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
