Chapter 14

Question 1

What is globalisation

Answer 1

The process of increasing economic integration of the worlds economies

Question 2

What is the world trade organisation

Answer 2

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

Question 3

What are multi national corporations

Answer 3

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

Question 4

What are less developed countries

Answer 4

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

Question 5

What are more developed countries

Answer 5

Countries with a high degree of economic development, high average income per head, high standards of living usually with service industries dominating manufacturing and investment having taken place over many years in human capital and infrastructure

Question 6

What is an absolute advantage

Answer 6

A country has a absolute advantage if it can produce more of a good than other countries from the same amount resources

Question 7

What is a comparative advantage

Answer 7

This is 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

What are quotas

Answer 8

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

Question 9

What are tariffs

Answer 9

Taxes imposed on imports from other countries entering a country

Question 10

What are export subsidies

Answer 10

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

Question 11

What is a free trade area

Answer 11

In a free trade area, member countries abolish tariffs on mutual trade, but each partner determines its own tariffs on trade with non member countries

Question 12

What are custom unions

Answer 12

Trading blocs In which member countries enjoy free internal trade in goods and possibly services, with all the member countries protected by a common external tariff barrier

Question 13

What is the balance of payments

Answer 13

A record of all the currency flows into and out of a country in a particular time period

Question 14

What is the current account

Answer 14

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 15

What is the financial account

Answer 15

The part of the balance of payments which records capital flows into and out of the economy

Question 16

What is the balance of primary income

Answer 16

Inward primary income flows comprising both inward-income flowing into the economy in the current year generated by uk owned capital assets located overseas and outward primary income flows comprising income flowing out of the economy in the current year generated by overseas owned capital assets located in the uk

Question 17

What is the balance of secondary income

Answer 17

Current transfers flowing into or out of the uk economy in a particular year e.g gifts of money

Question 18

What is the current account deficit

Answer 18

Currency outflows in the current account exceed the currency inflows

Question 19

What is the current account surplus

Answer 19

Currency inflows in the current account exceed the currency outflows

Question 20

What is the balance of trade in goods

Answer 20

The part of the current account measuring payments for exports and imports of goods. The difference between the total value of exports and the total value of imports is sometimes called the balance of visible trade

Question 21

What is the balance of trade in services

Answer 21

Part of the current account, the difference between the payments for the exports of services an the payment to for the imports of services

Question 22

What is the foreign direct investment

Answer 22

Investment in capital assets in a foreign country by a business with headquarters in another country. Very often the overseas company establishes subsidiary companies in the countries in which it is investing

Question 23

What is portfolio investment

Answer 23

The purchase of one country’s securities by the residents of financial institutions of another country

Question 24

What is export led growth

Answer 24

In the short run economic growth resulting from an increase in exports which is one of the aggregate demand. In the long run economic growth resulting from the growth and increased international competitiveness of exporting industries

Question 25

What is expenditure reducing policy

Answer 25

A government policy which aims to eliminate a current account deficit by reducing demand for imports by reducing the level of aggregate demand in the economy. Conversely to reduce a current account surplus aggregate demand would be increased and spending on imports would rise.

Question 26

What is expenditure switching policy

Answer 26

A government policy which aims to reduce a current account deficit by switching domestic demand away away from imports to domestically produced goods. Conversely to reduce a current account surplus the policy would aim to switch domestic demand away from domestically produced goods toward imports

Question 27

What are the main characteristics of globalisation?

Answer 27

- growth of international trade and the reduction of trade barriers known as trade liberation- process encouraged by the WTO - greater international mobility of capital and labour - the movement of manufacturing industries to NIC - significant increase in the power of international capitalism and MNCs - a decrease in government power to influence MNCs

Question 28

What is the role of MNCs in globalisation?

Answer 28

- economic integration and increased trade - investment and technology transfers - changing employment patterns and global capitalism - global market place and international brands

Question 29

What are the assumptions underlying the principles of comparative advantage?

Answer 29

- -each country's endowment of Factors of production is fixed and immobile between countries - there are constant returns to scaler - demand and cost conditions are relatively stable

Question 30

What are some of the contexts in which import controls have been justified?

Answer 30

- infant industries - sunset industries - strategic trade theory - agricultural efficiency - changes in demand or cost conditions - anti dumping - self-suffiency - employment

Question 31

What are the main types of international economic integration?

Answer 31

- preference areas - free trade areas - custom unions - common markets - economic unions - political unions

Question 32

What are the main sections of the current account?

Answer 32

- The balance of trade in goods - the balance of trade in services - primary income - secondary income

Question 33

Do current account deficits pose problems?

Answer 33

- a persistent or long-run imbalance indicates fundamental disequilibrium - nature of any problem depends on the size and the cause of the deficit - the problem is likely to be serious if it is caused by the uncompetitiveness of the country's industries - in a poor country a current account deficit can be justified because of the country's need to import capital goods on a large scale to modernise the country's infrastructure and to promote economic development

Question 34

Do current account surpluses pose problems?

Answer 34

- a surplus is often seen as a sign of national economic virility and success a popular view is that the bigger the surplus the better must be the country's performance - one country's surplus is another country's deficit - a balance of payments surplus can be inflationary

Question 35

what are the three factors that influence a country's current account balance?

Answer 35

- productivity - inflation - exchange rate

Question 36

What are the advantages of floating exchange rates?

Answer 36

Automatically achieving the balance of payments equilibrium - improving resource allocation - freedom to achieve domestic policy objectives - making it easier to control inflation - ability to pursue an independent monetary policy

Question 37

What are the disadvantages of floating exchange rates?

Answer 37

- adverse effects of speculation and capital flows - international trading uncertainty - floating exchange rates may cause cost-push inflation - may also cause demand pull inflation

Question 38

What are the advantages of fixed exchange rates?

Answer 38

- attempt to achieve certainty and stability in foreign exchange markets - impose an anti deflationary discipline on a country's domestic economic management and on the behaviour of its workers and firms

Question 39

What are the disadvantages of fixed exchange rates?

Answer 39

-may increase uncertainty rather than create certainty -if the fixed exchange rate is significantly undervalued inflation may be imported from other countries unless corrective action is taken -an independent monetary policy cannot be implemented --maybe a recurrent balance of payments -resources may be tied up in reserves that could be more efficiently used elsewhere -

Question 40

How is HDI constructed?

Answer 40

measuring life expectancy at birth mean years of schooling and expected years of schooling -GNI

Question 41

What are some barriers to growth and development?

Answer 41

Corruption institutional factors poor infrastructure lack of human capital