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Macroeconomics > Chapter 14 > Flashcards

Chapter 14 Flashcards

1
Q

What is globalisation

A

The process of increasing economic integration of the worlds economies

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2
Q

What is the world trade organisation

A

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

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3
Q

What are multi national corporations

A

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

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4
Q

What are less developed countries

A

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

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5
Q

What are more developed countries

A

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

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6
Q

What is an absolute advantage

A

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

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7
Q

What is a comparative advantage

A

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.

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8
Q

What are quotas

A

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

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9
Q

What are tariffs

A

Taxes imposed on imports from other countries entering a country

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10
Q

What are export subsidies

A

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

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11
Q

What is a free trade area

A

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

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12
Q

What are custom unions

A

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

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13
Q

What is the balance of payments

A

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

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14
Q

What is the current account

A

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

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15
Q

What is the financial account

A

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

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16
Q

What is the balance of primary income

A

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

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17
Q

What is the balance of secondary income

A

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

18
Q

What is the current account deficit

A

Currency outflows in the current account exceed the currency inflows

19
Q

What is the current account surplus

A

Currency inflows in the current account exceed the currency outflows

20
Q

What is the balance of trade in goods

A

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

21
Q

What is the balance of trade in services

A

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

22
Q

What is the foreign direct investment

A

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

23
Q

What is portfolio investment

A

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

24
Q

What is export led growth

A

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

25
Q

What is expenditure reducing policy

A

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.

26
Q

What is expenditure switching policy

A

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

27
Q

What are the main characteristics of globalisation?

A
  • 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
28
Q

What is the role of MNCs in globalisation?

A
  • economic integration and increased trade
  • investment and technology transfers
  • changing employment patterns and global capitalism
  • global market place and international brands
29
Q

What are the assumptions underlying the principles of comparative advantage?

A
  • -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
30
Q

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

A
  • infant industries
  • sunset industries
  • strategic trade theory
  • agricultural efficiency
  • changes in demand or cost conditions
  • anti dumping
  • self-suffiency
  • employment
31
Q

What are the main types of international economic integration?

A
  • preference areas
  • free trade areas
  • custom unions
  • common markets
  • economic unions
  • political unions
32
Q

What are the main sections of the current account?

A
  • The balance of trade in goods
  • the balance of trade in services
  • primary income
  • secondary income
33
Q

Do current account deficits pose problems?

A
  • 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
34
Q

Do current account surpluses pose problems?

A
  • 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
35
Q

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

A
  • productivity
  • inflation
  • exchange rate
36
Q

What are the advantages of floating exchange rates?

A

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
37
Q

What are the disadvantages of floating exchange rates?

A
  • adverse effects of speculation and capital flows
  • international trading uncertainty
  • floating exchange rates may cause cost-push inflation
  • may also cause demand pull inflation
38
Q

What are the advantages of fixed exchange rates?

A
  • 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
39
Q

What are the disadvantages of fixed exchange rates?

A

-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
-

40
Q

How is HDI constructed?

A

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

41
Q

What are some barriers to growth and development?

A

Corruption
institutional factors
poor infrastructure
lack of human capital

Macroeconomics (7 decks)

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