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Economics A level Edexcel > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

Define globalisation

A

Definition - The ever-increasing integration of the world’s economies (national/regional/local) into a single international market

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2
Q

What are the key characteristics of globalisation?

A 
More trade in G+S
Free movement of capital
Labour - migration and specialisation
interchange of intellectual capital
larger trading agreements
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3
Q

Causes of globalisation?

A 
Containerisation
Less protectionism
The death of distance/IT
economies of scale
business demands
international financial flows
legislation
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4
Q

Key benefits of globalisation

A

tech innovation
FDI
Economies of scale

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5
Q

Key disadvantages of globalisation

A

ineqeuitable distribution
threat to sovereignty and cultural identity
interdependence

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6
Q

types of tax avoidance

A

transfer pricing
moving production to low tax country
low tax head office

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7
Q

benefits of FDI

A 
can trigger multiplier
increases R&D 
New jobs
Productivity
Increase in export capacity
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8
Q

Disadvantages of FDI

A 
profits may not go to host country
land grabs
low ehtical standard
volatile
low quality jobs
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9
Q

Why are their MNCs?

A 
barriers to entry
economies of scale
icnreased innovation
global branding
patenting
gain politcal influence
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10
Q

define footloose capitalism

A

Fickle companies - may leave quickly if things change (however, this can be difficult for manufacturing)

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11
Q

Summary of inequality and globalisation

A

Decreases inequality between countries

Increases inequality within countries

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12
Q

What is comparative advantage

A

One countru has a lower indirect/opportunity cost of producting than another

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13
Q

What happens to PPF when two countries are trading at a favourable exchange rate

A

PPFs pivot out and become parallel

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14
Q

What theory opposes Adam Smith’s specialisation?

A

Theory of comparative advantage

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15
Q

Name 3 assumptions of theory of comparative advantage

A 
no transport costs
production costs/tech costs constant
2 economies 2 goods
mobile factors of production
homogenous goods
no barriers to trade
perfect knowledge
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16
Q

What are the primary determinates of a comparative advantage

A

quantity and quality of production

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17
Q

What 4 factors influence the pattern of trade?

A

comparative advantage
Emerging economies
Trading blocs/agreements
exchange rates

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18
Q

What can be used to measure trade openess

A

ratio of trade to GDP = (X-M)/GDP

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19
Q

How has production changed? 3

A

Fragmentation of production
digitilisation
rise in automation

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20
Q

2 benefits of trade

A

Reduced costs - comparative advantage specialisation

More choice

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21
Q

Risks of trade 2

A

overdependence

loss of culture and sovereignty

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22
Q

formula for terms of trade

A

index of X prices/index of M prices *100

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23
Q

SR determinates of Terms of trade

A

change in ER
inflation
change in demand

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24
Q

LR factors effecting terms of trade

A

productivity

change in income

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25
Q

What does a rise in Terms of trade mean

A

prices of exports rise and prices of imports fall

  • buy more imports per export
  • may worsen balance of payments (depends on elasticity)
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26
Q

To see how elasticity affects balance of trade what can we look at?

A

Export market

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27
Q

What is a trading bloc

A

general term for a group of countries entering a trade agreement to reduce barriers to trade

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28
Q

In order of increasing integration what are the types of trading blocs

A 
Preferential trade area (PTA)
Free trade area (FTA)
Customs union
Common market
Economic union 
Full integration
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29
Q

what is a customs union

A

free trade and a common external tarriff barrier

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30
Q

what is a free trade area

A

free trade within bloc but individual trade barriers

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31
Q

what is a common market

A

free movement of factors of production

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32
Q

What is trade creation

A

consumers switch from high to low-cost producer

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33
Q

what is trade diversion

A

consumer switch from low to high cost producers

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34
Q

2 advantages of trading blocs

A

encourages FDI due to trade potential

encourages competitiveness and effeciency

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35
Q

2 disadvantages of trading blocs

A

can be ineffective and lead to trade diversion

can reduce national sovereignty and control

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36
Q

What is the condition for consumers to benefit from a trading bloc

A

trade diversion < trade creation

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37
Q

difference between static and dynamic gains from trade

A

static are made straight away upon entry and dynamic are over time

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38
Q

Name a key example of a monetary union

A

eurozone and the european central bank

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39
Q

What are the rules for eurozone members

A

fiscal debt cannot be greater than 3% GDP

national debt cannot be higher than 60% GDP

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40
Q

3 advantages of a monetary union like the Eurozone

A

improved price transparancy and stability
inward investment
less volatile exchange rate as more countries behind it

