Chapter 10

Question 1

Globalisation

Answer 1

The process of growing economic integration of the world’s economies

Question 2

WTO (World Trade Organisation)

Answer 2

International body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers to trade

Question 3

MNCs (multinational corporations)

Answer 3

Enterprises operating in several countries but with their headquarters in one country

Question 4

Less developed countries

Answer 4

Countries considered behind in terms of their economy, human capital, infrastructure and industrial base

Question 5

More developed countries

Answer 5

Countries with a high degree of economic development, high average income per head and high standards of living.

Question 6

EU (European Union)

Answer 6

Economic union established in 1993 wanting to include numerous central and Eastern European nations

Question 7

Comparative advantage

Answer 7

Measured in terms of opportunity cost. The country with the least opportunity cost when producing a good possesses a comparative advantage in that good

Question 8

Quotas

Answer 8

Physical limits on the quantities of imported goods allowed into a country

Question 9

Tariffs

Answer 9

Taxes imposed on imports from other countries entering a country

Question 10

Export subsidies

Answer 10

Money given to domestic firms by the government o encourage firms to sell their products abroad and to help make their goods cheaper in export markets

Question 11

Eurozone

Answer 11

The group of EU countries that have replaced their national currencies with the euro

Question 12

Free trade area

Answer 12

Member of countries abolish tariffs on mutual trade, but each partner determines its own tariffs on trade with non-member countries

Question 13

Customs union

Answer 13

A trading bloc in which member countries enjoy internal free trade in goods and possible services, with all the member countries protected by a common external tariff barrier

Question 14

SEM (Single European Market)

Answer 14

The SEM was intended to establish the four freedoms- free movement of goods, services, workers and capital between the EU members of states

Question 15

Current account

Answer 15

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows

Question 16

Balance of payments

Answer 16

The record of all money flows or transactions between the residents of a country and the rest of the world in a particular period

Question 17

Trade in goods

Answer 17

Exports and imports of visible or tangible items

Question 18

Trade in services

Answer 18

Exports and imports of services such as financial services, tourism and shipping

Question 19

Primary income flows

Answer 19

INWARD primary income flows comprise income flowing into the economy in the current year, which is generated by UK-owned capital assets located overseas
OUTWARD primary income flows comprise income flowing out of the economy in the current year, which is generated by overseas-owned capital assets located in the UK

Question 20

Secondary income flows

Answer 20

Current transfers, such as gifts of money, international aid and transfers between the UK and EU, flowing into or out of the UK economy in a particular year

Question 21

Financial account

Answer 21

Part of the BofP which records capital flows into and out of the economy

Question 22

FDI (Foreign Direct Investment)

Answer 22

Investment in capital assets (such as manufacturing and service industry capacity, in a foreign country by a business with headquarters in another country

Question 23

Portfolio investment

Answer 23

The purchase of one country’s securities, e.g. bonds and shares, by the residents or financial institutions of another country

Question 24

Expenditure-reducing policy

Answer 24

A government policy which aims to eliminate a current account deficit by reducing the demand for imports by reducing the level of aggregate demand in the economy

Question 25

Expenditure-switching policy

Answer 25

A government policy which aims to eliminate a current account deficit by switching domestic demand away from imports to domestically produced goods

Question 26

Exchange rate

Answer 26

The external price of a currency, usually measured against another currency

Question 27

Freely floating exchange rate

Answer 27

The exchange rate is determined solely by the interplay of demand for, and supply of, the currency

Question 28

Fixed exchange rate

Answer 28

An exchange rate fixed at a certain level by the country’s central bank and maintained by the central bank’s intervention in the foreign exchange market

Question 29

Currency union

Answer 29

An agreement between a group of countries to share a common currency, usually to have a single monetary and foreign exchange rate policy

Question 30

Indicators of development

Answer 30

Include GDP per head, information on the distribution of income, mortality rates and health statistics

Question 31

United Nations Human Development Index

Answer 31

Index based on life expectancy, education and per capita income indicators, which ranks the world’s countries into four tiers of human development.

• very high human development
• high human development
• medium human development
• low human development

Question 32

Education and training

Answer 32

Education and develops individual knowledge and intellect, while training develops work skills

Question 33

Corruption

Answer 33

A barrier holding back economic growth and development, especially in less developed economies

Question 34

Institutional factors

Answer 34

Examples of institutional factors include rules, laws, constitutions, the financial system and defined property rights

Question 35

Infrastructure

Answer 35

The result of past investment in fixed capital goods that are needed for the economy to operate efficiently

Question 36

Human capital

Answer 36

Accumulated stock of skills and knowledge, relevant to work, embodied in human beings

Question 37

Aid

Answer 37

Money, goods and services and ‘soft’ loans given by the government to help another country