Global

Question 1

define economic stability

Answer 1

Economic stability refers to a environment which enhances long term macroeconomic performance by reducing uncertainty and promoting business and consumer confidence and investment. The result is a higher rate of long term economic growth. In particular economic stability relates to the avoidance of
volatility in:
 economic growth rates;
 inflation;
 employment and unemployment;
 exchange rates.

Question 2

define economic cycle

Answer 2

fluctuations in the level of economic activity

Question 3

define recovery

Answer 3

stage in the economic cycle that is characterised by rising GDP and employment after a period of recession

Question 4

define economic growth

Answer 4

an increase in GDP, usually expressed as an annual precentage

Question 5

how is annual economic growth measured in output?

Answer 5

current output - previous output

Question 6

What are the four sectors of the economy

Answer 6

Services, manufacturing, construction and agriculture

Question 7

Define long-term unemployment

Answer 7

Willing and able to work, actively seeking employment, but without a job for than a year (note: LT unemployment is increasing in the case study)

Question 8

Define employment rate

Answer 8

The number of people in work as a percentage of the population of working age (note: employment rate is decreasing in case study despite a decrease in unemployment)

Question 9

define unemployment rate

Answer 9

the number of people classified as unemployed as a percentage of the population that is economically active

Question 10

define austerity policy

Answer 10

reductions in the governments spending and/or increases in tax receipts intended to reduce a budget deficits

Question 11

define real wages

Answer 11

pay levels adjusted for inflation (note: these are falling the case study as prices are rising by a larger percentage than nominal wages)

Question 12

What is UK real GDP per head?

Answer 12

The total value of final goods and services produced in the UK, expressed in constant prices and divided by the size of the population

Question 13

Define re-balancing (rebalancing an economy)

Answer 13

adjusting the relative significance of the components of aggregate demand (in the case of the UK, reducing reliance of C and promoting I and X)

Question 14

Define national debt

Answer 14

The government’s total outstanding borrowing as ar esult of past annual budget deficits

Question 15

Define net trade

Answer 15

• exports of goods and services minus imports of goods and services
• OR net trade in goods + net trade in services
• OR the (X-M) component of AD

note: this is persistently negative for the UK and described in the case study as ‘a drag on growth’

Question 16

Define international competitiveness

Answer 16

the ability of a country to meet the needs of customers more effectively than other nations and boost exports to increase AD

Question 17

Define comparative advantage

Answer 17

Comparative advantage exists where a country can produce a good or service at a lower opportunity cost than another country

Question 18

Define FDI

Answer 18

Foreign Direct Investment: the establishment or purchase of assets overseas by a multination corporations in a country other than where its operations originate

Question 19

Define terms of trade

Answer 19

• the price of a country’s exports relative to the price of its imports
• the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.

Question 20

Define unit labour cost (ULC)

Answer 20

total labour cost (including wages, national insurance, pension contributions and recruitment and training costs) divided by the units of outpout

Question 21

Define relative unit labour cost (RULC)

Answer 21

the cost of labour per unit of output of one country relative to its major trading partners

Question 22

define global competitiveness index (GCI)

Answer 22

composite index published by the World Economic Forum to rank countries in terms of

Question 23

define corporation tax

Answer 23

a tax on companies’ profits (currently 20% in the UK)

Question 24

define economic integration

Answer 24

increasing co-operation and interdependence between the economic activities of separate nations (EU, ASEAN and NAFTA)

Question 25

define intra-regional trade

Answer 25

trade between countries in the same geographical area (this is increasing - partly due to economic integration and transport costs; it is one of the key changes in the pattern of global trade featured in the case study)

Question 26

what is the World Trade Organisation (the WTO)

Answer 26

a global organisation that seeks to promote free trade by setting rules for member countries and settling trade disputes

Question 27

Define ‘widening’ (in relation to economic integration)

Answer 27

increasing the number of countries involved in an economically integrated area

Question 28

Give an example of widening

Answer 28

integration within the EU has been widened to 28 countries

Question 29

define ‘deepening’ (in relation to economic integration)

Answer 29

increasing the level of the economic integration between countries

Question 30

give an example of deepening

Answer 30

the EU has deepened its integration from a customs union to a single market to a partial monetary union since its emergence in 1957)

Question 31

define customs union

Answer 31

an arrangement between two or more countries to abolish tariffs on trade between them and to impose a common external tariff on imports from non-member countries

