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Economics > Chapter 15 > Flashcards

Chapter 15 Flashcards

1
Q

Where are currencies bought

A

Through the foreign exchange market

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2
Q

Define exchange rate

A

External price of a currency, usually measured against another currency

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3
Q

Explain the different managed exchange rates

A

Free floating
Dirty floating
Adjustable peg
Rigidly fixed

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4
Q

Explain freely floating exchange rate

A

Exchange rate is determined solely by interplay of demand, and supply of the currency

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5
Q

What happens to the competitive of overseas markets when paths pound falls

A

UK exports get more competitive, leading to greater overseas demand for pound to finance these purchases

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6
Q

How are exports paid for

A

Through the currency of the country exporting

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7
Q

When does current account balance occur in a free floating exchange rate, draw it

A

Where D=S

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8
Q

What happens to the amount of £ when there is more imports than exports

A

There is more of it

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9
Q

Advantages of floating exchange rates

A
  • Balance of payments equilibrium
  • Improves resource allocation
  • Gov doesn’t need to control this
  • Monetary policies can be used just to adjust domestic objectives
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10
Q

Disadvantages of floating exchange rate

A
  • Money is not always exchange just to finance trade

- Very volatile and unstable

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11
Q

Can floating exchange rate cause cost push inflation, why?

A

Yes,

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12
Q

Why might a floating exchange rate cause demand pull inflation

A

If all countries AD increases, not enough

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13
Q

What is the opposite of a free floating exchange rate

A

Fixed exchange rate

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14
Q

Explain fixed exchange rate

A

By country’s central bank and maintained by central bank a

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15
Q

Draw the ceiling , central peg and floor on a fixed exchange rate

A

…

Intervention is not needed if between here

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16
Q

Advantages of fixed exchange rate

A
  • Achieve certainty and stability

- Anti inflationary discipline on a countries economic management

17
Q

Disadvantages of a fixed exchange rate

A
  • If over valued then severe deflationary costs of lost output and unemployment
  • Independent monetary policy cannot be implemented
  • Overvaluation and Undervaluation can lead to misallocation of resources
18
Q

Two main ways in which a central bank can intervene in markets to maintain a iced exchange rate

A
  • Buying or selling own currency on foreign exchange market

- Lowering the bank rate to keep points exchange rate between a ceiling and floor

19
Q

What is a currency union

A

Agreement between group of countries that share a common currency

20
Q

Why was the euro created

A

Facilitate greater economic integration among EU members

21
Q

Why is the eurozone an incomplete single model

A

There should be assumption that there is no immobility of labour, but this is true

22
Q

How can economic development be observed

A
  • Living standards improved
  • Access go good and water
  • Access to opportunities
  • Sustainability
  • Decent healthcare
23
Q

What was Rostows model

A

How countries go from being developing into developed

  • Traditional society
  • Transitional stage preparing for take off
  • Take off
  • Drive to maturity
  • High mass consumption
24
Q

Define indicator of development

A

Includes GDP per head, information on distribution of income, mortality rates, health statistics

25
Q

What is the United Nations Human Development Index

A
  • Life expectancy at birth
  • Mean years of schooling
  • GNI
26
Q

What is the maximum value of HDI and what does this means

A

1, greater human development

27
Q

What are some barriers to economic growth

A
  • Corruption
  • Institutional factors (such as rules)
  • Poor infrastructure
  • Lack of human capital
28
Q

Difference between macro and micro economic policies

A

Micro- specific market

Macro- Overall

29
Q

What is capital fight

A

Much more serious in poor countries, sudden withdrawal of money out of a country

30
Q

Define aid

A

Money goods and services, soft loans by other countries

31
Q

Various forms of aid

A 
Military aid 
Hard loan
Soft loan (no repay) 
Disaster relief 
Tied aid
32
Q

What is ineffective aid

A

Aiding poorer countries with high speed technology which they do not know how to use

Economics (15 decks)

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