Globalisation - Stimulus analysis Flashcards
Analyse page 2(highlighted points)
A recession is two consecutive quarters of negative economic growth e.g. the growth in real GDP is negative
Economic growth is an increase in real GDP over time and an increase in the productive capacity of the economy.
- growth can be the result of government policies to increase the quantity or quality of factors of production
- could be demand led(increase in AD) or supply led (increase in AS)
Eurozone refers to those countries that use the Euro - a single currency. Their interest rates are set by the ECB (the European Central Bank) and they do not have control over their own monetary policy
This refers to the causes of economic growth including those later in this Stimulus material
This refers to the consequences of economic growth (costs and benefits)
Economic recovery is an increase or improvement in economic growth. It will also lead to higher levels of employment (since output is increasing) and improvements in living standards
Analyse page 3
- what does recession affect and why
- analyse the data(4)
In a globalised world recession can affect all countries as if income in one country (e.g. US) falls, then other countries will not sell as many exports to the US
The data suggests that this has been particularly bad for manufacturing countries who face increasingly intense competition from the newly emerging (MINT) economies
Agricultural products and fuels\mining have not fallen as dramatically and, if these are the main exports of LEDCs\emerging economies, then they will not have experienced such large falls in GDP\growth during the recession
Those developed countries that may have specialised in manufacturing (because they have absolute advantage) may be relatively worse off because the global demand for their products has fallen more
-Moreover because of higher costs of production, lower productivity and\or less investment and innovation their goods may no longer be internationally competitive, compared with those of the BRIC\MINT countries
Analyse page 4
This data clearly shows those countries whose GDP has been reduced most during the recession and those who have maintained their economic growth rates (even if the rate of growth has fallen). Advanced economies have seen bigger falls in their growth rates.
Remember when describing data look at the ‘ends’ of the period; the overall ‘trend’ and any ‘bends’ – major fluctuations
Analyse page 6
- inward chinese investment
- smaller economies
- Lower external debt burden (also high external debt burden)
- High commodity exports\reliance on manufactured exports
- Austerity programmes
‘Inward Chinese Investment’:
China has been very successful at exporting and this has led to high surpluses on their Balance of Payments Current Account. These funds have been used, in part, to invest in other countries in Europe but also sub-Saharan Africa.
FDI has a number advantages for a country. These include:
• Increased employment
• R and D technology transfer
• Increased I leads to increased AD and National Income (NB multiplier effect)
• Tax revenue for ‘host’ government
• Improvements in infrastructure and human capital
Smaller economies may have been less vulnerable to global recession because they may be less dependent on exports and therefore, their AD and their growth rates will be less affected by a fall in global demand for goods and services
Countries borrow from other governments, financial institutions and international bodies like the IMF. If a country has high levels of international debt this means that the a high proportion of government spending will be taken up with interest payments and repayments of the debt. It may also mean that the government is spending too much money in other areas (budget deficit) or that the country is not internationally competitive (low exports\high imports – balance of payments current account deficit)
This means that countries that produce these commodities (raw materials) such as oil and gas are increasing their revenue from exports and AD will rise. However, those reliant on manufacturing exports were more affected by the fall in world demand and increased competition from the BRICs\MINTs
Governments with high levels of borrowing (after the financial crisis) had to cut spending and increase taxes to try to reduce their budget deficit
Analyse page 7
- what is the aim of the IMF
- what does the world bank do
- what are debts
- what is the difference between absolute and relative poverty
- how does reducing debt payments benefit the countries
- what are the macroeconomic policies
Encourage international trade and economic stability and growth
The World Bank provides loans to developing countries
Loans by developed countries and international financial institutions to less developed countries
(check)
allowed countries to increase spending on policies to reduce poverty- this might include increased spending on housing, education and health, and measures to increase long run growth such as investment and spending on infrastructure
This would include reduction in inflation, low and stable unemployment, sustainable growth and long run balance on the Current Account of the Balance of Payments. It would also include reduced government borrowing which may be difficult for poorer countries, where tax revenue is low and poverty is high
Analyse page 8
- describe Fair Trade and their aims
- what does the movement focus on
- describe the some arguments against fairtrade(3)
Fair trade is an organisation whose stated goal is to help producers in developing countries achieve better trading and production conditions, by the payment of higher prices to exporters, as well as enforcing higher social and environmental standards. The aim is to reduce the environmental costs of production and to ensure higher and more stable prices and incomes for farmers. They may also impose minimum rights and\or pay for workers
The movement focuses in particular on commodities like coffee, chocolate and bananas. or products which are typically exported from developing countries to developed countries
Critics argue that it leads to inefficiencies and may actually encourage farmers and small producers to over produce as they are guaranteed a higher price.
Because of corruption the farmers may not benefit and consumers pay higher prices for the goods they buy.
Since Fairtrade goods are substitutes for non-Fair trade goods, an increase in demand for Fair trade goods may lead to a fall in demand for non- fair trade goods
Analyse page 9
-what are some advantages of using the Euro
There is exchange rate stability and international trade between member countries is easier as everyone uses the same currency
Analyse page 10
- what are some benefits of joining the EU
- what are some costs of joining the EU
No barriers to trade e.g. tariffs, within the EU. Countries outside the EU face trade restriction such as the Common External Tariff. EU membership has many benefits as it increases consumer choice, gives access to larger markets and may make firms more efficient (as they have to compete with firms in other EU countries).
Reduce employment and mean that countries e.g. Lithuania do not have access to cheaper imports from outside the EU
Analyse page 11
- what is an exchange rate
- how is exchange rate determined
- when will exchange rate be high
- when will exchange rate be low
- analyse the data in fig 8
- what does the value of a currency determine
- what does the value of the Euro being low cause
the price of one currency in terms of another
determined by the demand for, and supply of, a currency
if exports from that country are high, or if people want to buy the currency for other reasons (e.g. high interest rates or speculation)
An exchange will be low if the demand fro imports to the country is high or if people want to sell the currency (and buy another) for other reasons (e.g. low interest rates\negative speculation)
a fall in the value of the Euro against the $, as it is worth less $.
The value of a currency determines the price of exports and imports and, to some extent, a country’s international competitiveness. If the value of the currency is low then imports will be more expensive and exports will be cheaper. If the value of a currency is high, then imports will be cheaper and exports will be more expensive. A fall in the value of a currency will decrease the Current Account deficit on the Balance of Payments (unless the demand fro imports and exports is not ‘elastic’ i.e. does not change a lot in response to a change in price)
If the value of the Euro is low then exports from Europe to the US an the UK will increase as EU goods and services are relatively cheaper, and imports into the EU will fall. This should mean that Eurozone countries see an increase in AD, employment and growth as demand for their goods and services, from other countries, increases.
