Booklet 5 Flashcards by Frankie Forbes

What term refers to the process by which the world’s economies are becoming increasingly economically interdependent.

Globalisation

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What are the 9 main characteristics of globalisation?

Trade liberalisation
Deindustrialisation of MEDs and rise of NICs
Growth of MNCs
Declining power of national governments
Falling transport costs and the “death of distance”
Greater international mobility of labour
Greater international mobility of capital
Offshoring/global outsourcing
Increased international trade

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What is the name of the ratio of a country’s export prices to import prices?

The Terms of Trade

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What is the name of the international body whose purpose is to promote free trade by persuading member nations to remove trade barriers such as tariffs?

The World Trade Organisation

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What are the positive consequences of globalisation for MEDCs?

It offers larger markets for finished products
Increased trade brings improved living standards (overall)
Improved terms of trade

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What are the negative consequences of globalisation for MEDCs?

Firms’ ability to offshore/outsource makes workers in some industries more vulnerable, reducing worker power
The protectionism that prevents primary producers in LEDCs from exporting goods into MEDCs means that consumers do not fully receive the gains from trade

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What are the positive consequences of globalisation for LEDCs?

Increased employment
Increased training and productivity
Increased investment
Increased tax revenue for the government
Increased incomes and standards of living
Possible multiplier effects

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What are the negative consequences of globalisation for LEDCs?

Jobs are low-skilled and low-paid
Ad governments try to remain attractive to MNCs they avoid increasing the regulatory burden which can lead to lax standards for worker’s rights and health and safety etc.
“Sweatshops”
Profits are remitted to home countries, reducing the size of the multiplier
Loss of cultural identity
Lack of domestic investment increases dependency on MNCs
Deterioration of terms and trade

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What term refers to an economy that does not take part in international trade with other countries.

A closed economy

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What term refers to an economy that is completely open to trade with the rest of the world?

An open economy

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What is a situation in which there are no trade barriers?

Free Trade

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What are the benefits of international trade?

Welfare gains and increased availability of goods
Rising living standards
Economies of scale for producers
Increased competition
Spur to innovation and dynamic efficiency
Source of economic growth

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What are the costs of international trade?

Gains from trade are overall, individuals and specific industries may be made worse off
Negative externalities and depletion of natural resources
While some argue that prices become more stable, countries become vulnerable to exchange rate fluctuations
Can make countries reliant on other countries

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What term refers to a situation when a country can produce a good at lower cost than another country due to being more technically/productively efficient?

Absolute Advantage

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What term refers to a situation whereby a country can produce a good at lower opportunity cost than another country?

Comparative Advantage

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What are sources of comparative advantage?

Climate
Natural Resources
Demographics and human capital
Institutional Framework
Innovation
Capital Stock

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What is a good/service bought by a country other than the one in which it was produced called?

Import

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What is a good or service sold to another country called?

Export

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What is the term used to describe the use of trade barriers to protect domestic industry and employment?

Protectionism

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What is an indirect tax on imports designed to undermine foreign goods’ ability to compete on price?

Tariffs

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What are physical limits to the quantity of a good that can be imported?

Import quotas

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What are subsidies given to industries producing goods for export to improve their international competitiveness (mostly violate WTO rules)?

Export subsidies

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What is an outright ban on trade with a specific country?

Embargoes

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What restrictions are things such as regulations?

Other non-tariff barriers

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What is it called when a country moves from buying from a high-cost country to a low-cost country?

Trade Creation

What is it called when a country moves from buying from a low-cost producer to a high-cost country?

Trade Diversion

What is it called when trade barriers protect new industries that are developing, enabling them to grow and fully exploit economies of scale, which can become a source of comparative advantage in the future?

Infant (or "sunrise") industries

What is it called when governments choose industries of specific strategic importance and protect them while they build comparative/competitive advantages, especially in instances when these do to occur naturally?

Strategic Trade Theory

What is the protection of older, declining industries in advanced industrial economies from foreign competition called?

Sunset Industries

What is it called if countries focus too heavily in the production of one good which can leave them vulnerable to changes in market conditions, meaning trade barriers can ensure a country doesn't have 'all of it's eggs in one basket'?

Diversity

What is used to protect a country from the process by which a country produces too much for its domestic market and offloads the surplus by selling it below cost in overseas markets (e.g. Chinese Steel, 2016)?

Anti-Dumping

Trade-restrictions can be used to protect a country's citizens from the associated overconsumption of which goods?

Demerit Goods

What is a reason for trade restriction most important in a country heading for war, which is more of a political argument (e.g. in energy markets)?

