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Economics Edexcel iGCSE > The Global Economy > Flashcards

The Global Economy Flashcards

1
Q

What is foreign direct investment?

A

When company makes investment in a foreign country

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2
Q

Name 4 things the government does to encourage FDI

A
  1. Offer tax breaks, subsides, grants & low interest loans
  2. Invest in infrastructure
  3. Lift red tap to make it easier for foreign firms to invest
  4. Invest in education to create better skilled workforce
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3
Q

What is development aid?

A

Money & other forms of assistance that’s given to less developed countries by governments in developed countries

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4
Q

What is the purpose of development aid?

A

To help long-term development of a nation

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5
Q

Name 4 types of development aid

A
  1. Bilateral & Multilateral Aid
  2. Government Grants
  3. Low or Zero Interest Loans
  4. Tied Aid (e.g. trade)
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6
Q

Define Globalisation

A

The growing integration of the world’s economies

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7
Q

What are ecoummers?

A

Online stores

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8
Q

Name 4 reasons for globalisation

A
  1. Improvements in Transport
  2. Developments in Technology
  3. Deregulation
  4. Saturated Domestic Markets
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9
Q

Explain how improvements in transport has lead to globalisation

A

Cost of flying has decreased = more goods can be transported cheaply & easily

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10
Q

Explain how developments in technology has lead to globalisation

A

Allowed firms to transfer complex data to any part of world = easier for firms to have operations all over the world

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11
Q

Explain how deregulation has lead to globalisation

A

Countries have simplified their monetary & legal system to make international trade easier

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12
Q

Explain how privatisation has lead to globalisation

A

More competition = open up work worldwide

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13
Q

Explain how saturated domestic markets has lead to globalisation

A

Causes firms to sell goods/services aboard & produce goods anywhere in world, where costs can be minimised

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14
Q

Define multinational companies

A

Large and powerful firms that sell goods and services into global markets with operating facilities all over world

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15
Q

Name 3 reasons why multinational companies exist

A
  1. Economies of scale
  2. Marketing
  3. Technical and financial superiority
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16
Q

Explain how economies of scale has lead to multinational companies existing

A

Sell to global markets and produce more than those who sell to just domestic markets = lower costs

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17
Q

Explain how marketing has lead to multinational companies existing

A

Developing successful brands in their domestic markets & then had opportunity to expand

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18
Q

Explain how technical and financial superiority has lead to multinational companies existing

A
  • Companies can invest heavily in new technology = gives them opportunity to expand
  • Also have resources to take risks & diversify
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19
Q

How does FDI and development aid increase globalisation?

A
  • Money & employment that developing countries receive from FDI & aid will promote economic growth
  • As developing countries become less poor, they’ll provide market opportunities for MNCs
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20
Q

Name 4 advantages of globalisation for developed countries

A
  1. Higher income, output and employment for nation
  2. Higher profits for MNCs which are often repatriated (sent back to their domestic country)
  3. Increase in labour supply due to greater freedom of movement
  4. Lower price due competition
  5. Threat of military conflict is reduced due to more cooperation
  6. Greater consumer choice as more firms export their goods
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21
Q

Name 4 advantages of globalisation for developing countries

A
  1. Increase in GDP & higher living standards
  2. Increase in tax revenue from location of MNCs
  3. Increase in exports resulting from output of newly located MNCs from local suppliers
  4. New technologies and modern working practices are introduced
  5. Improved human capital quality due to on-the-job learning given by MNCs
  6. Reduction in Third World debts more easily and developed nations have more money to donate
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22
Q

Name 4 disadvantages of globalisation

A
  1. Environmental Damage
  2. Exploitation of Developing Countries
  3. Higher Commodity Prices
  4. Interdependence
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23
Q

Explain how globalisation has caused environmental damage

A
  • As economies grow, there are more cars & aeroplanes
  • Increases greenhouse gases = global warming
    + more non-renewable resources are used
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24
Q

Explain how globalisation has caused the exploitation of developing countries (3 reasons)

A
  • MNCs often pay very low wages
  • Most of profit made is sent to MNC’s country
  • MNCs out-complete local businesses
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25
Q

Explain how globalisation has caused higher commodity prices & why this may be bad for developing countries

A

Rapid global growth in 2000s caused a surge in commodity prices & often main food sources for developing nations

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26
Q

Explain how interdependence can be bad

A

Events in one country can have an impact on others

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27
Q

How has globalisation affected the development gap and why?

A

Developed nations benefit most because they have resources to exploit forces of globalisation ∴ development gap has increased

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28
Q

Name 4 reasons for international trade

A
  1. Obtain goods that cannot be produced domestically
  2. Improve consumer choice
  3. Obtain goods that overseas firms produce more cheaply
  4. Sell surpluses of commodities
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29
Q

What is free trade?

