Theme 4

Question 1

Define globalisation

Answer 1

The increases interdependence of economies through trade

Question 2

3 characteristics of globalisation

Answer 2

Increased trade as a % of global gdp, increased fdi, increased migration

Question 3

3 characteristics of demand-globalisation

Answer 3

Increased trade barriers like tariffs, falling trade as a percentage of global GDP,
Less migration

Question 4

How does trade liberalisation lead to globalisation

Answer 4

Trade liberalisation means lesser tariffs, quotas etc so cheaper to export and import therefore more trade occurs

Question 5

How does reduced transport and commas costs increase globalisation

Answer 5

These are a cost of production so if these aspects are reduced then world supply increases, it becomes costs effective to sell good from further away rather than distribute domestically, also means production can be made in various places and transported to an assembly point. Comms improvements means it is easier to manage a global workforce as well as a market and selling globally without having a physical presence in the country

Question 6

How do TNCs cause globalisation

Answer 6

The profit motive drives TNCs to look for opportunities to reduce costs and increases revenues internationally. As they search for new markets to sell in, search for more efficient production locations and search for resources

Question 7

3 benefits of globalisation

Answer 7

Increased world output, through comparative advantage. Reduction in absolute poverty by giving countries access to inflows of money. Facilitation of the transfer of knowledge and technology. Improved quality and choice for consumers.

Question 8

Identify 3 disadvantages of globalisation

Answer 8

Externalities from transport and increased production, inequalities between and within countries, vulnerability to external shocks, structural unemployment, exploitation

Question 9

Why has there been a backlash at globalisation recently

Answer 9

Concerns about global warming, habitat destruction and resource depletion as an impact on some of the worlds most prominent eco systems.

Question 10

Does globalisation Benefit the world

Answer 10

Globalisation comes in tandem Ipswich reductions in poverty, increases in life expectancy and tech levels in local economies and better standards of living

Question 11

3 benefits of fdi to a host country

Answer 11

Transfer of tech (capital) and knowledge (human capital), provides employ,rent and income - boosts AD in the short run and LRAS through investment in productive potential. Provides tax revenue .

Question 12

3 disadvantages of fdi tohost country

Answer 12

Exploitation of workers: low wage poor working conditions. Bringing in overseas managers rather than employing locals. Environmental damage if government ‘turn a blind’ eye to activities. May have been given taxes incentives so not contributing to tax revenue. May be footloose, so able to leave quickly without bestowing any benefits..

Question 13

What are global supply chains

Answer 13

When sequences in the production process can take place in different countries e.g. the pencil vid on yt

Question 14

what is meant by the pattern of trade

Answer 14

the pattern of trade describes what is being traded and with whom

Question 15

who are the UK’s main trading partners

Answer 15

US 19.7% exports 8% imports, Germany, France and Netherlands

Question 16

give 3 reasons why the pattern of trade has changed in the last 50 years

Answer 16

1 emerging economies 2 trade liberalisation and trade blocs 3 ex-communist countries.

Question 17

what impact does the rapid growth of economies such as China and India have on the patterns of trade in the global economy.

Answer 17

1 china is now the worlds biggest trader.
2 both countries use export led growth as a way to expand and consequently this has meant both countries trade with countries all over the world and are exporting and importing more.
3 therefore affects the pattern of trade as the question of ‘who’ is trading has changed - significant amounts of trade in manufactured goods has moved to china and some services are now provided by India - this may be because these countries have developed a comparative advantage n different types of goods and services showing that this theory is not static and comparative advantage can change over time.

Question 18

how may other countries react to china and India having a large impact on the pattern of trade

Answer 18

other countries might see opportunities to sell raw materials to China e.g. many african countries have sold more metals and materials to china to help with their industrialisation. ALSO some countries may find their growth threatening and may then apply trade barriers with these countries to try and protect their own domestic industries from competition or develop their own trade blocs to counter the threat from china.

Question 19

define terms of trade

Answer 19

terms of trade show the rate at which a countries’ exports can be swapped for imports

Question 20

what is the formula for calculating the terms of trade between two countries

Answer 20

terms of trade= index of export prices/ index of import prices

Question 21

identify 3 facts about the wto e.g. how many countries are members

Answer 21

164 member states, formed in 1995 replacing GATT, has about 600 staff

Question 22

what is the main role of the wto

Answer 22

aims to reduce trade barriers, monitor member countries, teach new member countries how to promote free trade and resolve trade disputes amongst member countries

Question 23

what is meant by a trading bloc

Answer 23

a group of countries, usually geographically close who have removed trade barriers amongst themselves (FTA), possibly common external barriers (customs union), sometimes free movement of all factors of production ( common market) and occasionally have the same currency and share a central bank (currency union).

Question 24

3 examples of trading blocs

Answer 24

NAFTA, ASEAN, EU,

Question 25

distinguish between a free trade area and a customs union with examples

Answer 25

free trade area does not have a common external tariff, an example is NAFTA, but a customs union does like EU

Question 26

how has the growth in the number of trade blocs affected the WTO

Answer 26

it means that countries are organising their own bi-lateral and multilateral agreements rather than going through the WTO, may also create issues for the WTO if countries outside the trade bloc complain about the trade behaviour of countries within the bloc, e.g. because of trade diversion issues.

