Globalisation Flashcards
Globalisation def?
an increase in interconnectedness and interdependence (rely on eachother) of economic activities and social relations
What are some drivers of globalisation? (4)
-technological changes (reducing the cost of transmitting and communicating information)
-EOS
-diifferences in tax systems
-less protectionism (borders have opened and tariffs have fallen)
What are some disadvantages of globalisation? (4)
-rising inequality/relative poverty
-threats to global commons
-trade imbalances (protectionist tensions)
-higher structural unemployment
What are the benefits of globalisation for the UK economy?
-access to cheaper goods and services from emerging market countries (higher real incomes)
-bigger export market (chance to exploit EOS)
-more intense competition (drives innovation and economic efficiency)
What are the drawbacks of globalisation for the UK economy?
-UK economy has less control (economy may become more vulnerable to external shocks)
-increase in global trade/output has an environmental effect (increased use of non-renewable resources and CO2 emissions)
-risk of stuctural unemployment in industries that lose demand to cheaper comp overseas
What are the arguments for protectionism? (8)
-Infant industry argument (industry that just started- allows them to grow & have EOS)
-protect against dumping
-protect domestic employment
-protect against unfair low cost of labour abroad
-protect product standards
-to raise gov rev
-to improve an account deficit
-avoid overspecialisation
when does a comparative advantage exist?
Exists when:
-the relative opportunity cost of production is lower than in another country
-a country is relatively more productively efficient then another
what is factor endowment?
-if a person, firm or country specialises in the production of a good, it normally leads to a surplus in its production
-the existence of this surplus often leads to trade.
weaknesses in the theory of comparative advantage?
-assumes equally productive factors of production
-assumes factors can swap what they produce with no reduction in efficiency
-some countries may not be able to export
What are the main methods of trade barriers?
-tariffs
-quotas: limiting imports physically
-voluntary export restraint agreement
-subsidies exports
-exchange controls
What is dumping? (protectionism)
If a company exports a product at a price below the price normally charged in the home country buying it - often due to subsidies from government
What are expenditure-switching policies?
Designed to encourage consumers to switch from buying imports to domestic goods
What are some expenditure-switching policies?
-depreciation in exchange rates (however leads to domestic inflation)
-tariffs and quotas
-subsidise domestic firms
What are expenditure reducing policies?
Designed to encourage consumers to buy fewer things and lower imports
What are some expenditure reducing policies?
-increase income tax
-increase interest rates
(monetary or fiscal policies to reduce AD)
Consumer surplus is…
above the price, below the demand
Producer surplus is…
below the price, above the supply
What are some advantages of tariffs?
-tax revenue raised
-creates/protects domestic jobs
What are some disadvantages of tariffs?
-could be inflationary
-loss of consumer surplus
What are some ways of reducing a balance of payments deficit?
-expenditure switching policies
-expenditure reducing policies
-improving the supply side performance of the economy to boost international competitiveness
What are the types of exchange rate systems?
-free floating (most common)
-managed floating
-fixed (one exchange rate is set)#
-semi-fixed (like fixed but ER can move within a band)
-pegged
What could the J-curve be used to show?
-argument for free floating ER
-argument for devaluating £ to reduce deficit
Exports = 1
Imports = 2
1- Demand of Sterling
2- Supply of Sterling
What are the consequences of a large/growing current account deficit?
-Loss of AD means weaker real GDP growth
-Rising unemployment
-Depreciation of the currency - higher cost push inflation
-Higher demand pull inflation
-Shows a lack of competitiveness/ supply-side weaknesses in the economy
-Some countries with accumulated deficits may choose to borrow money - increase risk
-loss of investors