A

Trade between countries with no government restrictions

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30
Q

Name 3 advantages of free trade

A
  1. More competition
  2. More choice
  3. More growth
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31
Q

Explain how free trade can lead to more growth

A

Firms will be selling to large markets ∴ can exploit economies of scale = lower costs & improve efficiency

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32
Q

Explain how free trade can lead to consumers worldwide buying goods at lowest possible prices

A

Goods and services worldwide will be produced in locations where costs are minimised

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33
Q

Explain how free trade creates more competition

A

Free trade provides competition for domestic producers because most countries import goods that they can also produce

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34
Q

What will competition do to domestic firms?

A

Will put pressure on domestic producers to lower their prices, produce higher quality + innovative goods

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35
Q

How can free trade encourage specialisation?

A

Each country can specialise in what they have resources for, they can then trade these with other countries in exchange of what they produce

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36
Q

Name 4 disadvantages of free trade

A
  1. Environmental Damage
  2. Overspecialisation
  3. Unemployment
  4. Demerit goods
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37
Q

What is overspecialisation?

A

When countries may become too dependent on narrow range of goods

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38
Q

How can free trade lead to unemployment?

A

Changing demand patterns may cause problems: If consumers spend more on service, countries reliant on manufacturing may suffer from high unemployment

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39
Q

How can free trade lead to environmental damage?

A

Economic growth resulting from free trade = congestion, pollution and permanent loss of non-renewable resources

40
Q

Name 4 reasons for protectionism

A
  1. Protect Domestic Firms
  2. Raise Revenue
  3. Prevent Demerit Goods
  4. Improve Current Balance
  5. Prevent Dumping
  6. Protect (Domestic) Jobs
41
Q

Explain how protectionism protects domestic firms

A

Placing trade barriers means consumers more likely to buy domestic goods (increases domestic revenue)

42
Q

Explain how protectionism rises revenue

A

Gain corporate tax from these domestic firms = increased revenue

43
Q

Explain how protectionism prevents demerit goods from entering a country

A

Placing laws and regulations on what goods allowed in country (protect health of economy)

44
Q

What is dumping?

A

When overseas firm sell large quantities of product below price of product sold in domestic market

45
Q

Name 4 methods of protectionism

A
  1. Tariffs
  2. Quotas
  3. Subsidies
  4. Administrative Barriers
46
Q

What is a quota?

A

Physical limit put on quantity of imports allowed in country

47
Q

How does quotas help domestic firms?

A

Domestic producers will have bigger market share

48
Q

Draw a quota curve

A

see mind map

49
Q

What are tariffs?

A

Tax put on imports to make them more expensive

50
Q

How do subsides help (as a form of protectionism)?

A

Give financial support to exporters or domestic producers that face competition from imports → lower prices for
consumers

51
Q

How do administrative barriers help (as a form of protectionism)?

A

Restrict imports by insisting that imported goods meet strict regulations & specifications

52
Q

What are the problems of protectionism? (name 3)

A
  1. Loss of Free Trade Benefits
  2. Retaliation
  3. Other Policies May be More Effective
53
Q

How might protectionism cause retaliation?

A

Lead to trade war where one country erects barriers and then those affected to exact same in retaliation

54
Q

Name another policy that may be more effective than protectionism

A

Supply side policies

55
Q

Name a trade benefit that may be lost due to protectionism

A
  • Higher prices & less consumer choice

- Lower growth, unemployment & reduced living standards

56
Q

Name 4 reasons for the increase in world trade

A
  1. Better transport and communications
  2. Relaxing of trade barriers
  3. Increases travel and more consumer awareness
  4. Development of multinationals
  5. New trade agreements
57
Q

What is trading bloc?

A

Group of countries situated in same region that join together and make a free trade area

58
Q

Name 4 advantages of trading blocs

A
  1. Economies of scale
  2. More free trade
  3. FDI increases
  4. Closer co-operation between members
59
Q

Explain how being in a trading bloc leads to economies of scale

A

Since markets are larger = can exploit economies of scale

+ extra competition = improve product quality and encourage innovation

60
Q

Explain how being in a trading bloc leads to an increase in FDI

A

Because foreign firms keen on locating their operations within trading blocs to have access to larger & barrier-free market

61
Q

Name 4 disadvantages of trading blocs (for members)

A
  1. Belonging to trade bloc = expensive for taxpayer
  2. Firms within trading bloc merge and become too powerful = regional monopolies and consumer exploitation
  3. Tend to encourage regional free trade than global trade
  4. Countries may rely too heavily on trade within bloc
62
Q

What is the problem with countries relying too heavily on trade within the bloc?

A

Makes them vulnerable to changes in prices & demand patterns

63
Q

Name a disadvantage of trading blocs (for non-members)

A

Face trade barriers when selling goods inside bloc

64
Q

How non-members of trading blocs overcome the trade barriers faced when selling goods inside bloc?

A

They can find new markets (in the long-run)

65
Q

What is aim of the WTO?