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41
Q

2 disadvantages of monetary union

A 
transition costs (menu costs, shoe leather etc)
Loss of policy independence
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42
Q

What are the convergence criteria for joining a single currency? 5

A 
low inflation
low fiscal deficit
low national debt (as a % GDP)
stable ER
similar IR
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43
Q

what is the WTO

A

world trade organisation

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44
Q

what did the wto replace

A

GATT - general agreements on tariffs and trade

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45
Q

objectives of the WTO

A

trade liberalisation

follow trade agreements

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46
Q

difference between plurilateral bilateral and multilateral

A

bi - 2
pluri - multiple
multi - everyone

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47
Q

most recent WTO round

A 
Doha round (QATAR) 
160 countries
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48
Q

3 negatives if WTO

A

rich countries exploit poorer ones
bad for environment
Pushes down prices/revenue for developing countries

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49
Q

Define protectionism

A

the use of economic policies to manipulate imports and exports

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50
Q

Types of protectionism

A 
Tariffs
Quotas 
subsidies
Admininstrative barriers
exchange rate manipulation
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51
Q

3 Pros of free trade

A

encourages competition and effeciency
theory of comparative advantage
rise in living standards

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52
Q

3 cons of protectionism

A

retaliation
dead weight loss
can be regressive

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53
Q

3 pros of protectionism

A

Protects infant industries (sunrise and sunset)
can improve diversity
combat dumping from other countries

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54
Q

What is the balance of payements split into

A

current account
financial account
capital account

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55
Q

What is in the current account

A

net trade (visibles and invisibles)

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56
Q

Whats in the capital account

A

government and foreign transfers

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57
Q

whats in the financial account

A

investment income

FDI

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58
Q

What is the sum of the balance of payments

A

=0

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59
Q

What do countries have underlying current account surpluses or deficits?

A 
natural resources
underlying competitiveness
exchange rates
inflation
spending by consumers/government
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60
Q

Positives of a current account deficit

A 
financial liberation (more FDI)
Partial auto-correction (may be corrected buy business cycle)
Investment and supply side (tooling up)
Capital inflows (low IR can finance)
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61
Q

Problems of a current account deficit

A 
structural weakness
unbalanced economy
loss of output (withdrawal)
Problems with financing (FDI unreliable)
downward pressure on exchange rate
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62
Q

3 types of method for tackling the balance of payments?

A

demand management
Currency adjustment
supply side

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63
Q

Types of demand management

A

expenditure switching

monetary policy

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64
Q

What is it called when someone refuses/cannot pay debts

A

default

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65
Q

Key issue of defaulting on debts

A

makes investment and future borrowing hard and expensive

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66
Q

If money is entering the country…

A

it is being supplied

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67
Q

If money is leaving the country…

A

it is being demanded

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68
Q

what is a floating exchange rate

A

free market determines ER

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69
Q

What is hot money

A

Rise in IR causes speculative money flows so a rise in ER

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70
Q

What is the difference between devaluation and depreciation

A

devaluation is a fixed ER, depreciation is a floating ER

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71
Q

what is the marshall-lerner condition

A

devaluation only leads to an improvement in teh current account if the sum of elsasticities (for X and M) is of a magnitude more than 1

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72
Q

What condition talks about elasticities of exports and imports

A

marshall lerner condition

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73
Q

What does the J-curve show

A

Devaluing the currency in the SR can increase deficit due to fixed contracts and slow reactions
- there is a TIME LAG

