Macro Five

Question 1

What is Globalisation

Answer 1

The process by which the world’s economies are becoming increasingly economically inderpendent

Question 2

What drives an increase in Globalisation and what does this cause

Answer 2

This has been driven by improvements in technology, which results in an increase in the number of multi-national corporations

Question 3

What are the 9 characteristics of Globalisation

Answer 3

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

Question 4

What are terms of trade

Answer 4

The ratio of a country’s export prices to import prices

Question 5

What happens if a countries index of export prices increases while the index of import prices stays the same

Answer 5

The country can buy more imports for a given quantity of exports the their terms of trade have improved

Question 6

What does the World Trade Organisation aim to do

Answer 6

To promote free trade by persuading their 164 member nations to remove trade barriers

Question 7

What are the Positive Consequences of Globalisation for MEDCs

Answer 7

Offers larger markets for finished products

Increased trade brings improved living standards (overall)

Improved terms of trade

Question 8

What are the Negative Consequences of Globalisation for MEDCs

Answer 8

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

Question 9

What are Positive Consequences of Globalisation for LEDCs

Answer 9

Increased employment
Increased training and productivity
Increased investment
Increased tax revenue for the government
Increased incomes and standard of living
Possible multiplier effects

Question 10

What is a closed economy

Answer 10

An economy that doesn’t partake in international trade

Question 11

What is an open economy

Answer 11

An economy that is completely open to trade with the rest of the world

Question 12

What describes a situation in which there are no trade barriers

Answer 12

Free trade

Question 13

How can a country benefit from international trade

Answer 13

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

Question 14

How can international trade come at a cost to a country

Answer 14

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

Question 15

Why is the World Supply curve on a graph showing international trade perfectly price inelastic

Answer 15

This country is small compared to the whole global market so the World Supply will be inelastic compared to domestic supply

Question 16

When does a country have absolute advantage over another country.

Answer 16

When they are able to produce more output given the same factor endowment

Question 17

When does a country have comparative advantage over another country

Answer 17

When a country can produce a good at a lower opportunity cost than the other

Question 18

What can be the sources of a comparative advantage

Answer 18

Natural resources
Climate
Demographics and human capital
Capital stock
Innovation
Institutional framework

Question 19

What are possible trade restructions/barriers that can be imposed

Answer 19

Protectionism
Tariffs
Import quotas
Export subsides
Embargoes

Question 20

What does Protectionism protect

Answer 20

The domestic industry and employment

Question 21

How is the Government revenue from the imposition of a tariff calculated

Answer 21

Size of the tariff (T) times by the volume of imports afte the tariff is set

Question 22

What is trade creation

Answer 22

When a country moves from buying from a high-cost country to a low-cost country

Question 23

What is trade diversion

Answer 23

When a country moves from buying from a low-cost producer to a high-cost country

Question 24

What can make a country high-cost to trade with

Answer 24

Tariffs placed on its goods

Question 25

What can be arguments in Favour of Trade Restrictions

Answer 25

Infant industries (protecting new industries)
Strategic trade theory
Sunset industries
Diversity
Anti-Dumping
Demerit Goods
Self-sufficiency
Employment
Retaliation

Question 26

What are MEDC’s

Answer 26

More Economically Developed Countries

Question 27

What are NIC’s

Answer 27

Newly Industrialised Countries

Question 28

What are LEDC’s

Answer 28

Less Economically Developed Countries

Question 29

What are the Negative Consequences of Globalisation for LEDCs

Answer 29

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

Question 30

What are Tariffs

Answer 30

An indirect tax on imports designed to undermine foreign goods’ ability to compete on price

Question 31

What are Import Quotas

Answer 31

Physical Limits on the quantity of a good that can be imported from a certain country