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Economics > Chapter 14 > Flashcards

Chapter 14 Flashcards

1
Q

Define globalisation

A

Process of increasing economic integration of the worlds economies

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2
Q

Examples of globalisation

A

UK dealing with customers through call centres in India

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3
Q

Main characteristics of globalisation

A
  • Growth of international trade and reduction of trade barriers
  • Greater international mobility of capital and land
  • Increase in power of Multi national corporation
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4
Q

Consequences of globalisation on less developed countries

A

Forced to work in low skilled jobs

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5
Q

Define less developed countries

A

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

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6
Q

Consequences of globalisation for more developed countries

A

MNCs reduce wages and standards of living.

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7
Q

Define more developed countries

A

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

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8
Q

What is the dependency theory of trade and development

A

Developing countries have little capital compared to developed countries.
Developed at an advantage to developing:
-Greater material and better quality

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9
Q

Is globalisation good

A

Yes for rich

No for poor

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10
Q

What is more internationally mobile- Manufacturing or service

A

Until recently it was manufacturing

Now service because can do calls for example

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11
Q

4 factors encouraging overseas location of call centres

A

-Highly reliable
-Low wage
-24 hour employment
-Fluent in English
But lack british culture

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12
Q

What does globalisation do to the power of governments

A

Reduces it, especially in smaller countries

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13
Q

Define MNCs

A

Multi national corporations- businesses operating in several countries

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14
Q

Role of MNCs in globalisation

A
  • Increased trade
  • Broken down production of specialised workers globally
  • Long term investment (Movement from developed countries to developing) of advanced technology
  • Higher wages
  • Consumer choice has widened with multiple MNCs
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15
Q

Define absolute advantage in regards to trade

A

Country has an absolute advantage of it can produce more of a good than other countries from the same amount of resource

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16
Q

Define comparative advantage in regards to trade

A

The country with the least opportunity cost when producing a good has a comparative advantage in that good

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17
Q

Assumptions for comparative advantage

A
  • Factors of prod are fixed between countries
  • Constant returns to scale
  • Demand and cost conditions are stable
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18
Q

Define quotas

A

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

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19
Q

Define tariff

A

Tax imposed on imports from other countries entering

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20
Q

Define export subsidies

A

Money given to domestic firms by the gov to encourage firms to sell their products abroad

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21
Q

What is the argument supporting free trade

A

placing controls restrict countries from specialising in activities in which they have comparative advantage

22
Q

Explain the infant and sunset theory

A
  • Infant; countries with in industries more productively efficient have more returns to scale so have competitive advantage. Controls are in place to protect new industries from established rival ones
  • Sunset industries: Protect older industries from competition from infant
23
Q

Against overspecialisation

A
  • Agriculture monoculture

- Country can become very vulnerable to changes in demand

24
Q

Draw consumer and producer welfare in an open and closed economy

A

…

25
Q

How does comparative advantage change

A

Through adjusting where manufacturing takes place

26
Q

Types of trading (economic integration)

A
  • Preference areas (countries agree on certain trade)
  • Free trade areas( abolish of tariffs)
  • Customs unions (free trade but protected by common external tariff barrier)
27
Q

Define euro zone

A

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

28
Q

What is the balance of payments

A

Record of all the currency flowing in a out of a country at a particular period

29
Q

3 main kinds of balance of payments accounts

A
  • Current account
  • Capital account
  • Financial account
30
Q

Define the three kind of balance of payments

A

Current account- flow of currency in and out of a country
Capital account- transfers of income
Financial account- Part of the balance of payments recording capital flowing in and out of a country

31
Q

What are the four components of the current account

A

-Balance of trade in goods
-Balance of trade in services
Balance of primary income and balance of secondary income (transfers)

32
Q

Explain the balance of trade in services, current account

A

Exports vs imports

33
Q

Explain the balance of trade in services, current account

A

Payments for services in vs out

34
Q

Difference between primary and secondary income

A

Primary: made up from net flows between countries
Secondary: made up of gifts, donations between countries

35
Q

What is capital flow

A

Movement of money for purpose of trade, or business operations

36
Q

What is foreign direct investment

A

Investment in capital assets in foreign countries

37
Q

What is portfolio investment

A

The purchase of one countries securities (e.g bonds)

38
Q

What is hot money capital flow

A

Moving money between currencies to make money

39
Q

What does an increase in exports do to the economy

A

Increase in AD occurs, as there is an increase in real national income

40
Q

What is export led growth

A

Short run economic growth due to an increase in exports. Long run due to growth and increase in international competitiveness

41
Q

Problems with current account defects

A

-Beneficial in short run due to increase in imports

-causes uncompetitiveness in countries industries
In developing countries defect can be understood through low capital goods

42
Q

Disadvantages of current account surplus

A
  • One countries surplus is another’s deficit

- Surplus can be inflationary, demand pull inflation

43
Q

3 factors influencing a countries current account deficit

A
  • Productivity
  • Inflation
  • Exchange tate
44
Q

Policies to reduce balance of payments deficit

A
  • Deflationary policy
  • Direct control (import control)
  • Devaluation (lowering exchange rate)
45
Q

Explain what is meant by expenditure-reducing policy

A

Balance of payments defecit

Gov policy reducing AD of imported goods

46
Q

Explain what is meant by expenditure switching policy

A

Balance of payments deficit

Switching demand from imported goods to domestically produced goods

47
Q

Explain deflation as a policy to reduce balance of payments deficit

A

Reduce AD contractionary monetary or fiscal policy

48
Q

Explain direct controls as a means of reducing balance of payments deficit

A

Imposed quotas or bans on imports to make more individuals buy domestically produced goods.
Welfare is decreased

49
Q

Explain devaluation as a way of reducing the deficit of the balance of payments

A

Increasing price of imports compared to exports

50
Q

Difference between depreciation, devaluation and downward float

A

Depreciation: Fall in external value of a currency

Devaluation and downward flow lay: more units are needed to buy a unit of another country

51
Q

What is consumer led growth

A

Imports sucked into a country, not sustainable

52
Q

Government policies to reduce balance of payments surplus

A

Three R’s

  • Reflating demand
  • Reducing import control
  • Reduce global payment imbalances

Economics (15 decks)

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