International Economics Pt2 Flashcards
What’s a trading bloc?
A group of countries that protect themselves from imports of non-members. E.g, the EU.
What are preferential trading areas?
Where protectionism is reduced on some but not all goods traded between member countries.
What are free trade areas?
Occur when members agree to reduce or eliminate trade barriers on all goods between member countries.
What are customs unions?
Involves the removal of tariff barriers between members and the acceptance of a common external tariff against non-members.
What are common markets?
They aim to establish a single market, the same way in which there is a single market within an individual economy.
What are monetary unions?
Two or more countries with a single currency, with an exchange rate that is monitored and controlled by one central bank or several central banks with closely coordinated monetary policy
What’s the eurozone?
The European Central Bank distributes notes and coins, sets interest rates, maintains a stable financial situation and manages the foreign currency reserves.
What’s an economic union?
The final step of economic integration. There will be a
common market with coordination of social, fiscal and monetary policy.
What are the advantages of trading blocs?
More choice
More jobs
More competition
More protection
Larger customer market
More specialisation
More output
Economies of scale
What are the disadvantages of trading blocs?
It can distort world trade.
May be a reduction in competition if inefficient firms are driven out.
Increased inequality.
Potential retaliation.
Less national sovereignty.
What’s trade creation?
When trade is created by the joining of a trading bloc. It’s when consumption shifts from a high cost domestic producer to a low cost partner producer.
What’s trade diversion?
Occurs where consumption shifts from a lower cost producer outside the trading bloc to a higher cost producer within it.
What’s the role of the WTO?
Bring trade liberalisation.
Ensure countries act to trade agreements.
What’s the capital account?
It mainly records transfers of immigrants and emigrants taking money abroad or bringing to the UK, or government transfers such as debt forgiveness to Third World countries.
What’s the financial account?
It’s split into three main parts:
Foreign direct investment (FDI), portfolio investment and reserves (gold/foreign currency).
What are the short term causes of deficits and surpluses?
Levels of consumer demand.
Exchange rates.
Relative inflation.
What are the medium term causes of deficits and surpluses?
Changes in comparative advantage.
What are the long term causes of deficits and surpluses?
Capital investment.
Productivity.
Deindustrialisation.
Corruption.
Natural resources.
International competitiveness.
What policies can be used to reduce trade deficits?
Monetary and fiscal policy that reduces AD.
Supply side policies that increase productivity.
What’s the exchange rate?
The purchasing power of a currency in terms of what it can buy of other currencies.
What’s a free floating system?
Where the value of the currency is determined purely by market demand and supply of the currency, with no target set by the government and no official intervention in the currency markets. E.g, UK
What’s a managed floating system?
Where the value of the currency is determined by demand and supply but the Central Bank will try to prevent large changes in the exchange rate on a day to day basis. E.g, Swiss Franc
What’s a fixed system?
When a government sets their currency against another and that exchange rate does not change e.g, gold standard.
What are the changes in a currency called?
An appreciation/depreciation of the currency is an change in the value of the currency using floating exchange rates.
A revaluation/devaluation of the currency is when the currency is changed against the value of another under a fixed system.