Question 32

define trade creation

Answer 32

where high-cost domestic production is replaced by imports from a more efficient source within an economically-integrated area (usually a customs union)

Question 33

define trade diversion

Answer 33

where low-cost production outside an economically-integrated area is switched to a less efficient source within the area

Question 34

define tariff

Answer 34

a tax on imports that raises their prices in order to increase the competitiveness of domestic producers and protect domestic employment

Question 35

define quota

Answer 35

a limit on the value or volume of specified imports allowed into an economy

Question 36

define non-tariff barriers

Answer 36

restrictions on trade between countries such as differing product standards that may be genuine requirements or hidden forms of protectionism [these tend to persist within economically-integrated areas when tariffs have been removed]

Question 37

examples of non-tariff barriers (4)

Answer 37

• Standards: packaging, labeling and marking, testing methods and standards
• Import licensing requirements
• Charges on import: administrative fees and import credit discrimination
• Quotas

Question 38

define tax harmonisation

Answer 38

the process of bringing tax rates and allowances into line between countries [very limited progress within the EU: corporation tax rates are generally falling but VAT rates differ widely]

Question 39

define tax allowance

Answer 39

an amount of income or profit that can be earned on which no tax has to be paid [in the case study the UK government is proposing an increase in the tax allowance on investment which has the effect of reducing the cost of investment]

Question 40

what are supply-side policies

Answer 40

a wide-ranging collection of policies intended to increase the efficiency and competitiveness of the supply-side of the economy [many of which such as education, cutting corporation tax, deregulation make up the UK government’s Plan for Growth shown in Fig. 2.2]

Question 41

define common currency

Answer 41

where countries use the same currency [there are currently 19 countries that use the euro as part of monetary union within the EU]

Question 42

Define common monetary policy

Answer 42

where the countries operating a common currency are subject to the same interest rate and money supply policy operated by a single central bank [the ECB performs this role for the euro area]

Question 43

define fixed exchange rate

Answer 43

where a country’s exchange rate is set at a specific value against another currency [e.g. Denmark has maintained has a fixed exchange rate against the euro]

Question 44

define intra-industry trade

Answer 44

trade between countries involving the exchange of goods and services produced by the same industry [very common among the developed economies identified in Fig.4.4 which have targeted the higher value-added goods produced by other countries as a means of achieving growth and development]

Question 45

define inter-industry trade

Answer 45

trade between countries involving the exchange of goods and services produced by different industries [this would be the predominant form of trade if countries produced in accordance with their comparative advantages]

Question 46

Define inter-regional trade

Answer 46

trade between countries in different geographical areas

Question 47

define globalisation

Answer 47

the process through which national economies have become increasingly integrated and interdependent

Question 48

define transfer (e.g. technology, skills)

Answer 48

the movement of expertise across international borders

Question 49

define outsourcing

Answer 49

transferring part of a production process to another firm (key feature of increasing global specialisation)

Question 50

define offshoring

Answer 50

transferring part of a production process to another country (essentially the same as FDI)

Question 51

define emerging economies

Answer 51

developing countries experiencing relatively high economic growth (e.g. the BRIC and MINT economies)

Question 52

define informal economy

Answer 52

Unrecorded activity such as subsistence farming that contributes to the poverty cycle of low incomes -> low saving -> low investment -> low productivity

Question 53

define inequality

Answer 53

arises from an uneven distribution of an economic variable such as income or wealth [the case study refers to the growing inequality that has arisen in some countries - mainly in SSA during the process of globalisation as the benefits of trade and FDI have failed to ‘trickle down’ to all members of society]

Question 54

define industrialisation

Answer 54

the process of reducing reliance on primary sector activity (but not ignoring it) in order to produce higher value-added manufactured goods

Question 55

Define the IMF

Answer 55

a global organisation that aims to promote international monetary co-operation and financial stability in order to facilitate growth in world trade, through loans to countries with balance of payments / exchange rate problems; also has a surveillance role in reporting on the economic policies and progress of member countries

Question 56

prebisch-singer hypothesis: define

Answer 56

prebisch-singer hypothesis: since demand for primary sector goods is income inelastic, as the world economy grows over time a country exporting primary sector goods will experience declining terms of trade as a result of manufactured imports becoming more expensive.