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Economics B > Theme 2, 2.4 Life In a Global Economy > Flashcards

Theme 2, 2.4 Life In a Global Economy Flashcards

1
Q

Define Globalisation

A

Arising from growing world markets and increasing international trade.

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2
Q

Define Open economies

A

Export a relatively high proportion of total production and import a relatively high proportion of the goods and services they use.

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3
Q

Define Structural Change

A

Involves a reallocation of resources. Less is produced of goods and services that face demand; output of those for which demand is increasing rises. Technological change, and international competition play a part in this.

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4
Q

Define Foreign Direct Investment

A

Occurs when businesses set up production or distribution facilities on other countries.

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5
Q

Define Outsourcing

A

means shifting the production process to another business in order to reduce input costs.

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6
Q

Define Trade Liberalisation

A

The process of limiting and reducing barriers to trade so that the economies involved more closer to free trade.

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7
Q

Define International Capital Flows

A

Are large sums of money that are moved from one economy to another.

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8
Q

Define Tariff

A

Tax on goods brought into a country.

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9
Q

Define Quota

A

Quantity limits on goods brought into a country.

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10
Q

Define GDP

A

Gross Domestic Product is the total value of output or income. The value of everything produced within the economy over one year.

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11
Q

Define Developed economies

A

Have high per capita incomes, literacy rates and life expectancy. Typically, they have large service sectors. Other important indicators relate to health care and welfare provision.

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12
Q

Define Developing economies

A

Characterised by generally low incomes, weak education and welfare system, abundant cheap labour and relatively little capital investment. Setting up new businesses may be both risky and difficult. Where there is manufacturing, it may be mainly of clothing and footwear.

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13
Q

Define Emerging Economies

A

Have rising levels of capital investment and growing, increasingly productive secondary sectors. International trade is growing rapidly. They diversify into new lines of production, often in collaboration with multinational corporations (MNCs).

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14
Q

Define Infrastructure

A

Includes all the publicly available services such as transport, communications facilities, basic services such as water, drains and energy supplies and also telephone systems, bridges, ports and airports.

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15
Q

Define Transnational coorporations

A

Another name for businesses with active interests in more than one economy. Some are relatively small but others have grown into powerful organisations that can dominate the markets in which they operate.

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16
Q

Define Multinational corporations

A

Are businesses with active interests in more than one economy.

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17
Q

Define Absolute Advantage

A

Exists if the real source cost of a product is lower in one country than another.

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18
Q

Define Comparative Advantage

A

Theory states that if two countries each specialise in the product with the lowest opportunity cost, and then trade, real incomes will increase for both countries.

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19
Q

Define Free trade areas

A

Are groups of countries that trade freely with each other, with few or no trade barriers. E.g. the most significant trade bloc is the EU.

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20
Q

Define Common Markets.

A

Have completely free trade internally and a single unified trade policy covering all member countries’ trade with the rest of the world. Besides free movement of goods and services, there is also free movement of people and capital. Individuals in all member countries can work in any other member country. Businesses based within the common market can invest in any member country.

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21
Q

Define European Single Market

A

Is more than just a common market. Member countries agree to harmonise their regulations so that all businesses are competing on a level playing field.

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22
Q

Define Trade Blocs

A

Are usually groups of countries in specific regions that manage and promote trade activities.

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23
Q

Define Trade liberalisation

A

Trade blocs lead to the freeing of trade from protectionist measures and can lead to trade creation between countries, since they are treated favourably in comparison to non-members.

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24
Q

Define Absolute Advantage

A

Exists if the real resource cost of a product is lower in one country than another.

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25
Q

Define Comparative Advantage.

A

States that if two countries each specialise in the product with the lowest opportunity cost, and then trade, real incomes will increase for both countries.

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26
Q

Define Free Trade Areas

A

Are groups of countries that trade freely with each other, with few or no trade barriers. Each member country retains its own independent trade policies in relation to the rest of the world. Customs unions are similar but include a common trade policy.

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27
Q

Define Common Markets

A

Have completely free trade internally and a single unified trade policy covering all member countries’ trade with the rest of the world. Besides free movement of goods and services, there is also free movement of people and capital. Individuals in all member countries can work in any other member country. Businesses based within the common market can invest in any member country.

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28
Q

Define Single Markets

A

The European Single Market is more than just a common market. Member countries agree to harmonise their regulations so that all businesses are competing on a level playing-field.

29
Q

Define Visible Trade

A

Trade in primary products and manufactures - tangible goods that have to be driven through the Channel Tunnel or Shipped or airfreighted.

30
Q

Define Invisible trade

A

Trade in Services.

31
Q

Define A floating exchange rate

A

Is determined by market force. It reflects the demand for the currency, to buy its products or invest there, and the supply of the currency which arising from buying imports and capital flows abroad.

32
Q

Define Appreciation

A

Refers to rising value. When the exchange rate appreciates, we get more for our pounds. If house prices rise, their value appreciates.

