life in a global economy

Question 1

Describe globalisation.

Answer 1

The integration of the world’s economies in a single market, whereby tariffs and quotas are eliminated.

Question 2

How has transport contributed to an increase in globalisation?

Answer 2

It is now easier and more efficient to transport goods to and from different countries, thereby encouraging more trade.

Question 3

Name the international institution that regulates global trade.

Answer 3

The World Trade Organisation (WTO).

Question 4

What are MNCs?

Answer 4

Multinational Corporations - corporations that manage the production of goods/services in multiple countries.

Question 5

Name the 2 countries that have arguably grown the most due to globalisation.

Answer 5

India and China

Question 6

What is GDP per capita?

Answer 6

The GDP of an economy divided by its population (capita).

Question 7

Give 2 limitations of using GDP to measure the health of an economy.

Answer 7

• Does not give any indication to the distribution of income and wealth
• Cannot track the performance of the hidden markets

Question 8

List the 3 components of the HDI index.

Answer 8

• Education
• Life expectancy
• Standard of living

Question 9

How does population growth in developed countries compare to that in developing countries?

Answer 9

Much slower population growth in developed economies.

Question 10

Which type of economy usually has a stronger agricultural sector?

Answer 10

Developing economies.

Question 11

Which countries form the BRIC economies?

Answer 11

Brazil
Russia
India
China

Question 12

How would you find the ‘median’ income of an economy?

Answer 12

This is the middle value of all incomes.

Question 13

What is specialisation?

Answer 13

Occurs when each worker completes a specific task in the production process, which can increase productivity and therefore reduce average costs of production.

Question 14

Describe the disadvantages of specialisation.

Answer 14

• Employee motivations is compromised as a result
• Structural unemployment, due to a mismatch between skills required and provided

Question 15

Define comparative advantage.

Answer 15

Occurs when one country can produce a good/service at a lower opportunity cost than a different country.

Question 16

Define absolute advantage.

Answer 16

This is when one country can produce more units of a good/service than a different country with the same factor inputs.

Question 17

What are free trade areas?

Answer 17

Comprise of different countries that agree to trade with each other with no protectionist barriers.

Question 18

How do customs unions differ from free trade areas?

Answer 18

A customs union comprises of a free trade area and a common external tariff, meaning it has a common trade policy with countries outside the customs union

Question 19

What 2 features are added to a customs union to make it a common market?

Answer 19

The free movement of labour and capital.

Question 20

Give an example of a monetary union.

Answer 20

The Eurozone.

Question 21

List the 4 requirements in order to become a member of the Eurozone.

Answer 21

• Budget deficits must not exceed 3% of GDP
• Gross National Debt has to be below 6% of GDP
• Inflation has to be below 1.5% of the 3 lowest inflation countries
• The average government bond yield has to be below 2% of the yield of the countries with the lowest interest rates

Question 22

How can firms benefit from economies of scale when in a trade bloc?

Answer 22

By entering a trading bloc, firms now have access to a broader market, which increases their output which they can benefit from lower average costs.

Question 23

How would costs between borders be reduced by entering a trade bloc?

Answer 23

By eliminating protectionists measures such as tariffs, there is no need for firms to pay high taxes, which could result in lower prices.

Question 24

Which is an outflow of money: imports or exports?

Answer 24

Imports.

Question 25

What are exports?

Answer 25

Goods and services that are sold to foreign countries and are positive on the balance of payments scale.

Question 26

Do the UK specialise in goods or services?

Answer 26

Services (invisibles).

Question 27

How do cheap imports affect unemployment in the domestic economy?

Answer 27

Cheap imports harm domestic firms as they lose their competitive advantage, therefore they produce less units of output, meaning they require less workers, hence the unemployment rate increases.

Question 28

How do cheap imports affect the domestic inflation rate?

Answer 28

Cheap imports promote competition, so firms find ways to reduce costs and lower prices which lowers the overall rate of inflation.

Question 29

When does exchange rate depreciation occur?

Answer 29

When the value of one currency falls relative to another currency in a floating exchange rate system

Question 30

How is the exchange rate determined in a floating system?

Answer 30

Determined by the forces of Supply and Demand.

Question 31

How is the exchange rate determined in a fixed system?

Answer 31

Determined by what the government wants to value the currency at.

Question 32

How would a depreciation of the pound help domestic firms?

Answer 32

It makes exports cheaper, which boosts demand for them and therefore helps UK firms grow.

Question 33

How would a depreciation of the pound damage domestic firms?

Answer 33

If UK firms import raw materials from other countries, a depreciation increases the costs of these materials, which would be passed onto consumers in the form of higher prices.