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Economics Theme 4 > International Economics > Flashcards

International Economics Flashcards

1
Q

Disadvantages of globalisation (6)

A

Growing inequality
Higher structural unemployment
Environmental costs
Trade imbalances
Risk of external shocks
Less cultural diversity

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2
Q

Advantages of globalisation (5)

A

Lower prices
Benefits of trade
Greater employment
Large economies of scale
Free movement of labour and captial

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3
Q

Advantages of specialisation (5)

A

Larger range of goods and services
Greater output
Greater quality
Benefits of trade
Reduces problem of scarcity

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4
Q

Terms of trade

A

Indicates the quantity of exports that must be sold to purchase a given level of imports

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5
Q

Factors influencing the terms of trade (short run)

A

Change in demand/supply of exports/imports
Inflation rates
Exchange rate movements

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6
Q

Factors influencing the terms of trade (long run)

A

Incomes
Productivity
Technology

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7
Q

Trading bloc

A

A group of countries that join together and agree to increase trade between themselves

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8
Q

Free trade area

A

No trade barriers
Can trade with other countries

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9
Q

Customs union

A

No trade barriers
Common external barrier

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10
Q

Common market

A

No trade barriers
Common external barrier
Free movement of labour and capital

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11
Q

Globalisation

A

The process in which national economies have become increasingly integrated and interdependent

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12
Q

Causes of globalisation (5)

A

Trade liberalisation
Trading blocs
Growth of MNCs
Technological advances
Greater mobility of labour and capital

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13
Q

Absolute advantage

A

When a country can produce a product using fewer factors of production than another nation

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14
Q

Comparative advantage

A

A country should specialise in the goods and services it can produce at the lowest opportunity cost, and then trade with another country

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15
Q

Specialisation

A

When a worker, firm, region or country produces a narrow range of goods and services

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16
Q

Terms of trade equation

A

(Weighted average of export prices) x (Weighted average of import prices) x100

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17
Q

Monetary union

A

No trade barriers
Common external barrier
Free movement of labour and capital
Common currency and central bank

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18
Q

World Trade Organisation (WTO)

A

International organisation that regulates world trade

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19
Q

WTO’s ideal world trade (5)

A

Non-discriminatory
Free from barriers/protectionism
Predictable
Promotes fair competition
Beneficial for developing countries

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20
Q

Role of WTO (7)

A

Set and enforce rules of international trade
Resolve trade disputes
Provide a forum for negotiating trade liberalisation
To monitor further trade liberalisation
Increase transparency of decision making process
Help developing countries benefit
Cooperate with other major economic instituions

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21
Q

How WTO conflicts with trading blocs (5)

A

Distort world trade
Averse effects on non-member states
Inefficient allocation of resources
Increased protectionism
WTO loses power as trading blocs become more powerful

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22
Q

Tariff

A

Tax on imports

23
Q

Quota

A

Quantity limit on amount of imports

24
Q

Trade subsidy

A

Subsidy given to domestic suppliers

25
Q

Aim of trade subsidy

A

To reduce costs of production → passed onto consumer as lower prices → makes firm more competitive

26
Q

Non-tariff barriers

A

Voluntary export restraint (countries limit exports to each other
Intellectual property laws (patents, copyright etc)
Technical barriers (health and safety etc)
Financial protectionism (govt. tells banks to prioritise local firms when allocating loans)
Hidden protectionism (discrimination against foreign workers)
Exchange controls (limit of capital flows between countries)
Currency intervention (competitive devaluation)

27
Q

Balance of Payments

A

Measures the inflows and outflows of money into and out of a country

28
Q

Components of the current account

A

Trade in goods (trade balance)
Trade in services (trade balance)
Income e.g. remittances (income balance)
Transfers - govt. fees e.g. aid, EU payments (income balance)

29
Q

Causes of current account surplus (6)

A

Exporting more than importing
Recession
Competitive exports (deflation/disinflation/high quality exports)
High level of natural resources
Exports worth more than imports
High levels of exports

30
Q

Causes of current account deficit (6)

A

Importing more than exporting
Sustained economic growth
Uncompetitive exports (inflation/poor quality products)
Low level of natural resources
Exports worth less than imports
Low levels of exports

31
Q

Components of financial account (3)

A

FDI
Portfolio investment
Reserves

32
Q

Capital account

A

Minor payments/transfers

33
Q

what is an effective exchange rate/trade weighted

A

average movement of exchange rate based on values of trade with main trade partners

34
Q

Advantages of a floating exchange rate (4)

A

Reduces need to hold large foreign currency reserves
Freedom to set interest rates
Automatic correction
Less risk

35
Q

Floating exchange rate

A

Currency value set by market
No govt. intervention
No target for exchange rate
Speculation causes change in floating exchange rate
e.g. British Pound

36
Q

Disadvantages of floating exchange rate (2)

A

Can be volatile - reduces FDI
A lower, more competitive exchange rate does not guarantee a current account surplus

37
Q

Fixed exchange rate

A

Govt. fixes currency value to another currency
Central bank must hold sufficient currency reserves
e.g. Chinese Yuan

38
Q

Advantages of a fixed exchange rate

A

Stability attracts FDI
Stability controls inflation
Leads to lower borrowing costs
Less speculation

39
Q

Disadvantages of a fixed exchange rate

A

Cannot use interest rates in macro policies (monetary policy)
Developing countries may not have sufficient foreign currency reserves to fix
Devaluation of exchange rate leads to cost-push inflation

40
Q

Managed exchange rate

A

Currency value set by market forces
Central bank occasionally intervenes
Currency is a key target of monetary policy
e.g. Japanese Yen

41
Q

Competitive devaluation intentions

A

Make exports cheaper and imports more expensive
Increases growth
Increases inflation
Improved current account

42
Q

Revaluation

A

When the value of the currency is adjusted

43
Q

Appreciation

A

When the value of the currency increases

44
Q

Devaluation

A

When the value of the currency is lowered in a fixed exchange rate system

45
Q

Depreciation

A

When the value of the currency falls

46
Q

Factors influencing exchange rates

A

Inflation
Speculation
Other currencies
Govt. finances
Balance of payments
International competitiveness

47
Q

Government intervention in the currency markets - interest rates (hot money)

A

An increase in interest rates is more attractive for foreign investors
This increases demand for currency, appreciating the value of the currency

Government intervention in the currency markets - quantitative easing

48
Q

Government intervention in the currency markets - foreign currency transactions

A

Buying and selling foreign currency to manipulate domestic currency

49
Q

International competitiveness

A

The ability of a nation to compete successfully overseas and to sustain improvements in living standards and output

50
Q

Components of international competitiveness

A

Price competitiveness
Non-price competitiveness
Ability to attract FDI

51
Q

Unit labour costs =

A

Total labour cost / output

52
Q

Relative export prices

A

Relative export prices

53
Q

Factors that influence international competitiveness (8)

A

Unit labour costs
Labour flexibility
Labour skills
Tax regimes
Innovation
Infrastructure
Regulation
Economic stabilility

54
Q

Advantages of protectionism

A

Reduces trade deficit
Protects infant industries

Economics Theme 4 (4 decks)

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