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A Level (A2) AQA Economics > Macroeconomics, part 10- The International Economy > Flashcards

Macroeconomics, part 10- The International Economy Flashcards

1
Q

GDP definition:

A

The total value of outputs of goods and services produced within an economy in a given period of time

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2
Q

Short run economic growth definition:

A

Increase in the value of goods and services produced by an economy over a period of time.

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3
Q

Long run economic growth definition:

A

An increase in productive capacity of the economy from one year to the next

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4
Q

What is GNP?

A

GNP = GDP + net property income from abroad (NPIA)

Output produced by a country’s citizens, regardless of where the output is produced

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5
Q

Net property income from abroad definition:

A

Income flows (rent, wages, interest profit) earned in one country by someone in another country. e.g. renting out a property overseas

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6
Q

PPP definition:

A

Purchasing power parity. Measures how many units of one country’s currency are needed to buy exactly the same basket of goods and services as can be bought with a given amount of another country’s currency

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7
Q

What are the problems with using GDP per capita as in indicator of standard of living?

A
  • Human happiness
  • Non-market activities
  • Environmental factors
  • Informal economy
  • Sustainability
  • Balance of spending
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8
Q

Why doesn’t GDP per capita show human happiness?

A

National output might increase at the expense of leisure time, decreasing human happiness even though GDP is increased. Happiness is more than just the goods and services consumed

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9
Q

Why are non market activities a problem with GDP per capita?

A

There is no price attached to them, e.g. work of house wives/ husbands that would have a salary if it was paid for

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10
Q

Why are environmental factors a problem with GDP per capita?

A
  • Environmental costs such as pollution would reduce the true value of GNP
  • GDP includes work repairing harm, e.g. rebuilding an area after a natural disaster, creating a large GDP, but it would be better if that had never happend
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11
Q

Why is the shadow economy a problem with GDP per capita?

A

Particularly big in LEDCs with poor tax collection services. This makes their GDP seem lower that it actually is

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12
Q

Limitations of national income data:

A
  • Each method of estimating GDP is imprecise, leading to inaccuracies in published figures
  • Non market activities are not part of NY figures
  • Undeclared economic activity
  • Income is not distributed on a per capita basis
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13
Q

Benefits of economic growth:

A
  • Higher living standards
  • New jobs and decreased unemployment
  • Increased tax revenue can fund public spending
  • Improved business confidence which is attractive to foreign investment flows
  • Higher consumption leads to induced increases in investment spending-
  • Introduces new technology which spurs greater innovation
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14
Q

Risks from economic growth:

A
  • Environmental impact
  • Increased inequalities in income and wealth
  • Resources are being depleted because of over consumption
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15
Q

How could economic growth potentially benefit the environment?

A
  • Increased wealth could be used to buy cleaner fuels
  • Resources to devote to research and development of cleaner and less resource-intensive production technologies
  • Higher real incomes are associates with lower fertility rates which reduces the rate of population growth
  • Change in structure of output away from traditional manufacturing industry
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16
Q

What economic things does the WTO do?

A
  • Setting of tariffs

- Prohibition of manipulation of exchange rates

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17
Q

Why does the WTO prohibit the manipulation of exchange rates?

A
  • By changing the exchange rate, it is interfering with another country’s level of AD
  • It can cause another country to lose their comparative advantage
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18
Q

Quantitative controls for lending by banks:

A
  • Reserve ratio
  • Salary rules for mortgages
  • Deposits %
  • In the past, banks haven’t lent to people who were going to spend the money on imports
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19
Q

When does comparative advantage exist for a country?

A
  • When the relative opportunity cost of production is lower than in another country
  • A country is relatively more productively efficient than another
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20
Q

Why do different countries have different factors of production in different quantities and qualities?

A
  • Weather
  • Location/ geography
  • Population
  • Education levels
  • Natural mineral deposits
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21
Q

What is what a country specialises in the production of due to?

A

The factor endowment in that country

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22
Q

What does a country specialising in the production of a particular good or service lead to?

A
  • A surplus

- This then leads to trade of their surplus with another country’s surplus

23
Q

Absolute advantage definition:

A

Being able to produce more of something than another country. Does not take costs into account

24
Q

Weaknesses to the theory of comparative advantage:

A
  • Assumes all factors of production are equally productive
  • Assumes all factors of production can be easily switched from the production of one product to the production of another with no reductions in efficiency
  • Assumes there is only one model of a product
  • Doesn’t take into account transport costs
  • Ignores fluctuations in the exchange rate
  • Ignores barriers to trade
25
Q

Types of exchange rate system:

A
  • Free-floating
  • Managed floating
  • Semi-fixed
  • Fully-fixed
  • Monetary union with other countries
  • Pegged
26
Q

Managed floating system definition:

A

Exchange rate fluctuates from day to day but banks attempt to influence exchange rates by buying and selling currencies

27
Q

Semi-fixed exchange rate system definition:

A

The exchange rate is allowed to fluctuate between a range before the central bank will intervene

28
Q

Fully-fixed exchange rate system definition:

A

The government or central bank ties the official exchange rate to another

29
Q

Pegged exchange rate system definition:

A

A currency is linked to a ‘basket’ of other countries, usually the main trading partners so that if their currency goes up, so does the currency in interest

30
Q

Monetary union with other countries exchange rate system definition:

A

When countries share a common currency, Synchronises and manage each other’s monetary policy

31
Q

Factors affecting the demand and supply of Sterling:

A
  • Demand for UK goods and services (including tourism)
  • Relative interest rates (hot money)
  • Relative inflation
  • Confidence/ uncertainty
  • Speculation
  • Government intervention
  • FDI
32
Q

Why is the J-curve a J shape?