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74
Q

What can an ER do to inflation

A

Rise in ER can make imports cheaper, lowering AD, moderating inflation

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75
Q

ER and economic growth

A

lower rate increases investment as more export opportunities

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76
Q

comptitiveness can have a big effect on…

A

employment

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77
Q

measures of international competiveness

A 
unit labour costs
global competitiveness league table
realtive export prices
terms of trade
growth rates
78
Q

Real exchange rate formula

A

nominal * domestic price level/foreign price level

79
Q

Name 3 factors that influence competitiveness

A

exchange rates
Quality/R&D
PED

80
Q

Why are there dynamic gains from trade

A

widens market so more investment and efficiency

81
Q

Why is the UK competitive?

A

Can attract FDI because skilled flexible labour, gateway to europe, stable, low tax rates

82
Q

3 advantages of competitiveness

A

Current account surplus
wage growth and jobs
attracts FDI

83
Q

how can competitiveness be lost 2

A

rise of middle class (erodes wage advantage)

current account surplus can appreciate exchange rate, reducing competitiveness

84
Q

evaluating a policy to increase competitiveness

A 
Trade deficit 
Incentives
ST/LT impact
Impact of future decisions
Could something have achieved them with fewer resources
Why did it fail?
85
Q

what is equity

A

the quality of being fair or equal

86
Q

3 causes of inequality

A

earned income (race, age, gender etc)
government policy
competition

87
Q

4 types of wealth

A

physical (antiques etc)
property
private pension wealth
financial

88
Q

key cause in inequality for wealth

A

inheritance

89
Q

formula for gini coeffecient

A

a/(a+b) *100

90
Q

value for absolute poverty

A

less than $1.90

91
Q

relative income figure

A

less than 60% median income

92
Q

3 causes of poverty

A

lack of human capital
dependency
infrastructure

93
Q

what is the poverty cycle

A

concept that poverty causes poverty

94
Q

what is horizontal equity

A

equal treatment of people in the same situation (regardless of age race gender etc)

95
Q

What is vertical equity

A

different treatment of indivuduals to promote equity (e.g. progressive taxes)

96
Q

3 types of taxation

A

progressive
regressive
propotional

97
Q

6 policies to reduce inequality

A 
Minimum/maximum wages
Forced benefits to workers
Equal pay legislation
Trade unions
Price controls on necessities
Goods provided on an income basis
98
Q

key disadvantage of taxation

A

lowers incentive to work

99
Q

Trickle down effect

A

high wealth in individuals creates jobs

100
Q

6 development classifications

A 
income
developed, developing, less developed
worlds model
NICs
BRICs
Tiger economies
101
Q

what are the tiger economices

A

South Korea, Singapore, Taiwan

102
Q

Why doesn’t growth correlate with development?

A

other factors can influence,

inequlity, corruption, lack of social mobility

103
Q

three variables of HDI

A

GNI pc at PPP
education - mean years
life expectancy at birth

104
Q

What is a hard commodity?

A

Something that is mined or extracted

105
Q

What is a soft commodity

A

something that is grown or raised

106
Q

why are commodity prices so volatile

A

very inelastic demand and supply, which mean small changes cause big changes in price

107
Q

What is the prebisch singer hypothesis

A

Over the long term, as commodities don’t rise in value as much as technology and other processed materials, the terms of trade of countries with primary product dependency deteriorates

108
Q

What is the IHDI

A

Inequality-adjusted HDI

uses atkinson index

109
Q

How many indicators does the genuine progress indicator have and what are the three categories of these

A

26

Social, economic, environmental

110
Q

What is the MPI

A

Multidimensional poverty index

10 indicators

111
Q

What is the resource curse

A

Countries have an abundance of natural resources but do not develop

112
Q

Why do primary product dependent countries struggle with prices

A

very volatile

makes planning and investment difficult

113
Q

what is dutch disease

A

Country becomes a significant exporter of a resource in short space of time, which appreciates exchange rate, eroding competitiveness

