Global Economics terms

Question 1

free trade

Answer 1

absence of government intervention of any kind in international trade

Question 2

absolute advantage

Answer 2

the ability of one country to produce a good using fewer resources than another country

Question 3

comparative advantage

Answer 3

a situation where one country has a lower opportunity cost in the production of a good than another country

Question 4

theory of comparative advantage

Answer 4

as long as an opportunity costs in two or more countries differ, it is possible for all countries to benefit from specialisation and trade according to their comparative advantage

Question 5

trade protection

Answer 5

government intervention in international trade through the imposition of trade restrictions to prevent free entry of imports into a country

Question 6

tariff

Answer 6

tax on imported goods

Question 7

import quota

Answer 7

a legal limit to the quantity of a good that can be imported over a particular time period

Question 8

export subsidy

Answer 8

subsidy paid for each unit of the good that is exported

Question 9

administravite barriers

Answer 9

administrative procedures that countries may use to prevent the free flow of imports into a country

Question 10

anti-dumping

Answer 10

argument that justifies trade protection if a trading partner sells a good in international markets at price below the cost of producing it

Question 11

unfair competition

Answer 11

unfair increase in country’s exports at the expense of other countries

Question 12

preferential trade agreement

Answer 12

agreement between two countries to lower trade barriers on given products in trade between them

Question 13

trading bloc

Answer 13

group of countries that agreed to reduce trade barriers to encourage free trade and cooperation between them

Question 14

free trade area

Answer 14

group of countries that agreed to remove trade barriers between themselves

Question 15

custom union

Answer 15

free trade area than in addition adopts a common policy towards all non-member countries

Question 16

common market

Answer 16

custom union without restrictions on movements of any factors of production between member countries

Question 17

trade creation

Answer 17

replacement of higher cost products by lower cost imports

Question 18

traded diversion

Answer 18

replacement of lower cost products by higher cost imports

Question 19

monetary union

Answer 19

economic integration involving the adoption of a single currency, common monetary policy and single central bank by group of countries

Question 20

exchange rate

Answer 20

value of one currency expressed in terms of another

Question 21

floating exchange rate system

Answer 21

exchange rates are determined by market forces of demand and supply with no central bank intervention

Question 22

fixed exchange rate system

Answer 22

exchange rates are fixed by the central bank of each country at a particular level and are not allowed to respond to currency supply and demand

Question 23

devaluation

Answer 23

decrease in fixed level of exchange rates by the central bank

Question 24

revaluation

Answer 24

increase in fixed level of exchange rates by the central bank

Question 25

managed exchange rate system

Answer 25

exchange rates are free to float to their market levels over the long term, but central banks periodically intervene in order to stabilise them over a short term

Question 26

balance of payments

Answer 26

record of all transactions between the residents of the country and the residents of all other countries

Question 27

credits

Answer 27

payments received from other countries

Question 28

debits

Answer 28

payments made to other countries

Question 29

speculation

Answer 29

buying and selling currencies to make a profit from changes in exchange rates

Question 30

expenditure reducing policies

Answer 30

reducing imports by lowering aggregate demand

Question 31

expenditure switching policies

Answer 31

reducing imports by switching consumption away from imports to domestically produced goods

Question 32

economic development

Answer 32

a process where increases in real per capita output and incomes are accompanied by improvements in standards of living and reduction of poverty

Question 33

poverty trap

Answer 33

an economic system that requires a significant amount of capital in order to earn enough to escape poverty

Question 34

capital flight

Answer 34

large scale transfer of private owned financial capital to another country resulting from fear and uncertainty of holding domestic assets

Question 35

informal economy

Answer 35

economic activities that are unregistered and legally unregulated

Question 36

import substitution

Answer 36

growth and trade strategy where a country begins to manufacture simple consumer goods for the domestic market to promote its domestic industry, it depends on protective measures that prevent the entry of imports that compete with domestic producers

Question 37

export promotion

Answer 37

growth and trade strategy where a country expands exports

Question 38

social enterprise

Answer 38

a commercial organisation that aims to achieve particular social goals to improve people’s well-being

Question 39

trade liberalisation

Answer 39

elimination of trade barriers to achieve free trade

Question 40

foreign direct investment

Answer 40

investment by firms based in one country in production facilities in another country

Question 41

multilateral development assistance

Answer 41

lending to developing countries with rates of interest and repayment periods determined in the market

Question 42

microfinance

Answer 42

loans in small amounts to people who do not normally have access to credit due to a lack of collateral

Question 43

market-oriented policies

Answer 43

policies, in which government intervention is limited, economic decisions are made mainly by private decision-makers and the market has significant freedom to determine resource allocation

Question 44

interventionist policies

Answer 44

policies based on government intervention in the market

Question 45

economic inequality

Answer 45

the degree to which people differ in their ability to satisfy their economic needs

Question 46

absolute poverty

Answer 46

a situation, where a person does not have enough income to satisfy their economic needs

Question 47

relative poverty

Answer 47

comparison of income of individuals in society with median incomes

Question 48

transfer payments

Answer 48

payments made by the government to individuals for the purpose of redistributing income away from those who work and pay taxes to those who need financial assistance

Question 49

universal basic income

Answer 49

a sum of money residents of a country would receive regardless of any other income they may have