globalisation macroeconomics Flashcards
what is globalisation
a process in which national economies have become increasingly integrated (countries become closer together) and interdependent (countries are more reliant on each other for growth and development)
what are causes of globalisation
trade liberalisation (from the WTO) -> lead to a reduction in trade barriers -> lead to more free trade taking place
trading blocs -> trade between a group of nations e.g. EU -> becomes closer in ties and more like one
technological advancement -> made it easier to send goods around the world + have multiple outlets of a business in multiple countries due to e.g. internet
mobility of labour and capital -> nations have become more integrated
pros of globalisation
lower prices -> as nations become more integrated -> more international competition therefore puts down prices and increases efficiency + lowers costs -> consumers benefit in terms of consumer surplus and welfare
greater employment -> market becomes bigger + sharing resources -> expect firms to grow in size as the potential for trade has grown -> increased derived demand for workers
benefits from large EOS -> as market size gets bigger -> companies can exploit that size and increase output -> lower their costs as a result -> higher profit + more innovation down the line
individuals have benefitted from the ease of movement -> due to advancements in technology and advancements in transport
cons of globalisation
growing inequality -> the top 1% own most of the global wealth
higher structural unemployment ->
environmental costs -> prioritising growth has increased pollution as foreign firms have come in and taken advantage and depleted resources in order to grow and produce goods -> future generations will suffer -> lack of sustainability
trade imbalances -> ??
greater risks of external shocks -> if an industry in one nation goes down -> may spread to other countries that rely on that industry as those companies are also in that nation
less cultural diversity -> the countries individual identity is dropped
fixed exchange rate
a fixed exchange rate can only be done if the government or central bank has a large amount of currency reserves to influence demand/supply
exchange rate is decided by the central bank
the influence on how to get there can be shown on the following diagram:
https://www.youtube.com/watch?v=7ktnrk2pS-Q&list=PLWeicFreBUYCJJOkgx6l4bpi3aoT6E28z&index=2
what happens when an exchange rate appreciates
SPICED
strong
pound
imports
cheap
exports
dear
why would government want to intervene in an exchange rate market?
reduce the exchange rate to increase employment
increase the exchange rate to fight inflation
maintain a fixed exchange rate
stabilise a floating exchange rate
improve a current account deficit -> reduce the value of the pound to make exports more attractive and imports more expensive
how?
change interest rates
purchasing power parity exchange rates?
https://www.youtube.com/watch?v=S5xqBK6s4bI&list=PLWeicFreBUYCJJOkgx6l4bpi3aoT6E28z&index=5
what are the pros of a floating exchange rate
no need for currency reserves to manipulate the exchange rate as it is determined by demand and supply
freedom for domestic monetary policy
useful instrument for macroeconomic adjustment ->
partial automatic correction for a trade deficit ->
reduced risk of currency speculation ->
what are the pros of a fixed exchange rate
what are the cons of a floating exchange rate
what are the cons of a fixed exchange rate
what is a floating exchange rate
A floating exchange rate occurs when governments allow the exchange rate to be determined by market forces and there is no attempt to influence the exchange rate.
