currency from both a and b

when equilibrium is not at fixed price country a would use their reserve to
manipulate the excahnge rate by buying one of the currencies using the other

countries may choose to change their fixed value this is known as de-valueing or
re-valueing NOT DEPRECTAION/APPRECTAION

Answer 167

A

exchange rate that is determined by the forces of supply and demand

Answer 168

A

sell opposing currency and buy sterling

increase intrest rate

Answer 169

A

sophisticated investors or traders who purchase assets for short periods of
time and employ strategies in order to profit from changes in its price.

Answer 170

A

taxation - proggressive tax + inheretence tax

transfer payments - unemployment benifits JSA

provision of goods and services (education and healthcare )

legislation (national minimum wage)

Answer 171

A

-less fair society

-without a decent standard of living people …

commit crime
create less safe enviorment
create social tension
feel reduced happiness

as people make more income they turn in into wealth by investment which in turn
makes them more money making the rich richer

Answer 172

A

age - marganilised as age increased as less productive

low wages/unwaged

Answer 173

A

wages

rent

profit

intrest

Answer 174

A

occours when individuals or houeholds are poor in comparison ot rest of
population

Answer 175

A

means that indidividuals or households are deprived of basic human needs

Answer 176

A

infant industries - young firms are unlikely to be able to compete with MNCs

prevent dumping - sale of good under its cost of production - the countries that
recive the dumping would be cooked as domestic firms cant compete

protect domestic jobs

protect against unfair low cost abroad labour - (protect domestic economy
because of unfair competition)

prevent negative externalities - cigs

balance of payments - may help balance of payment deficit on curent account

Answer 177

A

absolute advantage - when country can produce using less fop than another

comparative - when a acountry can produce at lower oppourunity cost

DAVID RICARDO -statses its possible for a country to not have an absolute
advantage inm anything but through specilisation could gain from international
trade if they had lower oppourtunity cost

comparative advantage is therfore where a country can produce a good at a lower
oppourtunity cost tghan that of another

Answer 178

A

situation where a country can produce a good or service using fewer rescources
than that of another country

Answer 179

A

over -specilisation - (if demand falls for specilised product economoy is
**ed)

structural unemployment - (over specilisation can lead to structural
unepmloyment that may be dense n particular regions)

infant industries - (new firms would struggle to compete w MNC’S creating local
problems and limited employment oppoutunities)

Dumping - (countries w significant absolute advantage may shot their surplus for
v cheap in other places driving foreign producers out of buisiness)

Enviormental impact - (global transport = bad)

Answer 180

A

pro

lower prices - (more competition puts downward pressure on prices - greater
consumer surplus + more choice)
improved allocation of resources
free trade (benfits of growth and govs get better tax revanue + greater
employment in economy )
bigger oppourunity for eos as market got bigger companies have ability to
explot this size
benfifit of ease of movement of labour or buisness(fdi)

con

inequality
enviormental impact
structural unemployment
movement of labour
damage to cultures
domestic buinsess fails to compete - leads to structural unemployment -
probl;em for developing countries that lack a strong welfare system

Answer 181

A

greater labour mobility
improvements in transport
growth of MNC
more globalised financial systems (easier to move capital)

Answer 182

A

increased overall global output (as result of comparative advantage)
greater competition
employment oppourtunities
encouragment of specialisation leading to greater efficency(specialisation is
required to be in international trade competativly)
improved quality of goods and services

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