Quiz #9 Review Flashcards
globalization
the development of an increasingly integrated world economy marked especially by increased trade of goods and services, and increased flow of labor and capital
- supply and demand of goods and services
- supply and demand of factors of production: labor and capital
- growth of MNCs
multinational corporation
a corporation that has its facilities and assets in at least one other country other than its home country
- other countries are often referred to as host countries
- facility in home country is parent and other countries are affiliates
the parent operations of US MNCs accounted for what percent of GDP in 2012?
25%
American MNCs employ what percentage of all US workers?
1/5 or 20%
in the last decade, MNCs decreased domestic employment by xx million workers while adding xx million jobs overseas
- 9
2. 4
Foreign direct investment
the purchase (or building) of a facility by a domestic firm in a foreign country
what two reasons do MNCs have for putting a factory in another country?
- because it’s cheaper to make the product there and ship it back here
- actually selling goods over in another country
what six reasons do MNCs have for undertaking foreign investment?
F T R L E C
- serve a foreign market
- avoid tariffs
- gain access to raw materials
- to gain access to low-cost labor
- reduce exchange rate risk
- respond to industry competition
arguments against MNCs
- countries and governemnts often try to attract MNCs
- they say: MNCs increase employment, increase economic activity
- so, governments often offer tax breaks to MNCs that will locate there
- this means individuals must make up the difference in lost tax revenue
- governments may also offer MNCs relaxed environmental standards, relaxed labor regulations
arguments for MNCs
- MNCs often maximize operational efficiency through standardization
- in countries with low environmental standards and no labor regulations, standards of MNCs may exceed required standards
- MNCs pay a lower wage than would be paid in home country, but paying a higher wage than other employment options i host country
Foreign profits as a percent of total US profits are (increasing or decreasing) every year
increasing
3 effects of globaliztion
- convergence effect
- labor effect
- mobility effect
convergence effect
increased globalization allows emerging economies to leap frog technologies
labor effect
reduced transportation and communication costs have brought hundreds of millions of lower-skilled workers into the global labor pool
mobility effect
capital-tools, equipment, factories, etc- are much more mobile than labor
what convergence effect means for MNCs
makes companies more productive quickly, higher profits for MNCs
what the labor effect means for MNCs
increases global labor supply; keeps wages down ….higher profits for MNCs
what the mobility effect means for MNCs
governments compete for capital; give tax breaks…higher profits for MNCs
balance of payments
a measure of our trade with other countries
what 3 things are included in the balance of payments?
goods, services, assets
who maintains the balance of payments?
Bureau of Economic Analysis
what are the 3 types of account for balance of payments?
- current account
- financial account
- capital account
what 3 things are included in the current account?
- goods
- services
- income we receive on investments
america currently has a current account deficit of about ______________
$475 billion
If I own a Japanese corporate bond with a face value of $1000 which pays me 5% annually, how much is added to what account?
$50 is added to US current account
if a US marketing firm does a research study for Mitsubishi for $1000, what is added to whose account>
$1000 is added to US current account
financial account
purchase of assets (both hard assets and financial assets)
hard assets
foreign direct investment like purchasing or building a facility by a domestic firm in a foreign country
if a US company buys a building in Tokyo, dollars flow ______ the US and is recorded as a _________ entry for the financial account
dollars flow out of US, negative entry
Korean firm builds a factory in US…dollars flow ________ and this will be a _________ entry for US
dollars flow into US, positive entry
financial assets
BONDS basically…
if US investor buys a German bond…dollars flow _______ and this is a ________ for US
dollars flow out of US, negative entry
capital account?
look it up…
financial account balance for 2012?
look it up….$339.7 billion
what does the US current account negative balance really mean?
most of the time, we are indeed sending out more miney than we are taking in…we are getting it from borrowing or selling our stuff
exchange rates
the value at which one currency trades for another-can affect any country’s volume of imports and exports
factors that make currency stronger or weaker
- tastes and preferences
- income
- prices
- interest rates
how income affects the exchange rate
when our income is high, we demand lots of foreign goods. when we demand more foreigh goods, we demand more foreign currencies. The foreign currency gets stronger, our currency gets weaker.
when our INCOME RISES, the dollar gets WEAKER
when income rises, the dollar gets……
weaker! so in a recession, the dollar gets stronger
how prices affect the exchange rates
if we have inflation here at home, our own stuff is more expensive and foreign goods are relatively cheaper. This will cause the US’ demand for foreign currencies increase. Raising the price of the pound, in terms of the dollar.
inflation at home makes the dollar weaker
Inflation in the US makes the dollar….
weaker
how interest rates affect the exchange rates
if interest rates increase in England, British government bonds are paying more than US treasury bonds, so they will invest in British bonds. The demand for British pounds will increase because the demand for British bonds is higher
As interest rates increase in America relative to other countries, the dollar becomes ….
STRONGER
WHEN THE DOLLAR GETS STRONGER, OIL PRICES…
decrease
when the dollar gets weaker, oil prices…
increase
what genius tactic did China have to compete with America?
they fixed their currency to an exact exchange rate relative to America…the Yuan is equal to 8.3 American dollars
if Chinese currency was allowed to float as it gets stronger, Chinese imports would be ______ relative to US
cheaper
