HSC Topic One: The Global Economy.

Question 1

Global economy

Answer 1

Where the economies of individual countries are linked to each other and changes in a single economy can have ripple effects on the others.

Question 2

Gross World Product (GWP)

Answer 2

refers to the sum of the total output of goods and services by all economies in the world over a period of time.

Question 3

Globalisation

Answer 3

refers to the integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity.

Question 4

Direction of trade

Answer 4

Direction of trade refers to the study of the countries to whom the exports are made and from whom the imports are made.

Question 5

Foreign exchange markets

Answer 5

refers to the market in which currencies are traded.

Question 6

Speculators

Answer 6

Investors who buy or sell financial assets with the aim of making profits from short term price movements.

Question 7

The International Monetary Fund (IMF)

Answer 7

An international agency that consists of 190 members and oversees the stability of the global financial system. The major functions of the IMF are to ensure stability of exchange rates, exchange rate adjustment and convertibility.

Question 8

Foreign direct investment (FDI

Answer 8

Refers to the movement of funds between economies for the purpose of establishing a new company or buying a substantial proportion of shares in an existing company (10% or more). FDI is generally considered to be a long term investment and the investor normally intends to play a role in the management of the business

Question 9

Transnational corporations (TNCs)

Answer 9

TNC’s are global companies that dominate global product and factor markets. TNC’s have production facilities in at least 2 countries and are owned by residents of at least 2 countries.

Question 10

International division of labour

Answer 10

How the tasks in the production process are allocated to different people in different countries around the world.

Question 11

World Trade Organisation

Answer 11

An organisation of 164 member countries that implements and advances global trade agreements and resolves trade disputes between nations

Question 12

Foreign Exchange Markets

Answer 12

The foreign exchange market is an over-the-counter (OTC) marketplace that determines the exchange rate for global currencies

Question 13

Labour Markets

Answer 13

The labor market refers to the supply of and demand for labor

Question 14

International. business cycle.

Answer 14

refers to fluctuations in the level of economic activity in the global economy over time

Question 15

Infant industries

Answer 15

a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitors abroad.

Question 16

Protection

Answer 16

refers to the government policies that give domestic producers an artificial advantage over foreign competitors

Question 17

Free trade

Answer 17

a situation where governments impose no artificial barriers to trade that restrict the free exchange of goods and services between countries with the aim of shielding domestic producers from foreign competitors.

Question 18

Comparative Advantage

Answer 18

The economic principle that nations should specialise in the areas of production in which they have the lowest opportunity cost, and trade with other nations so as to maximise standards of living

Question 19

Dumping

Answer 19

The practice of exporting goods to a country at a price lower than their selling price in their country of origin.

Question 20

Tariff

Answer 20

A government imposed tax on imports.
-Raises price on imported good making the domestic producer more competitive.

Question 21

Qouta

Answer 21

Refer to restrictions on the amounts or values of various kinds of goods that may be imported.

Question 22

Subsidy

Answer 22

Subsidies involve financial assistance to domestic producers, which enables them to reduce their selling price and compete more easily with overseas producers.
- Shifts the supply curve outwards

Question 23

Local content rules

Answer 23

Rules which specify that goods must contain a minimum percentage of locally made parts.

Question 24

Export incentives

Answer 24

Give domestic producers assistance such as grants, loans or technical advice and thus encourage businesses to penetrate global markets or expand their market share.

Question 25

Free trade agreement

Answer 25

formal agreements between countries designed to break down trade barriers between those nations.

Question 26

Bilateral trade agreement

Answer 26

trade agreement with 2 countries

Question 27

Multilateral trade agreement

Answer 27

Trade agreement with 2 or more countries

Question 28

Trade bloc

Answer 28

Occurs when a number of countries join together in a formal preferential trading agreement.

Question 29

Trade Diversion

Answer 29

When trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union.

Question 30

Trade Liberalisation

Answer 30

Trade liberalisation refers to the removal or reduction of restrictions or barriers on the free exchange of goods between nations.

Question 31

Absolute advantage

Answer 31

The principle of absolute advantage is the ability of a party (an individual, or firm, or country) to produce a good or service more efficiently than its competitors.

Question 32

Brain Drain

Answer 32

Refers to a substantial emigration or migration of individuals out of a country. It can result from turmoil, the existence of favorable professional opportunities in other countries, or a desire to seek a higher standard of living.