Self-Sufficiency ("Autarky")

What arguement argues that trade restrictions prevent MNC's offshoring production?

Employment

What argument suggests that although the end result is potentially a costly trade war, the use of trade restrictions in retaliation for another country's protectionism may persuade them to free up their markets (or the threat may act as a deterrent)?

Retaliation

What exists when there are no trade restrictions between member countries but each member is free to determine its own restrictions on trade with non-member countries?

A free trade area

What has free trade between its members and a common external tariff on imports from non-members?

A customs union

State three arguments in favour of U.K. E.U. membership.

Tariff-free access to the world's largest economy Large importer of UK goods Freedom of movement allowed UK workers to seek employment abroad

State 5 arguments against U.K. E.U. membership.

Protectionism increases prices Promotes migration on basis if nationality rather than skill Net E.U. budget contribution of £8bn p.a. Prevents U.K. from negotiating trade deals with emerging markets Red tape increases firms' costs

What are the three main parts of the balance of payments?

Current Account Capital Account Financial Account

What is made up of imports and exports of goods (visibles) and services (invisibles), primary income and secondary income?

The Current Account

What is income on overseas investment and pay remittances called?

Primary Income

What is income with nothing in return, such as money transferred from governments to international organisations and international aid?

Secondary Income

What are capital transfers (the transfer of ownership with nothing in return) and the sale of non-produced, non-financial assets a part of?

The Capital Account

What are direct overseas investment/FDI-productive assets and portfolio overseas investment (financial assets) a part of?

The Financial Account

What does the term credit refer to?

"money in"

What does the term debit refer to?

"money out"

What are both direct overseas investments and portfolio overseas investment?

Long-term capital flows

What is the acquisition of real productive assets located in other countries?

Direct overseas investment

What is the acquisition of foreign financial assets by residents or financial institutions?

Portfolio overseas investment

What are short-term capital flows sometimes referred to as?

"Hot Money"

What is the proportion of an increase in income spent on imports called?

Marginal propensity to import

What is the system in which the exchange rate is determined entirely by the market forces of supply and demand with no government intervention called?

Freely Floating Exchange Rates

What is the system in which governments maintain a fixed exchange rate either through a common value (i.e. the gold standard) or through intensive intervention called?

Fixed Exchange Rates

What is the system in which in the short-term the value of the currency is fixed but this can be adjusted as circumstances dictate?

Adjustable-Peg Systems

What is the system where for the most part, exchange rates are determines through market forces, but governments can/do intervene as a macroeconomic policy tool?

Managed or "Dirty" Floats

State four arguments in favour of floating exchange rates.

Flexibility Correction of current account deficit Reduced scope for damaging speculation Allows monetary policy to focus on other targets

State one argument against floating exchange rates.

Volatility can damage the economy by creating uncertainty

State three arguments in favour of fixed exchange rates.

Reduces uncertainty Can reduce inflation as it is less likely that countries "import" inflation Trade balance becomes more stable

State three arguments against fixed exchange rates.

Requires large foreign currency reserves Potentially causes conflict with other macroeconomic objectives Difficulty in determining at which rate they should be fixes

What is the name of the policy designed to correct a current account deficit by reducing aggregate demand, in the belief that this will reduce incomes and spending and therefore imports?

"Deflation"

What is the name of the policy designed to correct a current account deficit by deliberately weakening the exchange rate?

Devaluation

What is the name of the policy designed to correct a current account deficit by using protectionist measures such as tariffs, embargoes and quotas?

Direct Controls

Which polices designed to correct a current account deficit are expenditure-switching policies?

Devaluation and Direct Controls

Which policy designed to correct a current account deficit is an expenditure-reducing policy?

"Deflation"

What is a policy designed to correct a current account surplus through the use of expansionary monetary policy which will increase national income, and with it, the demand for imports?

"Reflation"

What is a policy designed to correct a current account surplus by deliberately strengthening a country's exchange rate?

Revaluation

What is a policy designed to correct a current account surplus by increasing foreign good's ability to compete on a price?

Removal of direct controls

What is utility from purchased goods and services, utility from state provided public/merit goods and economic welfare from quality of life factors equal to?

Total economic welfare

What is the name of the two well-known composite statistics used to measure economic development?

Human Development Index Index of Sustainable Economic Welfare

What means money, goods and services and 'soft' loans given by one country, non-governmental organisations and institutions such as the World Bank to help another country?

International Aids

Name three examples of international aid.

Disaster Relief 'Soft' loans (at little or no interest) 'Tied Aid' - a loan or money that has to be used buying the exports of the donor country

Name two examples of non-international aid.

Military Aid Hard Loans (offered at commercial rates of interest)