33
Q

Define Depreciation

A

Means falling values. Exchange rate depreciation means that a unit of currency buys less. There will be a gain in competitiveness as export prices fall.

34
Q

Define Eurozone

A

19 of the 28 EU member countries have adopted the euro as their currency. This is a monetary union, which means that the European Central Bank (ECB) sets monetary policy for the whole area.

35
Q

Describe Globalisation

A

The Integration of the world’s economies in a single market, whereby tariffs and quotas are eliminated

36
Q

How has transport contributed to an increase in globalisation.

A

It’s now easier and more efficient to transport goods to and from different countries, thereby encouraging more trade.

37
Q

Name the international institution that regulates global trade.

A

World Trade Organisation (WTO)

38
Q

What are MNC’s?

A

Multinational Corporations - corporations that manage the production of goods/ services in multiple countries.

39
Q

Describe containerisation

A

They distribution of goods in standard sized containers

40
Q

Name the 2 countries that have arguably grown the most due to globalisation.

A

India and China

41
Q

What is GDP per capita?

A

The GDP of an economy divided by its population ( capita)

42
Q

Give 2 limitations of using GDP to measure the health of an economy

A
  1. Does not give any indication to the distribution of income and wealth.
  2. Cannot track the performance of the hidden markets.
43
Q

List the 3 components of the HDI index

A
  1. Education
    2.Life expectancy
    3.Standard of living
44
Q

How does population growth in developed countries compare to that in developing countries.

A

Much slower population growth in developed economies

45
Q

Which type of economy usually has a stronger agricultural sector?

A

Developing countries

46
Q

Which countries form the BRIC economies?

A

Brazil
Russia
India
China

47
Q

How would you find the ‘median’ income of an economy?

A

Middle value of all incomes

48
Q

What is specialisation?

A

Occurs when each worker completes a specific task in the production process, which can increase productivity and therefore reduce average costs of production.

49
Q

Describe the disadvantages of specialisation?

A
  1. Employee motivation is compromised as a result.
  2. Structural unemployment, due to mismatch between skills required and provided.
50
Q

Define comparative advantage

A

Occurs when one country can produce a good or service at a lower opportunity cost than a different country.

51
Q

Define absolute advantage

A

This is when one country can produce more units of a good/service than a different country with the same factor inputs.

52
Q

What are free trade areas?

A

Comprise of different countries that agree to trade with each other with no protectionist barriers.

53
Q

How do customs unions differ from free trade areas?

A

A customs union comprises of a free trade area and a common external tariff, meaning it has a common trade policy with countries outside the customs unit.

54
Q

What 2 features are added to a customs union to make it a common market?

A

The free movements of labour and capital.

55
Q

Give example of a monetary union

A

The Eurozone

56
Q

List the 4 requirements in order to become a member of the Eurozone

A

1.Budget deficits must not exceed 3% of GDP
2.Gross National Debt has to be below 6% of GDP
3.Inflation has to be below 1.5% of the lowest inflation countries.
4.The average government bond yield has to be below 2%of the yield of the countries with the lowest interest rates.

57
Q

How can firms benefit from economies of scale when in a trade bloc?

A

By entering a trade bloc, firms have now access to a broader market, which increases their output which they can benefit from lower average costs.

58
Q

How would costs between borders be reduced by entering a trade bloc?

A

By eliminating protectionist measures such as tariffs, there is no need for firms to pay high taxes, which could results in lower prices.

59
Q

Which is an outflow of money: imports or exports?

A

Imports

60
Q

What are exports?

A

Goods and services that are sold to foreign countries and are positive on the balance of payments scale.

61
Q

Do the UK specialise in goods ( visibles ) or services ( invisibles)?

A

Services (invisibles)

62
Q

How do cheap imports affect unemployment in the domestic economy?

A

Cheap imports harm domestic firms, as they lose their competitive advantage, therefore they produce less units of output, meaning they require less workers, hence the unemployment rate increases.

63
Q

How do cheap imports affect the domestic inflation rate?

A

Cheap imports promote competition, so firms find ways to reduce costs and lower prices, which lowers the overall rate of inflation.

64
Q

When does exchange rate depreciation occur?

A

When the value of one currency falls relative to another currency in a floating exchange rate system.

65
Q

How is exchange rate determined in a floating system?

A

Determined by the forces of Supply and Demand.

66
Q

How is the exchange rate determined in a fixed system?

A

Determined by what the government wants to value the currency at.

67
Q

How would the depreciation of the pound (£) help domestic firms?

A

It makes exports cheaper, which boosts demand for them and therefore helps UK firms grow.

68
Q

How would the depreciation of the pound (£) damage domestic firms?

A

If UK firms import raw materials from other countries, a depreciation increases the cost of these materials, which would be passed onto consumers in the form of higher prices.

69
Q

What is the effective exchange rate?

A

Shows the strength of one currency compared to a basket of others, whereby the weight of different currencies is determined by how much trade occurs between the 2 countries.

Economics B (13 decks)

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