The Global Economy Igcse

Question 1

What is an Mnc?

Answer 1

a multinational company is a company that operates in several parts around the world

Question 2

Impacts of the Mnc

3 eco agents mnc

Answer 2

Consumers 
Firms
Government
Environment
Mnc

Question 3

impacts of Mnc on the consumer (olimono)

Answer 3

Adv - increase in choice, cheaper prices, increase in quality of products (short-run)

Dis - higher prices in the long run as Mnc will monopolize the market

Question 4

impact of Mnc on the firms within the country (Sadia meat and mc Donalds vs jaddeds bakery)

Answer 4

Adv - firms, would be able to supply Mnc’s goods and services such as raw materials, parts, etc

therefore sales would increase - as a result revenue would increase, consequently profit would also increase,economies of scale for the supplying firm

Dis - negative for the firms competing with the Mnc and smaller firms would go out of business, as smaller firms can’t compete with the MNCs economies of scale

Question 5

impacts of Mnc on the environment

Answer 5

Adv - Improve sustainability in the long run by creating
new efficient ways to produce goods and services as Mncs want to cut down costs by not paying permits, taxes, etc

Dis - High use of raw materials
pollution
more local dump

Question 6

Impact of MNCs on themselves

Answer 6

Adv - Mncs will open a new market - more customers- increased sales - increased profit - economies of scale

Dis - Increase risk of business failure - diseconomies of scale

Question 7

Impact of MNCs on the government

Answer 7

Adv - Receive large amounts of co-operation tax and income tax from the employees

Dis - unemployment may increase as small firms may go out of business, thus govs will have to pay unemployment benefits and spend more this will worsen the budget deficit and cause a recession in the long run

Question 8

What is FDI?

Answer 8

Foreign Direct Investment, money invested into a country, by an organization from outside the country.

Question 9

How is FDI investment done by MNCs

Answer 9

Buying supplies and materials from firms within the country

Paying cooperation tax to the goverment
Paying employees
Renting and buying properties

Question 10

Adv and dis of FDI

Answer 10

Adv - Jobs created, this means income is earned and spend on local business, which would increase the GDP and lead to economic growth, these jobs could also provide children education which will lead to economic growth in the long aswell.

MNCs pay taxes

Dis - workers will be exploited as they’ll be working for long hours, in horrible conditions and low paid.

environmental damages

Question 11

Globalization

Answer 11

Globalization is the growing interdependence of the worlds of the economy

interdependence - dependence of two or more people or things on each other.

Question 12

reasons for globalization

Answer 12

Reduce the cost of communication
Reduce the cost of transportation
fewer tariffs and quotas
increases the significance of MNCs

Question 13

International trade

Answer 13

International trade can cost money or be free

Question 14

what are the methods of protectionism

Answer 14

Tariffs - a tax on imports and exports to make it make more expensive

Quota - a limit that can be set to the number of products that are imported and exported

Subsidies - money given by the goverment to local/domestic firms in order to compete with MNCs

Question 15

Free Trade

Answer 15

free trade involves trade without tariffs and quotas and no other cost associated

Question 16

Advantages & Disadvantages of free trade

Answer 16

Adv - goods and services become cheaper
more choice
an increase in economic growth

Dis - more competition for local firms
increase in unemployment
environmental damages

Overspecialization - countries can become dependent
on a narrow range of goods and services, thus this will increase market failure because other countries can provide lower prices

Question 17

Reasons for protectionism - thedic

Answer 17

Prevent dumping(Quotas) - dumping, is when an Mnc sells goods and services at a lower price than the cost of making the product - this is a disadvantage as smaller firms will go out of business - Mncs monopolize the market, therefore dumping is considered bad - the gov can prevent this from happening by setting an x amount of imports coming within the country

Protecting employment (Tariffs) - smaller firms go out of business as they can’t compete with MNCs dumping - unemployment increases - Gov could use subsidies and quotas but tariffs are the most efficient way - As by imposing tariffs firms importing goods from overseas will increase there cost due to tariffs as a result firms will purchase supplies from within the country, furthermore, consumers would also purchase products from within the country as they smaller firms can now provide cheaper prices - As a result, small firms come back into business and can now employ more people- reducing unemployment

Protecting infant industries(All) - infant industries are new industries at their early-stages yet to be established - these need to be protected from MNCs as they would monopolize the market - govs could use protectionism to prevent this from happening

To gain tariff revenue - Govs can use the money generated from tariffs to spend it on healthcare, education, etc

preventing the entry of harmful goods ( Quotas )

reduce current accounts deficit ( Quotas)

Question 18

what are Trading Blocs

Answer 18

are a group of countries situated in the same region that join together and enjoy free trade

Question 19

what are Wtos

Answer 19

World trade organizations is an international organization that promotes free trade by persuading countries to abolish protectionism

Question 20

Trade liberalization

Answer 20

moving towards greater free trade

Question 21

Activities of a wto

Answer 21

trade negotiations
building membership
setting conflicts

Question 22

Patterns of Wto

Answer 22

Increase in globalization
Increased Trade-in developed countries
better transport
better communication

Question 23

Member states adv and dis

Answer 23

Adv - goods will be cheaper
more consumer choice
Reduces conflicts
helps developing countries grow

promotes peace - this could lower spendings on military and allow governments to spend on other parts of the economy

Dis - cost of being a member - opp cost on spending on other sectors of the economy

Question 24

factors affecting the DEMAND for a currency

Answer 24

Demand for exports increase

An increase in interest rates

Question 25

factors affecting the SUPPLY for a currency

Answer 25

Demand for imports increase

A decrease in interest rates

Question 26

Foreign exchange market

Answer 26

A market where foreign currencies can be bought and sold

Question 27

Spiced is bad

Answer 27

Stronger pound - imports cheaper - exports more expensive.

( this will mean that the current accounts will worsen as imports are greater than exports and cause a budget deficit, however, firms will be able to benefit from cheaper imports.)

Question 28

wpidec is good

Answer 28

weaker pound - imports expensive - exports cheaper.

this will improve the current accounts as imports will decrease and imports will increase and cause a budget surplus, which could lead to an economic growth.)

Question 29

appreciation

Answer 29

when currency increases in value ( no intervention by the gov)

Question 30

deprecation

Answer 30

when currency decreases in value ( no intervention by the gov)