Theme 4 Flashcards

Question

What happens when quotas are put in place?

Answer 1

Restricts imports Pushes prices up Encourages domestic production Supply expands

Answer 2

Encourages domestic production Subsidy payments help reduce price Helps create economic growth

Answer 3

Protects jobs Protects infant industries Protects against MNCs Maintains domestic culture

Answer 4

Only creates SR benefits Lack of competition Increases in prices Retaliation

Answer 5

The ever increasing integration of the world's local, regional and national economies into a single international market.

Answer 6

- Free trade across national boundaries of goods and services - Free movement of labour between countries - Free movement of capital between countries - Free interchange of technology and intellectual capital across national boundaries

Answer 7

- Trade in goods - growth and revenues - Trade in services - growth and revenues - Trade liberalisation - lower barriers for global trade - Multinational companies - EOS, monopoly power, influence government decisions and technological knowledge - International financial flows - becoming far greater - fast economic growth - Foreign ownership of firms increasing - Communications and IT - reducing time needed for economic agents to communicate

Answer 8

- Consumer choice - increased - Prices - changes some fallen and some rised - Incomes - rised

Answer 9

- Employment and unemployment - pros and cons - Migration, experience better living standards, increased productivity - Wages - pros and cons - has depressed some wages - competition - demand pushing up - Multinationals - create more jobs, however usually lower income jobs

Answer 10

- Specialisation and economic dependency - Costs and markets - achieve lower costs - Footloose capitalism - destroy jobs and prosperity in the wake as they globalise - Tax avoidance - can avoid tax

Answer 11

- Can create prosperity but bring economic problems - aware of tax avoidance - decrease their tax rates - bribery and corruption

Answer 12

- leads to destruction of nature | - increase global warming

Answer 13

- Lower prices and greater choice - Economies of scale - lower prices - Increased global investment - Free movement of labout - May reduce global inequality

Answer 14

- Structural unemployment - environmental costs - tax competition and avoidance - movement of highly skilled people moving abroad for higher wages (brain drain problem) - Less cultural diversity

Answer 15

- Firms with comparative advantage, e,g high-tech software firms - High - income earners - Wealthy who can invest abroad and take advantage of lower tax rates - Workers who gain employment in export industry - Consumers who benefit from cheaper prices

Answer 16

- Unskilled manual labour who have seen a decline in employment opportunities with the structural change to the economy - Average taxpayers who lose out from tax avoidance schemes - The environment...

Answer 17

318.02 billion (1970) 19,468.14 billion (2018)

Answer 18

the strategy companies use to translate their values and identity into a limitless language

Answer 19

Buying strategy in which a business buys goods and services from international markets across geopolitical boundaries to save money by using cheap raw materials or skilled labour from low-cost countries

Answer 20

Companies that operate in more than one country. They often have factories in countries that are not as economically developed to take advantage of cheaper labour.

Answer 21

Is the exchange of products - takes place between economic agents If countries specialise in the production of certain goods and services and then trade with other countries there will be an increase in economic welfare.

Answer 22

Static - improvements in allocative and productive efficiency Dynamic - the gains in welfare from improved product quality, increased choice and faster and more innovative behaviour

Answer 23

Free from artificial barriers such as import tariffs, quotas, and other trade barriers

Answer 24

Focuses on when a country has lower relative opportunity cost when it decides to specialise in a particular product Opportunity cost is the sacrifice of alternative products made when you specialise in another.

Answer 25

> Difference in factor endowments - conditions/resources from your land > Price - can produce goods for cheaper > Product differentiation - many traded goods are similar but not identical > Political reasons

Answer 26

> comparative advantage > impact of emerging economies > growth of trading blocs and bilaterial trading agreements > changes in relative exchange rates

Answer 27

Occurs when country can produce a product using fewer resources than another nation If a country is using the same factors of production and can produce more of a product, then it has an absolute advantage

Answer 28

If countries specialise in producing goods where they have a lower opportunity cost - then there will be an increase in economic welfare - Even if a country is more efficient in the production of all goods (absolute advantage) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies

Answer 29

Occurs when countries switch from high-cost producer to low-cost producer Lower tariffs increase consumer surplus and net economic welfare of 2+4. Trade creation - reduction in tariff barriers, leading to lower prices

Answer 30

- lower prices - specialisation and EOS - increased competitive pressure - growth of export industries

Answer 31

- some industries lose out - possible structural unemployment - developing economies may struggle to diversify their economy

Answer 32

When production shifts from low-cost producers to high-cost producers - increase in producer surplus - net loss = gain in producer surplus - decline in consumer surplus

Answer 33

ratio between average export prices and average import prices (Index of export prices / Index of import prices) x 100 - Country can buy more imports from exporting the same quantity of goods - Living standards rise - improvement in a country's ToT

