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Macroeconomics > International Economies > Flashcards

International Economies Flashcards

1
Q

Globalisation

A

Increased integration between countries economically, socially and culturally

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2
Q

FDI

A

When a company in one country establishes operations in another country or when it acquires physical assets ora stake in an overseas company

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3
Q

Key characteristics of globalisation (4)

A
  1. Increased trade as a proportion of GDP
  2. Increased FDI
  3. Increased capital flows between companies
  4. Increased movement of people between countries
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4
Q

Capital flows

A

Money flowing between countries as a consequence of investment flows into and out of countries around the globe

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5
Q

Causes of globalisation (6)

A
  1. Decrease in transport costs –> economies of scale
  2. Decrease in cost of comms
  3. Reduction in world trade barriers
  4. Opening up of China and collapse of Communism
  5. Growth of trading blocs
  6. Increased importance of TNCs
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6
Q

Impacts of globalisation (6)

A
  1. Individual countries- specialise in producing goods, increase living standards, if no comparative advantage- inequality, imports, risk of contagion
  2. Gov- tax revenue increases, some TNCs avoid tax by transfer pricing
  3. Producers- benefits of economies of scale, tech transfer, modern managerial techniques, local producers may be forced out
  4. Consumers- lower prices and more choice
  5. Workers- increased employment, might be exploited
  6. Environment- external costs, exploitation for resources
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7
Q

Absolute advantage

A

A country can produce more of one product than another country can with the same amount of resources

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8
Q

Comparative advantage

A

Can produce a good with lower OPC than another country

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9
Q

Law of comparative advantage (international trade/specialisation of labour)

A
  1. Constant returns to scale- straight PPF
  2. No transport costs
  3. No trade barriers
  4. Perfect mobility of FoPs between different users
  5. Externalities ignored
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10
Q

Limitations of comparative advantage (3)

A
  1. Free trade is not always fair trade- monopsony powers
  2. Law based on unrealistic assumptions
  3. If OPC was same, then there would be no benefit of specialisation
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11
Q

Advantages of specialisation and trade (5)

A
  1. Living standards and employment
  2. Lower prices, more choice
  3. Transfer of management and tech
  4. Economies of scale
  5. Reduced power of domestic monopolies
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12
Q

Disadvantages of specialisation and trade (6)

A
  1. Deficit if goods are uncompetitive
  2. Dumping risk
  3. unemployment
  4. Contagion and disruption risk
  5. Unbalanced development- only those with comparative advantage
  6. TNCs may be global monopolies
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13
Q

Specialisation and trade problems on developing nations (3)

A
  1. Infant industries unable to compete
  2. Monopsony powers force others to accept low prices
  3. Declining terms of trade for countries dependent on primary products
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14
Q

Factors of patterns of trade (6)

A
  1. Comparative advantage
  2. Growth of X of manufactured goods
  3. Growth of global supply chains
  4. Importance of emerging economies as partners
  5. Growth of trading blocs
  6. Changes in relative exchange rates
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15
Q

Terms of trade

A

index of export prices/index of import prices x100

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16
Q

Factors on terms of trade (4)

A
  1. Inflation
  2. Productivity
  3. Tariffs
  4. Exchange rate
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17
Q

Effect of increase terms of trade (2)

A
  1. Higher living standards

2. Deterioration in current account of the balance of payments

18
Q

Trading bloc

A

Group of countries that agree to reduce or eliminate trade barriers between them: Free trade areas, customs unions, common markets, monetary unions

19
Q

Costs of regional trade agreements (2)

A
  1. Trade diversion

2. Distortion of comparative advantage

20
Q

Costs of monetary unions (3)

A
  1. Transition costs
  2. Loss of independent MP
  3. Loss of exchange rate flexibility
21
Q

Benefits of regional trade agreements (3)

A
  1. Trade creation
  2. Increase FDI
  3. Increase economic power
22
Q

Benefits of monetary unions (3)

A
  1. Elimination of transaction costs
  2. Price transparency
  3. Elimination of currency fluctuations between member countries- increased investment by businesses
23
Q

Role of WTO (2)

A
  1. Promote free trade

2. Settle trade disputes

24
Q

Reasons for restrictions of free trade (6)

A
  1. Correct deficit in trade
  2. Prevent dumping
  3. Reduce unemployment
  4. Reduce risk of disruption from global economy
  5. Prevent sectoral imbalance
  6. Limit monopoly powers of TNCs
25
Q

Developing countries reasons for restricting trade (2)

A
  1. Protect infant industries

2. Limit monopsony power of firms in developed countries

26
Q

Types of restrictions on free trade (4)

A
  1. Tariffs
  2. Quotas
  3. Subsidies to domestic producers
  4. Non-tariff barriers
27
Q

Impact of protectionist policies (4)

A
  1. Consumers- higher prices and less consumer surplus and choice
  2. Producers- domestic firms face less competition and less incentive to produce at lowest cost
  3. Government- tariff means more tax revenue
  4. Living standards- distorts comparative advantage; specialisation reduced and lower output
28
Q

Elements of current account (4)

A
  1. Trade in goods balance
  2. Trade in services balance
  3. Investment income (pb)
  4. Current transfers (sb)
29
Q

Elements of financial and capital account (4)

A
  1. FDI
  2. Portfolio investment in shares and bonds
  3. Short term capital flows
  4. Changes in foreign currency reserves
30
Q

Causes of deficits on current account (4)

A
  1. Low production
  2. Relocation of manufacturing industries
  3. Increase in ER against that of others
  4. Economic growth- imports
31
Q

Causes of surplus on current account (4)

A
  1. Expenditure- reducing policies
  2. Expenditure- switching policies
  3. Devaluation of currency
  4. Supply side policies
32
Q

Exchange rate systems (3)

A
  1. Floating- determined by market forces
  2. Fixed- fixed against those of other countries
  3. Managed- floating but subject to intervention by CB
33
Q

Revaluation, appreciation, devaluation and depreciation

A
  1. Revaluation- increase ER under fixed system
  2. Appreciation- increase ER under floating system
  3. Devaluation- decrease ER under fixed system
  4. Depreciation- decrease ER under floating system
34
Q

Why may current account deficit be unwanted? (4)

A
  1. Indicate goods and services are uncompetitive
  2. May result in increasing unemployment
  3. May be forced to borrow money from IMF
  4. Floating system can mean depreciation of ER
35
Q

Why may a current account surplus be unwanted? (4)

A
  1. Inflation
  2. May imply living standards are falling
  3. Cause appreciation in value of currency
  4. Might cause others to impose restrictions on imports
36
Q

Factors influencing floating ER (5)

A
  1. Relative IR
  2. Relative inflation
  3. Current account balance
  4. FDI
  5. Speculation
37
Q

What does a devaluation/depreciation cause? (2)

A
  1. Decrease in foreign currency price of a country’s exports
  2. Increase in domestic price of imports
38
Q

Measures of international competitiveness (3)

A
  1. Relative unit labour costs
  2. Relative export prices
  3. Global Competitive Index (GCI)
39
Q

Factors influencing international competitiveness (6)

A
  1. Unit labour costs
  2. Productivity
  3. Real exchange rate
  4. Labour taxes or subsidies
  5. Government laws and regulations
  6. R&D
40
Q

Benefits of competitiveness and problems of not being (3+3)

A
  1. Improvement in balance of payments
  2. Less unemployment
  3. Increase in economic growth and multiplier effect
  4. Increase in unemployment
  5. Deficit on balance of payments
  6. Depreciation of exchange rate

Macroeconomics (14 decks)

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