Global Economy

Question 1

FDI

Answer 1

Purchase of physical capital abroad by multinational corporations

Question 2

Specialisation

Answer 2

When workers are assigned specific tasks within a production process, and production is limited to one, or small group of products

Question 3

Globalisation

Answer 3

The process that has resulted in ever closer links between the worlds economies

Question 4

Division of labour

Answer 4

When the production process is divided into different stages, enabling workers to focus on specific tasks.

Question 5

Comparative advantage

Answer 5

A situation where one country produces a good or service at a lower opportunity cost relative to others

Question 6

Specialisation by comparative advantage

Answer 6

Specialising in those forms of production in which the country’s advantage is most marked or where it’s disadvantage is least marked

Question 7

Trade barriers

Answer 7

Obstacles designed to protect domestic producers at the expense of foreign producers, and to reduce the volume of trade across national borders

Question 8

Balance of payments

Answer 8

Records money flows into and out of a country over a period of time

Question 9

Current account

Answer 9

Includes money flows due to trade, transfers of interest, profit and dividends and transfers of money by governments and international organisations

Question 10

Terms of trade

Answer 10

The price of a country’s exports relative to the price of its imports

Question 11

Commodity

Answer 11

Raw materials

Question 12

Resource nationalisation

Answer 12

The tendency of people and governments to assert control over natural resources located on their territory. Conflicts with the interests of multinational corporations.

Question 13

Remittances

Answer 13

Money sent home on a regular basis to family and friends by migrants from the country they are working in

Question 14

ODA (official development assistance)

Answer 14

Foreign aid given by governments to developing countries in the form of grants and loans

Question 15

Inflation

Answer 15

The sustained increase in the general level of prices in an economy

Question 16

Economic growth

Answer 16

An increase in the real GDP of an economy - production of more goods and services

Question 16

Economic development

Answer 16

An improvement in people’s wellbeing and quality of life

Question 17

Debt and portfolio investment

Answer 17

Purchase of financial assets

Question 18

5 causes of globalisation

Answer 18

Trade liberalisation
Reduction of restrictions on movement of capital
Better communications and technology
Rising living standards
Fall in transport costs

Question 19

5 indicators of globalisation

Answer 19

Global brands
Transfer of technology
Worldwide expansion of internet
Global sourcing
Overseas production

Question 20

What is protectionism?

Answer 20

Imposing restrictions on trade in order to protect domestic firms from foreign competition. Can be in the form of tariffs, quotas etc.

Question 21

7 Arguments for protectionism?

Answer 21

Protects domestic employment 
Infant industry argument
Prevents 'dumping' 
Protects product standards
To raise govt. revenue
To improve a current account deficit
To avoid risk of overspecialisation

Question 22

4 arguments against protectionism?

Answer 22

Market distortion
Allows production inefficiencies
Regressive
Risk of retaliation

Question 23

Why does depreciation not always correct a CA deficit? (USA)

Answer 23

Insufficient depreciation
Insufficient time allowed for correction
Chinese keeping currency at artificially low levels - distorting weighted average
Marshall-Lerner condition may not be satisfied
Influence of economic fundamentals

Question 24

Consequences of a CA deficit?

Answer 24

Decreases AD
Could lead to an economic crisis
Can put downward pressure on the exchange rate