A
  • If the pound falls, prices of UK goods become cheaper overseas.
  • Time delay before more UK goods are bought
  • In the meantime, the BoP worsens because revenue falls as price in terms of foreign currency falls, and demand is price inelastic
  • Once consumers start buying more UK goods because they’re relatively cheaper, revenue from UK goods will then increase, and the BoP will improve
33
Q

Free trade definition:

A

International trade left to its natural course without tariffs, quotas or other restrictions

34
Q

Protectionism:

A

The theory or practice of shielding a country’s domestic industries from foreign competition by taxing imports

35
Q

Methods a government can use to reduce the balance of payments deficit:

A
  • Devaluation of the currency
  • Reduce AD using monetary or fiscal policy
  • Protectionism
36
Q

When is protectionism good?

A
  • Infant / declining industries
  • Balance of payments adjustment
  • Response to ‘dumping’
  • Employment protection
  • Desire to increase government revenue
  • Attempt to increase import substitution
37
Q

What are the main method of trade barriers?

A
  • Tariffs
  • Quotas
  • Subsidies for domestic firms
  • Export subsidies
  • Import licensing systems
38
Q

Dumping definition:

A
  • When a country exports a product for a lower price than it sells it for in its own country
  • In the short term, consumers benefit from low cost goods
  • In the longer term, the persistent undercutting of domestic firms will force the domestic industry out of business and allow the foreign firm to form a monopoly
39
Q

Evaluation of different methods to reduce BoP deficit:

A
  • Deficit isn’t necessarily bad. May mean there are many rich individuals who can afford luxuries from over seas
  • Deficit may be sectorial. The UK has a deficit in goods but a surplus in services
  • If the deficit is growing it may be more of a problem
  • Devaluation of the currency: J curve, self correcting mechanism
  • Demand management policies: Eval same a for normal fiscal/ monetary policy
40
Q

Advantages of free trade:

A
  • More choice

- Lower prices for domestic consumers, leading to a higher standard of living

41
Q

Fragmentation definition:

A

Splitting up the production process where different parts of the production happen in different places. Each part happens where there is a comparative advantage for that process

42
Q

Globalisation definition:

A

An increase in interconnectedness and interdependence of economic activity and social relations

43
Q

Why are businesses the main driver of globalisation?

A
  • TNCs want to increase profits, sales and shareholder value
  • The barriers to international business are falling
  • Governments want to encourage domestic businesses to expand (flows of profit into domestic economy)
44
Q

Main gains from globalisation:

A
  • Competitive markets reduce the scale of monopoly profits and incentivise businesses to innovate
  • Enhanced growth has lead to an increase in average incomes and reduce extreme poverty. It has not helped to reduce the gap between the rich and the poor
  • Freer movement of labour
45
Q

Key drivers of globalisation:

A
  • Containerisation
  • Technological change
  • Adjusting tax systems to encourage FDI
  • Less protectionism
46
Q

Disadvantages of globalisation:

A
  • Rising inequality/ relative poverty
  • Environmental degradation
  • Macroeconomic fragility
  • High structural unemployment
  • Trade imbalances leading to protectionist tensions
47
Q

Benefits of globalisation for the UK economy:

A
  • Access to cheaper goods and services from emerging market countries leading to higher real incomes. Increased purchasing power
  • Bigger export markets, increasing economies of scale
  • More intense competition driving innovation and efficiency
48
Q

Drawbacks of globalisation for the UK economy:

A
  • Risks of increase in structural unemployment
  • Environmental effect
  • UK government has less control and the economy could become vulnerable to external shocks
49
Q

Types of trading blocks:

A
  • Free trade area
  • Customs union
  • Common market
50
Q

Free trade area definition:

A

Free trade amongst member countries but have individual trade barriers with countries outside of the free trade area e.g. NAFTA

51
Q

Customs union definition:

A

Free trade amongst member states and have common external traffis

52
Q

Common market definition:

A

Free trade amongst member states, common external tariffs and free movement of people, e.g. EU

53
Q

Trade creation definition:

A

When countries switch from buying goods from a high cost producer to a low cost producer. This is usually overseas goods. These goods become cheaper when countries join customs unions to remove tariffs. Trade is created

54
Q

Trade diversion definition:

A

When countries switch from buying goods from a low cost producer to a high cost producer. After joining a trading block, common external tariffs can mean the goods that were previously cheaper, are now more expensive than substitute goods from within the trading block that are from a higher cost producer

A Level (A2) AQA Economics (10 decks)

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