Question 27

define trade creation

Answer 27

trade creation is when the removal of a trade barrier leads to an increase in trade

Question 28

define trade diversion

Answer 28

trade diversion is when a country moves from trading with a low cost country to a higher cost country as a result of the removal of a tariff?? not good def

Question 29

what is meant by bi-lateral trade agreements

Answer 29

when two countries negotiate a trade deal between themselves rather than going through the WTO which would be a multi-lateral trade agreement

Question 30

Why might a country prefer to negotiate its own bi-lateral trade agreement rather than adopt a free trade agreement negotiated through the WTO

Answer 30

it is quicker and the agreement can be tailored to the needs and objectives of the two countries involved rather than having to consider the need so multiple parties

Question 31

define tariff

Answer 31

tariff is a tax on imports, paif by the company wanting to sell goods and services into an economy that is not their own and is received by the government of the host country

Question 32

define quota

Answer 32

a maximum number of goods that can be imported, once the maximum has been reached, the firm may be penalised with a tariff or other restriction if they go above it.

Question 33

define non tariff barrier

Answer 33

a non tariff barrier (NTB) is something that makes trade more costly or difficult, but which is not a tariff. For example, health and safety regulation on imported goods, domestic subsidies, or government procurement policies that favour domestic firms.

Question 34

define voluntary export restraint agreements

Answer 34

like a quota but it is self imposed by the exporting country rather than the importing one - they do this in order to avoid worse tariffs or quotas.

Question 35

explain the benefits of removing tariffs

Answer 35

when the tariff is removed the price to consumers falls and the consumption of this good will increase which will lead to an increase in consumer surplus and welfare.

Question 36

define protectionism

Answer 36

when a government imposes trade restrictions on another country

Question 37

identify and explain 4 reasons why a country uses protectionist policies, use an example where possible

Answer 37

to protect domestic jobs from structural unemployment e.g. protecting jobs in the domestic car industry by subsidising domestic producers.
to generate government revenue e.g. for developing countries this could be an important source of tax revenue to invest in supply side policies.
To protect Infant industries e.g. the computer industry in Brazil was protected whilst this industry grew to a size where economies of scale could be achieved such that this company could withstand international competition.
strategic products such as food are often protected as the country may need to remain self sufficient in case of war.

Question 38

what is a fixed exchange rate system

Answer 38

when the value of a currency in terms of another currency is fixed against the target currency e.g. pounds sterling could be fixed against the euro at rate of £1 = €1.2

Question 39

why might a country want to fix its exchange rate

Answer 39

sometimes to stabilise the currency if it has been volatile. also, fixing your currency against a major trading partner provides firms with predictability in planning and forecasting income flows between countries e.g. Bretton Woods system. In the case of the euro, accession countries, (those who are trying to join the EU) must fix their currencies against the Euro to show that the economies are sufficiently converged.

Question 40

what is meant by devaluation or a revaluation

Answer 40

a devaluation is where a government deliberately reduces the exchange rate in either a managed or a fixed exchange rate system. A revaluation is the opposite, where a government deliberately increases the exchange rate in a managed or fixed exchange rate system

Question 41

what is a floating exchange rate system

Answer 41

one where the exchange rate is determined purely by the supply and demand of that currency on the international market.

Question 42

4 factors that would increase the demand for £ sterling

Answer 42

1 increase in exports 2 increase in interest rates 3 speculation that the currency will appreciate 4 an increase in foreign tourists e.g. 2012 olympics

Question 43

4 factors that would increase the supply of £ sterling

Answer 43

1 increase in imports 2 decrease in interest rates 3 speculation the money will fall 4 increase in UK tourism abroad

Question 44

what can cause an exchange rate to appreciate

Answer 44

anything that causes an increase in demand for a currency or a decrease in supply and vice versa for depreciation.

Question 45

what is the difference between devaluation and a depreciation

Answer 45

depreciation - currency falls in value in a floating ER system, or because of a fall in demand/ rise in supply of the currency on the free market. Devaluation -
deliberate downward adjustment of the value of a country’s money relative to another currency

Question 46

what is the PPP theory of ER’s

Answer 46

it suggests that the value of a currency adjusts so that the same product costs the same in every market which it is sold. The nominal ER adjusts so that relative prices between countries are equal.

Question 47

hot money definition

Answer 47

stocks of money that are moved around the globe in search of the best relative ER or return

Question 48

adv and dis of floating ER system

Answer 48

adv: floating exchange rate should adjust so that there is always a zero balance on the balance of payments, should also help an economy adjust to external shocks e.g. if country has a high inflation rate, then the ER should adjust to restore competitiveness, also monetary policy is free to serve the interests of the domestic economy rather than to maintain a fixed or managed exchange rate

Question 49

adv and dis of a fixed exchange rate

Answer 49

• creates stability and predictability so businesses can plan income flows with more certainty. - many companies spend vast amounts of money ‘hedging’ or insuring themselves against adverse currency movements

Question 50

what is a managed exchange rate

Answer 50

when a combination of free market forces and intervention take place.

Question 51

how can the government and/or central bank influence exchange rates

Answer 51

Unlike the UK, many countries’ central banks (CB) are not independent of the government and can therefore instruct the CB to buy and sell their own currency on the free market, but also buy and sell reserves of other currencies that it has stocks of and can therefore de/revaluate

Question 52

what is FDI

Answer 52

foreign direct investment - when an overseas company invests in fixed capital in another country. e.g. setting up a factory in another country, in recent years it can also mean buying shares (over 10%) in an overseas company so that they have management influence.

Question 53

how does the ER affect FDI

Answer 53

a weaker or lower ER may make a country more attractive as a target for attracting FDI. It means that the investors money can go further and purchase more capital than if the currency is strong - however there are many other factors that are as, if not more, important in determining FDI.