114
Q

What is the harrod-domar model

A

change in Y/Y=s/k
s is savings ratio
k is capital output ratio

115
Q

What is the savings cycle

A

low savings
low investment
low capital accumulation
low incomes

116
Q

What is the savings gap

A

the difference between actual savings and the savings needed to finance investment for higher growth

117
Q

What is a foreign exchange gap

A

difference between exports and the exports needed to finance higher growth

118
Q

What is capital flight

A

Money is sent abroad to be saved

119
Q

What is the Malthusian trap

A

Population grows before agricultural growth, results in inadequate food
–> can be extended to energy

120
Q

What is microfinance

A

very small loans given to poor groups to allow them to invest

121
Q

What is often a missing market in developing countries

A

absence of a financial sector

122
Q

what does the kuznets curve show

A

Level of envronmental degradation and the industrialisation of a nation

123
Q

What can lead to underemployment

A

Over-education can lead to underemployment

124
Q

what is a brain drain

A

better educated memebers of the workforce leave to countries with better opportunities

125
Q

What is rent seeking

A

behaviour which attempts to increase share of existing pot of wealth rather than creating higher income/wealth

126
Q

What is dead capital

A

Poorer people not being able to use their assets (like land) as collateral for loans

127
Q

Name 4 non-economic factors that influence growth and development

A

war
poor governance
disease
Geographical location

128
Q

What is allocative efficiency

A

Price (AR) = MR

When the state of the market best represents consumer preferences

129
Q

What is a surrogate competitor

A

When a regulator acts as competition to increase efficiency in a monopoly

130
Q

3 types of strategies to improve development

A

Market-based
interventionist
Other

131
Q

Market-based strategies to improve development

A 
Privatisation
trade liberisation
promotion of FDI
Removal of subsidies
Floating exchange rate
Microfinance
132
Q

Interventionist strategies to improve development

A 
Development of human capital
Protectionism
Managed exchange rates
developing infrastructure
joint venturing
buffer stocks
133
Q

What is import substitution

A

when protectionism is used to move consumption from imports to domestic products

134
Q

Other strategies to improve development

A 
fairtrade
developing primary industries
debt relief
aid 
tourism
industrialisation
135
Q

Why might a government decide to build infrastructure

A

Potential for a social profit - positive externalities

136
Q

Pros of FDI 3

A

Risk of investment taken by MNC not government
transfer of knowledge and skills
Multiplier

137
Q

Cons of FDI 3

A

Loses sovereignty
Repatriation of profits
Can be exploitative

138
Q

What is a joint venture

A

Foreign investor must set up in partnership with a local

139
Q

What do buffer stocks tackle

A

Volatile prices

140
Q

Advantages of buffer stocks

A

Encourages I
Prevents fall in revs that cause poverty
Consumers see more stability

141
Q

disadvantages of buffer stocks

A 
Prices may go one way (don't work) - unsustainable
Large cost to taxpayer to set up
Difficult to do with perishables
Free riders (other countries)
142
Q

What is the Lewis Model

A

Traditional and modern sector

Industrialisation through the transfer of workers to urban sector, therefore should a key objective

143
Q

Negatives of lewis model

A

Profits may not be passed onto workers
Urban poverty
Government can waste resources on investment
Slums caused by influx

144
Q

Advantages of Aid

A

fulls savings, trade gaps

can be targetted

145
Q

positives of debt relief

A

Reduces burden on small countries
Allows growth
Interest was larger than original loan
Previous government may have been corrupt

146
Q

Negatives of debt relief

A

moral hazard

eases pressure on govt to adopt good policies

147
Q

Name 3 key development NGOS

A

IMF
World Bank
WTO

148
Q

What does the imf do

A

Provides tempory relief in crisis

tied aid

149
Q

What does world bank do

A

Promotes devlopment through different sub branches

150
Q

What is a financial market

A

A set of arrangements where buyers and sellers can buy or trade a range of goods/services/assets for financial gain

151
Q

6 roles of financial markets

A 
Facilitate saving
Lending
Facilitate exchange 
Provide forward markets
Provide equity markets
Provide insurance
152
Q

