The Global Economy Flashcards
Describe absolute advantage
When a nation can produce a product more efficiently than another
Describe comparative advantage
When a nation is relatively better at producing one product rather than another. Lowest opportunity cost
Describe competitive advantage
What an entity does to make their products superior to competitors
Describe currency devaluation
A movement to a lower exchange rate (in a fixed exchange rate)
Describe currency revaluation
A movement to a higher exchange rate (in a fixed exchange rate)
Describe economic integration
An arrangement between nations that includes the reduction or elimination of trade barriers and coordination of monetary and fiscal policies
Describe economic union
Adoption of common policies and uniform regulatory standards among members, integration of monetary systems
Describe exchange rate appreciation
When it takes more of another currency to obtain it/the value of the currency increases. More purchasing power
Describe exchange rate depreciation
When it takes less of another currency to obtain it/the value of the currency decreases. Less purchasing power
Describe external stability
fewf
Describe internal stability
fewf
Describe factor endowment
The amount of land, labour, capital and entrepreneurship a country possesses and can use for manufacturing
Describe a fixed exchange rate
When the value of the currency is tied to one or more other currencies. Means that the central authority guarantees to pay a certain rate of exchange
Describe a floating exchange rate
The price of the currency is determined by forces of demand and supply
Describe a managed exchange rate
Similar to a floating exchange rate, but it is subject to official intervention when it moves outside of a desirable range
Describe free trade
A trade policy that does not restrict imports or exports
Describe globalisation
The process whereby the world becomes more interconnected as a result of increased trade
Describe sustainable economic growth
Economic growth that can be maintained over the long term
Describe trade liberalisation
The removal of barriers in trade. Opens free trade agreements
Recall the concept of an open economy
An economy in which people are permitted to buy and sell goods and services with other countries
Explain how an open economy operates in terms of the circular flow model
It operates in the international sector because there are imports and exports
Explain the advantages and disadvantages of international trade
Advantages: Wider range of commodities, scarcity of commodities, promotes competition, faster industrialisation, fall of prices, extension in means of transport, economic interdependence
Disadvantage: Exhaustion of resources, effect on domestic resources , effect on consumption habits, provides foothold to the foreigners
Explain how trade can impact economic policy
Countries that are open to international trade tend to grow faster, innovate, improve productivity and provide higher income and more opportunities to their people, therefore increasing economic growth. Also makes goods and services cheaper
How is percentage change calculated?
= (change / original number) * 100
