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Economics > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

Advantages of specialization

A
  • make better use of scarce resources, So productivity increases shifting PPC outwards
  • workers become more skilled, increased quality
  • Increases GDP
  • Global trade firms benefit from economies of scale
  • International trade helps to keep prices down due to foreign competition
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2
Q

Disadvantages of specialization

A
  • Over specialization, if demand decreased on product it would lead to drastic fall in economic growth and high structural unemployment
  • leads to standardized mass produce product so consumers would increase demand on imports
  • low labor mobility
  • increased wages for highly skilled and specialized labor so CoP increase
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3
Q

Globalization

A

Process by which world is becoming one market, due to reduced cost of transportation advances of communication and removal of trade restriction

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4
Q

Advantages of globalization

A
  • Increase competition allows consumers to buy more varieties with higher quality and lower prices
  • films can locate in most efficient location and benefit from economies of scale
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5
Q

Disadvantages of globalization

A
  • recession in one economy can affect other economies negatively
  • workers may lose jobs due to increased competition creating unemployment
  • Gavin may be reluctant to increase corporation tax for fear that MNCs May locate in other countries leading to structural unemployment
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6
Q

Advantages of multinational companies to host and home countries

A

-would create more jobs
-operate on a Large scale so benefit from economies of scale
increased profit due to large consumer base and profits are repatriated
-MNCs able to avoid trade Restrictions,decreased CoP
-reduce transport costs
-May choose to locate where there is low income tax, more tax rev to host country

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7
Q

Disadvantages of multinational

A

-criticized for unethical and cost cutting practices
-can force local firms to close down as firms find it hard to compete
-can exploit government of host country to lower corporation tax
over-reliance in low income countries
-may face different tax regulations
-harder to control
-Fluctuations in exchange rate make it harder to measure profits

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8
Q

Advantages of free trade

A
  • access to more variety at a lower price
  • large scale ,benefit from EoS
  • large market size, increased profit
  • forces domestic firms to be efficient
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9
Q

Quotas

A

Limit on the quantity of foreign goods imported, market price of imports increase

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10
Q

Subsidy

A

Financial grant to domestic firms to help reduce costs of production and compete with foreign producers

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11
Q

Embargo

A

Ban on trade with a certain country

Due to trade disputes or political conflicts

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12
Q

Rules and regulations

A

Use strict rules regarding food quality, safety and environmental protection

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13
Q

Advantages of protectionism

A
  • to protect infant industry
  • to protect domestic jobs
  • to protect against dumping
  • to overcome BoP deficit
  • to protect strategic industries
  • source of Gov revenue
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14
Q

Disadvantages of protectionism

A
  • Can lead to misallocation of resources
  • can lead to increased CoP
  • retaliation
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15
Q

Floating exchange rate

A

Value of currency determined by market forces
Demand:Foreign demand on domestic currency increase exports
Supply: increased imports

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16
Q

Fixed exchange rate

A

Exist when the central bank buys and sells foreign currency to ensure the value of its currency stays constant

17
Q

Case of Egypt

A

If market forces push down value of currency central bank will buy domestic currency and sell foreign currency

18
Q

Case of China

A

Market forces Pushing up price of domestic currency central bank would sell domestic currency and buy foreign

19
Q

Causes of exchange rate fluctuations

A
  • changes in demand for imports and exports
  • inflation
  • foreign direct investment
  • speculation
  • interest-rate
  • Government intervention
20
Q

Adv of a floating exchange rate

A
  • help eliminate current acc deficit
  • no need to waste foreign reserves
  • allows country to use monetary policy
21
Q

Disadv of a floating exchange rate

A
  • can fluctuate making it difficult for firms to plan ahead

- speculation may cause major changes in price of currency

22
Q

Adv of a fixed exchange rate

A
  • reduces uncertainties
  • reevaluation of currency occurs when a country is a major importer of inelastic goods,keeps value officially high,avoiding cost push inflation
  • devaluation of currency helps make goods more int. comp.
23
Q

Disadv of fixed exchange rate

A
  • central bank has to use large amount of foreign reserves, opp cost
  • reduces ability to use monetary policy
24
Q 
Consequences of exchange rate fluctuations
Exporters :
Imports:
Balance of payment:
Employment and economic growth:
Inflation:
A
  • if demand is Elastic Exports would be more expensive however if exports are inelastic export revenue would increase
  • rising countries exchange rate would make imports cheaper so lower cost of production
  • if currency appreciated exports decrease imports increase so balance of payment Worsens
  • decreased employment in exporting firms
  • imports more expensive leading to cost push inflation and would increase aggregate demand and if aggregate demand increases more than output it will lead to demand pull inflation
25
Q

Balance of payment

A

Financial record other countries transactions with the rest of the world over a given period of time

26
Q

Current account

A

Largest component of balance of payment, Records all exports and imports of goods and services of a country with its trading partners Plus primary and secondary incomes

27
Q

Primary income

A

Income earned by individuals and firms

  • employee compensation
  • investment income
28
Q

Secondary income

A

Transfer of money goods services sent to other countries received by home country not in return for anything

  • gifts and donations
  • foreign aid
  • worker remittance
29
Q

Why do exports and imports change over time

A
  • inflation rate
  • Exchange rate
  • productivity
  • Quality
  • domestic GDP and foreign GDP
  • trade restrictions
30
Q

Causes of current account deficits

A
  • Low income abroad and high income at home
  • high exchange rate
  • higher cost of production
  • deficit in primary or secondary incomeshh
31
Q

Consequences of a deficit

A
  • lower aggregate demand and may lead to a recession
  • derived demand for labor so decreased aggregate demand will cause cyclical unemployment
  • less income lower standard of living as outflow exceeds inflow
  • countries need to borrow representing opportunity cost
  • lower exchange rate
32
Q

Why may a deficit not be a problem

A
  • small deficit that last for short time
  • if deficit is caused by import of raw material and capital goods that are going to be used to produce exports
  • Will reduce aggregate demand so help reduce demand pull inflation
  • following countries exchange rate would lower inports and increase exports
33
Q

Causes of a current account surplus

A
  • low exchange rate
  • High quality of domestic goods
  • High income abroad
  • low CoP
  • increase in primary and secondary income
34
Q

Advantages of current account surplus

A
  • increase exports so unemployment decreases

- increase incomes and SoL

35
Q

Disadvantages of current account surplus

A
  • high AD, leading to demand pull inflation,so int. comp. decreases
  • high demand for exports, appretiation of exchange rate,increase export prices, decrease int. comp.
36
Q

Policies to control current account deficit

A
  • contractionary fiscal
  • contractionary monetary
  • SS policy: -education
    - infrastructure
    - subsidy or tax cuts
    - protectionism policy
37
Q

GO OVER PAGE

A

114,118,119,121,122

38
Q

What would depreciation of currency do to imports

A

DENENADANT ON ELASTICITY

Economics (11 decks)

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