A

To promote free trade by persuading countries to abolish trade barriers

66
Q

Name 4 activities of the WTO

A
  1. Settling trade disputes between members
  2. Monitoring & reviewing trade policies of members & ensuring that they’re clear
  3. Reducing or eliminating trade barriers through negotiation
  4. Publishing trade and other economic data
67
Q

Name 4 criticisms of the WTO

A
  1. Undemocratic
  2. Favours wealthy nations
  3. It’s destroying the environment
  4. Favours ‘rights’ of corporations over workers
  5. Causing hardship for poorer nations
68
Q

Explain how the WTO is undemocratic

A
  • WTO rules written by & for corporations with inside access to negotiations
  • Views of consumers, environmental, human rights are often ignored
69
Q

Explain how the WTO favours wealthy nations

A

Negotiations from poor countries are not even invited to meetings + many poor counties don’t have enough qualified staff to part in negotiations

70
Q

Explain how the WTO is destroying the environment

A

Very first WTO panel ruled that a provision of US Clean Air Act was illegal

71
Q

Explain how the WTO is causing hardship for poorer nations

A

Argued that corporate control of food distribution = 800 million people worldwide suffer from malnutrition

72
Q

Explain how the WTO favours ‘rights’ of corporations over workers

A

WTO said it’s illegal for a government to ban a product based on way it’s produced e.g. with child labour

73
Q

Name 4 trends in trade in developing countries

A
  1. Increase in net migration
  2. Primary sector attracts FDI
  3. Debt cancellation
  4. Increased FDI in Africa
  5. Less reliance on commodities
  6. Growth in many Eastern European countries
  7. Reduction in barriers
74
Q

Name 4 trends in trade in developed countries

A
  1. Widening of development gap
  2. Loss of trade in manufacturing
  3. Increase in regional agreements
  4. More air travel
  5. Increase in size of EU
  6. Threat of recession
75
Q

What is an exchange rate?

A

Value of one currency compared to another

76
Q

How are exchange rates determined?

A

Market forces: supply and demand

77
Q

Name 4 factors affecting the demand for a currency

A
  1. Demand for Exports
  2. Inward Foreign Direct Investment
  3. Interest Rates
  4. Speculation
78
Q

Explain how the demand for exports affects the demand for a currency

A

As exports increase, demand for that currency (£) since firms buying goods from UK must pay in pounds

79
Q

Explain how inward FDI affects the demand for a currency

A

If inward FDI increases, the demand for that currency will increase e.g. building factory in UK = pounds needed to pay for construction, etc

80
Q

Explain how interest rates affect the demand for a currency

A

If interest rates increase (in UK), foreign savers may choose to save their money in British banks = increases demand for the currency (£)

81
Q

Explain how speculation affects the demand for a currency

A

Speculators buy a particular currency and hope to sell it for a higher price later
= If pound is in favour with speculators, demand for it will increase

82
Q

Name 4 factors affecting the supply for a currency

A
  1. Demand for Imports
  2. Outward Foreign Direct Investment
  3. Interest Rates in Other Countries
  4. Speculation
83
Q

Explain how the demand for imports affects the supply for a currency

A

If UK buys more imports = have to buy foreign currency with pounds = increased supply of currency in foreign markets

84
Q

Explain how outward FDI affects the supply for a currency

A

If British firms invest aboard, supply of pounds will increase because they must buy foreign currency

85
Q

Explain how interest rates in other countries affect the supply for a currency

A

If interest rates are higher in other countries, savers in UK may place their money in foreign banks. To do this, must buy forge in currency with pounds = increases supply.

86
Q

Explain how speculation affects the supply for a currency

A

When they decide to sell a particular currency = supply increases

87
Q

Why do exchange rates change?

A

Bc they are determined by demand and supply

88
Q

Explain what the impact of falling exchange rates on exports is

A

When exchange rate falls = value of pound falls = demand for UK exports will increase as they seem cheaper

89
Q

Explain what the impact of falling exchange rates on imports is

A

If value of pound decreases, demand for imports will decrease as imports seem more expensive

90
Q

Explain what the impact of rising exchange rates on exports is

A

When value of pound increases, demand for UK exports will decrease as they seem more expensive

91
Q

Explain what the impact of rising exchange rates on imports is

A

When value of pound increases, demand for imports increase since they’re cheaper

92
Q

How can government reduce deficit on current account? (name 2 ways)

A
  1. Devaluation

2. Changing interest rates in economy

93
Q

What is devaluation?

A

Allowing exchange rate to depreciate

94
Q

How will devaluation reduce a deficit on current account?

A

If exchange rate falls, price of exports fall & price of imports rises = deficit on current account should all bc demand for exports would rise and the demand for imports would fall

95
Q

Why might changing interest rates in an economy not reduce a deficit on current account?

A

Government might not have complete control over interest rate

96
Q

What can changing interest rates in an economy cause?

A

Inflation

Economics Edexcel iGCSE (8 decks)

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