The Global Economy

Question 1

Describe absolute advantage

Answer 1

When a nation can produce a product more efficiently than another

Question 2

Describe comparative advantage

Answer 2

When a nation is relatively better at producing one product rather than another. Lowest opportunity cost

Question 3

Describe competitive advantage

Answer 3

What an entity does to make their products superior to competitors

Question 4

Describe currency devaluation

Answer 4

A movement to a lower exchange rate (in a fixed exchange rate)

Question 5

Describe currency revaluation

Answer 5

A movement to a higher exchange rate (in a fixed exchange rate)

Question 6

Describe economic integration

Answer 6

An arrangement between nations that includes the reduction or elimination of trade barriers and coordination of monetary and fiscal policies

Question 7

Describe economic union

Answer 7

Adoption of common policies and uniform regulatory standards among members, integration of monetary systems

Question 8

Describe exchange rate appreciation

Answer 8

When it takes more of another currency to obtain it/the value of the currency increases. More purchasing power

Question 9

Describe exchange rate depreciation

Answer 9

When it takes less of another currency to obtain it/the value of the currency decreases. Less purchasing power

Question 10

Describe external stability

Answer 10

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Question 11

Describe internal stability

Answer 11

fewf

Question 12

Describe factor endowment

Answer 12

The amount of land, labour, capital and entrepreneurship a country possesses and can use for manufacturing

Question 13

Describe a fixed exchange rate

Answer 13

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

Question 14

Describe a floating exchange rate

Answer 14

The price of the currency is determined by forces of demand and supply

Question 15

Describe a managed exchange rate

Answer 15

Similar to a floating exchange rate, but it is subject to official intervention when it moves outside of a desirable range

Question 16

Describe free trade

Answer 16

A trade policy that does not restrict imports or exports

Question 17

Describe globalisation

Answer 17

The process whereby the world becomes more interconnected as a result of increased trade

Question 18

Describe sustainable economic growth

Answer 18

Economic growth that can be maintained over the long term

Question 19

Describe trade liberalisation

Answer 19

The removal of barriers in trade. Opens free trade agreements

Question 20

Recall the concept of an open economy

Answer 20

An economy in which people are permitted to buy and sell goods and services with other countries

Question 21

Explain how an open economy operates in terms of the circular flow model

Answer 21

It operates in the international sector because there are imports and exports

Question 22

Explain the advantages and disadvantages of international trade

Answer 22

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

Question 23

Explain how trade can impact economic policy

Answer 23

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

Question 24

How is percentage change calculated?

Answer 24

= (change / original number) * 100