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Macro Year 2 > Chapter 1-5 > Flashcards

Chapter 1-5 Flashcards

1
Q

Globalisation

A

Increased integration of economies around the world

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2
Q

Causes of globalisation (4)

A

Improvements in transport
Improvements in IT
Containerisation
Trade liberalisation

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3
Q

Characteristics of globalisation

A

Ideas/people/finance/trade/businesses can move freely between countries

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4
Q

Economic integration

A

Process by which countries coordinate to reduce trading barriers and harmonise monetary and fiscal policy

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5
Q

Trading bloc

A

A group of countries that join together and agree to increase trade with another

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6
Q

Bilateral/multilateral agreements

A

Agreement to reduce tariffs and quotas between two/or more countries

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7
Q

Trade creation

A

Movement from a high cost domestic producer to a low cost producer inside the trading bloc

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8
Q

Actions to reduce current account deficit (4)

A

Supply side policy
Expenditure reducing policy
Protectionist policy
Devaluation of currency

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9
Q

Problem with current account deficit (2)

A

Need to finance import expenditure with foreign loans and foreign investors take out domestic profits therefore unsustainable deficit

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10
Q

Components of capital and financial account

A

Direct investment
Portfolio investment
Financial derivatives
Reserve assets

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11
Q

Terms of trade

A

Relationship between prices of exports and prices of imports

Index of exports prices / Index of Imports prices

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12
Q

Benefit of an improvement in ToT

A

Exports have higher purchasing powered so can afford to buy more imported goods therefore standard of living increases

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13
Q

Factors effecting Terms of Trade (3)

A

Relative inflation rate
Relative productivity rate
Exchange rate

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14
Q

Effects of high unemployment (3)

A

Lower Standard of Living
Lower profits for firms
Worsen budget balance

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15
Q

Standard of living

A

The degree of wealth and material comfort available to consumers in an economy, often measured by GDP per capita

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17
Q

Comparative vs absolute advantage

A

Comparative when a country can produce at a lower opportunity cost and absolute when can produce more of a good

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18
Q

Theory of comparative advantage

A

If a country has a comparative advantage in the production of a good and they specialise in that good, global output will increase

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19
Q

Globalisation on the economy, firms and consumers

A

Economy - world GDP and living standards increase
Firms - low labour and production cost increase economies of scale. But small firms can’t compete.
Consumers - greater consumer choice and lower prices

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20
Q

Globalisation on government, workers and the environment

A

Government - MNC’s use transfer pricing so gov’t lose hundreds of billions in tax revenue.
Deindustrialisation in developed countries means more spending on welfare
Workers - increased international opportunities because of IT and transport improvements. Unemployment in developed countries.
Environment - race to the bottom as MNCs attracted to lower environmental and labour regulation

21
Q

Diderot effect

A

Spiralling consumption results in dissatisfaction with existing goods and unhappiness

22
Q

Advantages of specialisation (Firms, consumers and economy)

A

Firms increase output so EoS and larger markets
Consumers have lower prices and increased choice
Economic growth and living standards increase

23
Q

Disadvantages of specialisation (4)

A

Bad for uncompetitive countries
Global monopolies emerge
Dangers of dumping (selling at below average cost)which can cause unemployment
Overspecialisation

24
Q

assumptions of comparative advantage (3)

A

No transport cost
No trade barriers
Constant LRAC

25
Q

Reasons for protectionism (4)

A

Protect infant industries
Protect jobs
Retaliation
Reduce CAD

26
Q

Absolute poverty

A

When a person is unable to afford basic necessities such as food, clean water and shelter. $1.25 in 2005 GDP PPP.

27
Q

Relative poverty

A

When a person is earning less than a certain income threshold in a particular country

28
Q

Factors effecting poverty (4)

A

Infrastructure
Education
Economic growth
Aid

29
Q

Gini coefficient

A

A measure of income inequality. The higher the Gino coefficient to 1, the more income inequality. A/A+B

30
Q

Income vs wealth inequality

A

Income is when the best paid workers take home more income than the rest of the country’s workers and wealth is when wealth is shared unequally between a population

31
Q

Causes of inequality (4)

A

r>g
Minimum wage rate
Taxation and benefits system
Inheritance

32
Q

What is the r>g hypothesis?

A

If wealth increases more quickly than income, then rich people with assets to invest get wealthier at a higher rate than poor people

33
Q

Factors effecting exchange rate (4)

A

Imports/exports
Tourism
Speculation
Interest rates

34
Q

Appreciation to current account

A

Appreciation - value of £ increases - each £ buys more $ - higher purchasing power - increase imports

35
Q

Consequences of a depreciation (3)

A

Economic growth
Demand pull inflation
FDI flows

36
Q

Floating exchange rate

A

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

37
Q

Fixed exchange rate

A

The value of one current is fixed to the value of another

38
Q

Managed exchange rate

A

The government or central bank will intervene to keep exchange rate within a certain bracket by changing interest rates and foreign currency reserves

39
Q

How to revaluate an exchange rate

A

Increase interest rates or sell foreign reserves

40
Q

Benefits of a floating exchange rate system (3)

A

No need for currency reserves (no risk of speculative attack
Current account deficit corrects naturally (eval - Marshall Lerner)
Freedom for domestic monetary policy

41
Q

Cost of floating

A

Volatility means it is harder to trade and invest

42
Q

Benefits of a fixed exchange rate

A

Reduce uncertainty in economy

Reduces costs of some trades (hedges / options)

43
Q

Costs of fixed exchange rate

A

Speculative attacks

Side effects of changing interest rate

44
Q

Marshall Lerner condition

A

Currency depreciation will only correct a current account deficit if PED (exports) + PED (imports) >1

45
Q

Actions to reduce current account deficit (4)

A

Supply side policy
Expenditure reducing policy
Protectionist policy
Devaluation

46
Q

Components of Capital and Financial account (4)

A

Direct investment
Portfolio investment
Financial derivatives
Reserve assets

47
Q

Why a current account deficit is bad (3)

A

real GDP falls
Sell assets to foreign investors in financial account
Highlights lack of competitiveness

48
Q

Why a current account deficit is not so bad (2)

A

Exchange rate self corrects over time

In the long run spending on capital and technology can help the economy grow

Macro Year 2 (1 decks)

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