Globalisation- MM

Question 1

What are 5 ways countries can increase their international competitiveness?

Answer 1

1) Exchange rates
2) Control inflation
3) Strength of institutions
4) Ease of doing business
5) Quality of labour force

Question 2

How do you calculate terms of trade?

Answer 2

Index of export prices/Index of import prices x 100

Question 3

How do you know if terms of trades have improved?

Answer 3

Answer is over 100

Question 4

What does the Marshal Lerner condition state?

Answer 4

A devaluation o a currency improves the BoP only if the sum of price elasticities of demand for M & X are greater than one

Question 5

What does a J-curve look like?

Answer 5

J shape leaning to the right, starts under x-axis, ends above.

Question 6

What are the labels for a J-curve diagram?

Answer 6

y-axis= BoP
Pos y-axis= Surplus
Neg y-axis= Deficit
X-axis= Time

Question 7

What is globalisation?

Answer 7

The process of interaction & integration among people, companies and governments worldwide (made the world a smaller place)

Question 8

What is one of the main consequences of globalisation?

Answer 8

Significant increase in the volume of goods being traded internationally (M&X)

Question 9

What are 5 causes of globaliation?

Answer 9

1) Improved transport
2) Improved technology
3) Firms exploiting economies of scale
4) Reduced trade barriers
5) Growth of global financial system

Question 10

Explain improved transport as a cause of globalisation

Answer 10

Air & sea transport in particular, alongside container invention (containerisation)

Question 11

Explain improved technology as a cause of globalisation

Answer 11

Growth of the internet & electronic meetings (e.g. zoom). Enabled growth of global media increasing info available across the globe, in turn increasing mobility of labour (migration)

Question 12

Explain firms exploiting economies of scale as a cause of globalisation

Answer 12

Enables huge growth in quantity & power of multinational companies (helped by tech and transport)

Question 13

Explain reduced trade barriers as a cause of globalisation

Answer 13

Growth of trading blocks such as EU, eliminating internal trade barriers

Question 14

Explain growth of global financial system as a cause of globalisation

Answer 14

Making capital more mobile than before- increasing mobility of capital

Question 15

What are 7 consequences of globalisation?

Answer 15

1) Greater trade in goods & services between world’s economies
2) Greater transfer of financial capital between the world’s economies & greater FDI
3) Greater transfer of technology
4) Greater specialisation- outsourcing & offshoring
5) Greater labour migration
6) Development of global brands
7) Inclusion of more economies in the global trading system

Question 16

What are 2 reasons globalisation is good for developed countries?

Answer 16

1) Most MNC’s come from there, meaning profits & income flow back to them
2) Inward migration, providing cheap labour

Question 17

What is a reason that globalisation is good for emerging countries?

Answer 17

MNC’s have moved in, creating jobs, causing higher income, more development, large scale industrialisation & more choice for consumers

Question 18

What is a reason globalisation is good for developing countries?

Answer 18

Same as emerging, but more focus on improving infrastructure, higher standard of living, significant ↓ in absolute poverty rather than industrialisation

Question 19

What are 3 reasons globalisation is bad for developed countries?

Answer 19

1) Traditional jobs & industries have disappeared
2) More inequality
3) Immigration puts pressure on public services & reduces wage levels

Question 20

What are 3 reasons globalisation is bad for emerging countries?

Answer 20

1) Their traditional lifestyle & identity gets lost
2) Environment suffers badly
3) Brain drain- brightest & best young people leave the country

Question 21

What are reasons globalisation is bad for developing countries?

Answer 21

Same way as emerging but worse, as they have less power, more likely MNC’s abandon due to this

Question 22

In what way are the causes & consequences of globalisation linked?

Answer 22

Many ways, all interlinked

Question 23

What is international competitiveness?

Answer 23

A country ensuring that they’re making things people want to buy, and selling them at prices they’re happy to pay

Question 24

What are 2 ways to judge international competitiveness?

Answer 24

1) Price factors
2) Non-price factors

Question 25

What are 3 price factor measures?

Answer 25

1) Relative unit labour costs- cost of labour to generate output ↓ = ↑ compet
2) Relative productivity- ↑ prod.= ↑ compet.
3) Relative X prices- X-rate ↓= cheaper X= ↑ compet.

Question 26

What are 4 non-price factor measures?

Answer 26

1) Design- Are the country’s products what people want?
2) Quality- Are products well made & work properly?
3) Reliability- Do the products keep working
4) Availability- Is it easy to buy the products?

Question 27

What are 6 influences on international competitiveness?

Answer 27

1) Real X-rates & relative inflation rates
2) Productivity
3) (Non) wage costs
4) Labour market efficiency
5) R&D
6) Regulation

Question 28

How do you work out real X rates?

Answer 28

Nominal X-rate x PL in a country/PL abroad

Question 29

What are 2 positives of ↑ international competitiveness?

Answer 29

1) Cheaper X= higher demand for them= ↑ AD, economic growth & employment & help correct current account deficits
2) Falling compet. can worsen BoP as I ↑ and X ↓ & unemployment ↑ - prevents this

Question 30

What are 3 downsides to international competitiveness?

Answer 30

1) If they have a current account surplus, cheaper exports will worsen this
2) If a country is over-reliant on X, it is vulnerable to shocks
3) Focus on competitiveness can lead to other problems e.g. uncertainty created & neglecting the environment

Question 31

What is a key feature of globalisation?

Answer 31

Growth of multinational companies (MNC’s)

Question 32

What are 7 benefits of globalisation to economies

Answer 32

1) Encourages specialisation
2) Producers benefit from econ. of scale
3) ↓ producation costs
4) ↑ world GDP
5) Improve standards of living & ↓ poverty
6) ↑ Growth & employment
7) ↑ competition

Question 33

What are 3 drawbacks of globalisation to economies?

Answer 33

1) ↑ price of goods & services
2) Economic dependency- insatbility of economies
3) Global imbalances of BoP’s

Question 34

What are 3 positives of MNC’s?

Answer 34

1) ↑ FDI= ↑ jobs, skills & wealth
2) Benefit from econ. of scale
3) ↑ living standards by ↑ employment

Question 35

What are 6 negatives of MNC’s?

Answer 35

1) Exploit workers
2) Force local firms out of business
3) Can withdraw profits from a country & put them in another with lower tax rates
4) Can ↓ choice & ↑ prices
5) Can influence government policies selfishly
6) Gvnmts may ↓ corporate tax levels to keep/attract MNC’s

Question 36

What is absolute advantage?

Answer 36

When a country produces a commodity with the best quality and at a faster rate than another

Question 37

What is comparative advantage?

Answer 37

When a country has the potential to produce a particular product better than any other country

Question 38

What is absolute advantage about?

Answer 38

Producing at a lower cost

Question 39

What is comparative advantage about?

Answer 39

Produce at a lower opportunity cost

Question 40

What does the theory of comparative advantage suggest?

Answer 40

Countries can gain an international trade advantage when they focus on producing goods that produce the lowest opportunity costs as compared to other countries

Question 41

What does comparative advantage link to?

Answer 41

Specialisation

Question 42

What are 3 evaluation points of comparative advantage?

Answer 42

1) Still vital now- justifies globalisation, countries have higher material outcomes by producing only goods where they have a comparative advantage
2) Becoming less important though- secent events highlighting weakness of comparative advantage as the basis for international trade
3) Verdict- Relevance of comparative advantage varies according to the type of product- Strategically important=less influence of comparative advantage