5 types of financial institutions

A 
Retail banks
Commercial banks
Investment bank
Saving vehicles
Insurance companies
153
Q

6 key financial markets

A 
Money
Capital
FX
commodity
Derivatives
Insurance
154
Q

Types of financial market failure

A 
Asymmetric info
Moral hazards
Specualtion/bubbles
Market rigging
Externalities
155
Q

What is a market bubble

A

when speculation causes a price to be excessively high, which may then collapse

156
Q

What is herding

A

investors watch what other investors do rather than at the underlying value of an asset

157
Q

What is the relationship between bonds and IR

A

proportional as substitutes

158
Q

What is a central bank

A

Instution responsible for acting as the governments bankers

159
Q

4 key roles of central bank

A

Implements monetary policy
Banker to government
Banker to banks (lender of last resort)
Regulator

160
Q

Classic financial markets moral hazard

A

bailing out banks

161
Q

What is the capital/leverage ratio

A

Ratio of liabilities/capital/reserves to assets

162
Q

3 reasons for public expenditure

A

Efficiency
Equity
Macro management

163
Q

What is capital expenditure

A

Spendign on investment goods (longer than a year)

164
Q

What is current expenditure

A

genereal government spending (G+S in year, transfer payments, debt interest

165
Q

Ev government efficiency

A

Free market increases competition, firms maximise profits and lower costs and innovation gives an advantage so is desired
If inefficiency > benefits from the public good, then G should be minimised

166
Q

What is resource crowding out

A

extra G leads to reduced private sector spending

167
Q

What is crowding in

A

Increase in G leads to higher public sector spendingPF

168
Q

PPF and crowding in/out

A

in- shift out (new PPF or better use)

out - shift along

169
Q

What is a direct tax

A

Tax levied on economic agents

170
Q

What is an indirect tax

A

tax levied on a G/S

171
Q

Why tax

A

Fund G
Correct market failure
Manage the economy
Redistribute economy

172
Q

Equity taxes type

A

proportional
progressive
regressive

173
Q

What are the canons of taxation

A

Cost to collect is low % of yield
Timing and amount is clear
Payment/timing is conveniant
equitable

174
Q

What is a hypothecated tax

A

tax linked to a specific area of G

175
Q

What does the laffer curve show

A

Tax revenure and tax rate

176
Q

What is tax competition

A

low corporation tax to attract investment

177
Q

Name some main UK taxes

A 
income
National insurance contributions
Inheritance
excise
VAT
Council
Business
178
Q

2 types of G

A

Automatic stabilisers

discretionary fiscal policy

179
Q

Link equation between deficit types

A

Structural deficit = actual deficit - cyclical deficit

180
Q

What is the structural deficit

A

difference between deficit at peak of cycle and fiscal balance

181
Q

Primary deficit?

A

Taxes - G

182
Q

What does primary deficit not include

A

DEbt interest repayments

183
Q

4 factors that influence fiscal balance

A

Strutural
Cyclical
Unforseen disasters
Debt interest

184
Q

What is the name for the amount of money required to pay debts

A

debt servicing

185
Q

What is inter-generation equity’s link to national debt

A

burden on future

186
Q

How does borrowing effect future borrowing

A

Credit ratings - if not paid back it gets more expensive

187
Q

5 objectives of fiscal policy

A 
Private sector market gaps
Desirable distribution of wealth
Correct market failure
improve macro performance
ensure sustainability
188
Q

Types of demand management

A

expansionary
deflationary/contractionary
automatic stabilisers

189
Q

2 ways to reduce a deficit

A

fiscal austerity

Automatic stabilisers

190
Q

5 ways to reduce debt

A 
fiscal surplus
balancing budget
inflation
QE
Default
191
Q

What are direct controls

A

Measure imposed on a single product or factor of production

192
Q

Key problems that face policy makers

A

Inaccurate information
Risk and uncertainty
External shocks

Economics A level Edexcel (18 decks)

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