The global economy Flashcards
What is globalisation
growing interconnection of the world’s economies
causes of globalisation:
Fewer tariff and quota,reduced cost of transport,reduced cost of communication,increase significance of multinationals
the impact of globalisation:-
on individual countries:-
if a country is where MNC is based, it will have increase in economic growth,higher number of exports and better technology as MNC tend to go to more developed countries
impact of globalization on governments, :-
increased tax revenue, can be spent to improve public goods
the impact of globalisation on producers
Reduced taxation,access to huge markets,lower costs, access to labour.
impact of globalization. on consumer
prices will be lower
impact of globalisation on workers
there will be new jobs
impact of globalisation on the environment
More environmental damage,such as polution as more factories are built
What are MNCs and what is FDI?
MNCS are firm with headquarters in one country and production facilities in others
FDI:-when a company makes an investment
○ What has led to the emergence of MNCs/FDI?
-economies of scale
-access to natural resources/cheap material
-lower transport and communication cost
-access to costumers in different regions:-MNC developed bc they can sell far more goods and service in global market than in domestic material
○ What are the advantages of MNCs / FDI?
-Job creation:-more factories,wherehouse etc
-investment in infrastructure:-bad infrastructure= no FDI investment on infastructure increase MNC and FDI
-developing skills:-MNCs provide training & work experience for workers
-developing capital:-MNCs help boost stock of capital in host countries
-Contributing to taxes:- profit made by MNC are taxed by host nation.This increases tax revenue-government can use to spend on public goods
○ What are the disadvantages of MNCs / FDI?
-tax avoidance:-practice of trying to pay tax less in legal way
-Environmental damage:- MNC hare heavily involved in extraction industries in coal, oil,gold mining.
-moving profits abroad:-This means that profit are returned to country where MNC is based.Host country loses out
○ What are the reasons for protectionism?
-prevent dumping
-protecting employment
-protecting infant industries
-to gain tariff revenue
-preventing the entry of harmful or unwanted goods
-reduce current deficit
-retaliation:-take action against someone who has done something bad to you
What are the advantages of protectionism methods?
-1. Protects Domestic Industries
✅ Advantage: Protectionist policies help local businesses compete against cheaper foreign goods, preventing industries from collapsing due to intense competition.
- Safeguards Jobs
✅ Advantage: Limiting imports encourages local production, preserving jobs in manufacturing and other sectors that might otherwise be outsourced. - Reduces Trade Deficit
✅ Advantage: By restricting imports and promoting local production, a country can improve its trade balance, reducing reliance on foreign goods. - Encourages Economic Growth
✅ Advantage: Governments can use subsidies and support programs to help industries grow, leading to higher GDP and industrial development. - Enhances National Security
✅ Advantage: Protectionism ensures that essential industries (e.g., defense, energy, and agriculture) are not overly dependent on foreign suppliers. - Prevents Dumping
✅ Advantage: Countries can impose anti-dumping tariffs to stop foreign firms from selling goods at extremely low prices, which could destroy local businesses.
What are the disadvantages of protectionism methods?
-higher prices for consumers
-2. Less Variety of Goods
❌ Disadvantage: Import restrictions limit consumer choices, making it harder to access diverse products from global markets.
- Retaliation from Other Countries
❌ Disadvantage: Countries affected by protectionist policies may impose their own trade barriers, leading to trade wars that harm exports. - Inefficiency and Lack of Innovation
❌ Disadvantage: Without foreign competition, local businesses might become inefficient, producing lower-quality goods at higher prices. - Slower Economic Growth
❌ Disadvantage: Protectionism reduces international trade, which can slow down economic expansion and reduce investment opportunities. - Hurts Exporting Industries
❌ Disadvantage: If other countries retaliate with their own tariffs, domestic businesses relying on exports may suffer losses.
Understand the effects of tariffs, quotas and subsidies using supply and demand diagrams
draw diagram
○ How do trading blocs impact member countries?
✅ Advantages:
Increased Trade & Economic Growth – Reduced barriers lead to higher trade volumes and economic growth.
Lower Prices & More Choices – Consumers benefit from cheaper imports and a wider variety of goods.
Greater Investment Opportunities – Businesses access larger markets, encouraging foreign direct investment (FDI).
Stronger Political & Economic Ties – Members develop closer cooperation, increasing political stability.
❌ Disadvantages:
Loss of Sovereignty – Some policies must be aligned with bloc rules, limiting national decision-making.
Unequal Benefits – Larger or more developed countries within the bloc may gain more than smaller economies.
Increased Competition – Local businesses may struggle against stronger companies from member countries.
○ How do trading blocs impact non-member countries?
they will face common trade barriers when selling goods to any member inside the bloc
○ Give examples of trading blocs
-EU-27 countries
-NAFTA-3countries -USA,Canada,Mexico
-ASEAN-10 members
-SACU-formed in 1910,oldest
○ Understand the role and actions of the WTO
-The World Trade Organization (WTO) is an international organization that regulates global trade and ensures smooth, predictable, and free trade between countries.
🔹 Roles of the WTO:
Trade Liberalization – Encourages the removal of tariffs, quotas, and trade barriers.
Dispute Resolution – Resolves trade conflicts between countries.
Negotiation Platform – Hosts trade talks (e.g., Doha Round) for global trade agreements.
Monitoring Trade Policies – Ensures countries follow fair trade rules.
Assisting Developing Nations – Provides support for economic growth through trade.
🔹 Actions of the WTO:
Settles disputes (e.g., U.S.-China trade conflicts).
Promotes fair competition by preventing unfair trade practices like dumping.
Encourages sustainable trade to protect the environment.
the factors that affect the supply of currencies
-intrest rate in other countries
-currency speculators
-the Demand for imports
📉 Factors that Increase Supply of a Currency (Depreciation)
❌ High Inflation – Reduces the value of the currency.
❌ Lower Interest Rates – Investors seek better returns elsewhere.
❌ Trade Deficit – More imports mean selling local currency to buy foreign currency.
❌ Political Instability – Investors move money to safer currencies.
○ Understand the patterns of developed and developing countries
○ How to define exchange rates and the factors that affect the demand of currencies
An exchange rate is the price of one currency in terms of another
Factors that affect demand for a currency:-interest rate, currency speculators, the demand for exports
📈 Factors that Increase Demand for a Currency (Appreciation)
✔ Higher Interest Rates – Attracts foreign investment.
✔ Strong Economy – Investors prefer stable currencies.
✔ Trade Surplus – More exports mean higher demand for the currency.
✔ Foreign Investment Inflows – More demand for local currency.
How to use supply and demand diagrams to show the determination of exchange rates
Draw diagram
