Macro Five Flashcards
Money, The Money Supply, The Financial System, Central Banks, The Banking System, Monetary Policy, Quantity Theory of Money, Regulation of the Banking System
What is Globalisation
The process by which the world’s economies are becoming increasingly economically inderpendent
What drives an increase in Globalisation and what does this cause
This has been driven by improvements in technology, which results in an increase in the number of multi-national corporations
What are the 9 characteristics of Globalisation
Trade liberalisation
Increased international trade
Offshoring/Global Outsourcing
Greater international mobility of (financial) capital
Greater international mobility of labour
Falling transport costs and the “death of distance”
Declining power of national governments
Growth of MNC’s
Deindustrialisation of MEDCs and the rise of NICs
What are terms of trade
The ratio of a country’s export prices to import prices
What happens if a countries index of export prices increases while the index of import prices stays the same
The country can buy more imports for a given quantity of exports the their terms of trade have improved
What does the World Trade Organisation aim to do
To promote free trade by persuading their 164 member nations to remove trade barriers
What are the Positive Consequences of Globalisation for MEDCs
Offers larger markets for finished products
Increased trade brings improved living standards (overall)
Improved terms of trade
What are the Negative Consequences of Globalisation for MEDCs
Firms’ ability to offshore/outsource makes domestic workers more vulnerable, reducing worker power
Protectionism that prevents primary producers in LEDCs from exporting goods into MEDCs means consumers don’t fully recieve the gains from trade
What are Positive Consequences of Globalisation for LEDCs
Increased employment
Increased training and productivity
Increased investment
Increased tax revenue for the government
Increased incomes and standard of living
Possible multiplier effects
What is a closed economy
An economy that doesn’t partake in international trade
What is an open economy
An economy that is completely open to trade with the rest of the world
What describes a situation in which there are no trade barriers
Free trade
How can a country benefit from international trade
Welfare gains and increased availability of goods
Rising living standards
Economies of scale for producers
Increased competition
Spur to innovation and dynamic efficiency
Source of economic growth
How can international trade come at a cost to a country
Individuals and specific industries may be made worse off
Negative externalities and depletion of natural resources
Countries may be vulnerable to exchange rate fluctuations
Can make countries reliant on other countries
Why is the World Supply curve on a graph showing international trade perfectly price inelastic
This country is small compared to the whole global market so the World Supply will be inelastic compared to domestic supply
When does a country have absolute advantage over another country.
When they are able to produce more output given the same factor endowment
When does a country have comparative advantage over another country
When a country can produce a good at a lower opportunity cost than the other
What can be the sources of a comparative advantage
Natural resources
Climate
Demographics and human capital
Capital stock
Innovation
Institutional framework
What are possible trade restructions/barriers that can be imposed
Protectionism
Tariffs
Import quotas
Export subsides
Embargoes
What does Protectionism protect
The domestic industry and employment
How is the Government revenue from the imposition of a tariff calculated
Size of the tariff (T) times by the volume of imports afte the tariff is set
What is trade creation
When a country moves from buying from a high-cost country to a low-cost country
What is trade diversion
When a country moves from buying from a low-cost producer to a high-cost country
What can make a country high-cost to trade with
Tariffs placed on its goods
What can be arguments in Favour of Trade Restrictions
Infant industries (protecting new industries)
Strategic trade theory
Sunset industries
Diversity
Anti-Dumping
Demerit Goods
Self-sufficiency
Employment
Retaliation
What are MEDC’s
More Economically Developed Countries
What are NIC’s
Newly Industrialised Countries
What are LEDC’s
Less Economically Developed Countries
What are the Negative Consequences of Globalisation for LEDCs
Jobs are likely low-skilled and low-paid
“Sweatshops”
Governments may avoid increasing regulatory burdens to remain attractive
Profits are remitted to home countries
Loss of cultural identity
Lack of domestic investments increase dependency on MNCs
Deterioration of terms of trade
What are Tariffs
An indirect tax on imports designed to undermine foreign goods’ ability to compete on price
What are Import Quotas
Physical Limits on the quantity of a good that can be imported from a certain country
