international aspects Flashcards
when does specialisation occur?
when individual, areas, and firms focus their resources on the production of a certain good or service
benefits of specialisation
boosted productive capacity efficiency gains economies of scale improved competitiveness labour productivity
disadvantages of specialisation
overspecialisation increased cost low labour mobility high labour turnover lack of variety
define balance of payments
financial record of a country’s transactions with the rest of the world for a given period of time
define visible trade balance
record of the export and import of physical items
define invisible trade balance
record of the export and import of non-physical items like banking and tourism
define net income flows an transfer
record of a country’s net income earned from capital flows such as dividends
how to calculate a country’s current account?
current account= visible trade balance + invisible trade balance + net income flows and transfers
when does current account deficit occur?
spend more than you earn
higher import
lower export
consequences of current account deficit
reduced aggregate demand
unemployment
imported inflation
lower exchange rate
when does current account surplus occur?
earn more than you spend
higher export
lower import
consequences of current account surplus
employment
better standard of living
inflation
higher exchange rate
policies to deal with current account deficit
fiscal
monetary
supply side
protectionist measures
what is an exchange rate?
currency of one country measured in terms of other currencies
what is the importance of exchange rates?
used to facilitate international trade
two kinds of exchange rate systems
fixed
floating
determinants of free floating exchange rate
market forces of demand and supply
what occurs if there is a change in the exchange rate in a floating and fixed exchange rate system?
floating: appreciation & depreciation
fixed : revaluation and devaluation
possible causes of exchange rate fluctuations
change in demand for exports change in demand for imports inflation fdi speculation government intervention
consequences of increased exchange rate
consumption increases export falls import rises bop falls inflation falls economic growth falls
coping with a strong exchange rate
cutting export prices seeking alternative overseas suppliers improving productivity surge in production of inelastic goods mncs
free trade would mean that -
international trade has no barriers
merits of international trade are
access to resources lower prices economies of scale greater choice increased market size efficiency gains improved international relations
reasons for trade protection
protect infant industries safeguard domestic jobs prevent dumping government revenue to overcome bop deficit
arguments against trade protectionism
distorts market signals
increased cost of production due to lower competition
possible retaliation
types of trade protectionism
embargo quotas tariffs subsidies administrative barriers