Answer 34

Short run... - Change in the exchange rate will change import and export prices. e.g. rise in exchange rate is likely to lead to a fall in the price of imported goods. ToT will improve. - Inflation - rise in inflation relative to other countries is also likely to improve the ToT Long run... - A rise in productivity, compared to a country's main trading partners should reduce the relative price of exports as higher productivity leads to lower costs of production. - Changing incomes will affect patterns of demand. As world incomes rise. e.g. there has been an increase in dmeand for tourism. If this leads to a rise in prices in the tourist industry in, say, turkey, then all other things being equal, there will be an improvement in Turkey's ToT

Answer 35

The world price of commodities

Answer 36

> Tariffs on trade between countries in the agreement - Eliminated > Common Tariffs on imports from outside the agreement area - Yes > Free factor mobility within the area - Yes > Harmonisation of economic policies - Desirable

Answer 37

> Tariffs on trade between countries in the agreement - Eliminated > Common Tariffs on imports from outside the agreement area - Yes > Free factor mobility within the area - No > Harmonisation of economic policies - Possible

Answer 38

> Tariffs on trade between countries in the agreement - Eliminated > Common Tariffs on imports from outside the agreement area - No > Free factor mobility within the area - No > Harmonisation of economic policies - No

Answer 39

> Tariffs on trade between countries in the agreement - Reduced > Common Tariffs on imports from outside the agreement area - No > Free factor mobility within the area - No > Harmonisation of economic policies - No

Answer 40

> Tariffs on trade between countries in the agreement - Eliminated > Common Tariffs on imports from outside the agreement area - Yes > Free factor mobility within the area - Yes > Harmonisation of economic policies - Yes > common currency

Answer 41

Occurs when at least two countries share the same currency. | Also have countries which use the currency of another country rather than issuing their own currency (Ecuador)

Answer 42

> Fixed prices - no losses from exchange rates > Greater price transparency - easier to compare (better information) > More trade and greater EOS - less costs > Inward investment - given a comp advantage > Price stability

Answer 43

> Transition costs - vending machines changed > Loss of policy independence > inability to change the value of a currency > Structural problems > Break up of monetary union

Answer 44

> Optimum currency area (theory) - Should be free movement of labour - Should be capital mobility associated with wage and price flexibility - Should be automatic fiscal transfers when individual countries are performing poorly - Countries should share the same trade cycle

Answer 45

- Comparative advantage - Relative economic performance - Trade blocs and agreements - Exchange rates

Answer 46

- Growth - Efficiency - Choice - Innovation

Answer 47

- Risks - Unemployment - Debt - Cultural dilution - Environmental

Answer 48

1. Devaluation puts cost pressures on domestic businesses because the relative prices of imported raw materials increase. 2. Businesses need to pay more in their domestic currency to buy the same quantity of foreign goods as before. 3. Even though the prices of exported goods fall in foreign currency terms, in the domestic country it has the same prices charged. 4. The ToT therefore deteriorates

Answer 49

The comparative advantage to maximise output between trading nations.

Answer 50

Is the use of economic policies deliberately to regulate trade between countries, mainly to reduce imports. To reduce imports and increase exports.

Answer 51

Dumping happens when firms sell products abroad at below costs or significantly below prices in the home market. - implies predatory pricing - implies price discrimination

Answer 52

- protect infant industries - protect key / politically strategic industries - raise tax revenues for government - employment protection - response to a chronical trade gap - response to export dumping - response to a recession or low aggregate demand

Answer 53

``` Domestic output - expansion Domestic demand - contraction Imports - fall in volume Government tax revenues - increase Domestic producer revenue - increase Foreign producer revenue - falls Consumer surplus - falls Overall economic welfare falls ```

Answer 54

Any form of financial help given to domestic producers in order to lower their costs and help them compete in international markets. - outward shift in supply

Answer 55

- Trade creation i.e. exploiting comparative advantage - Exploit economies of scale - Enhance competition

Answer 56

- membership cost - loss of national economic sovereignty - austerity pressures - migration - inefficient policies

Answer 57

A quota places a quantity limit on the volume of imports of a product that can come into a country. - indirect effect - creating artificial scarcity > the effect of a quota is to create excess demand for imports for a given level of domestic demand. > pushes up market price > higher market price incentivises domestic producers to increase their supply / enter the market. > Domestic supply increases (push supply outwards)

Answer 58

- risk of retaliation - game theory at work - market distortions - higher prices for consumers - regressive effect on income inequality - by-passing import controls - higher costs for exporters - potential for corruption - barriers to entry - reduces market contestability

Answer 59

- Balance of trade in goods - Balance of trade in services - Net primary income (interest,profit,dividends) - Net secondary income (transfers Aid,EU contributions)

Answer 60

- sale/transfer of patents,franchises leases... - debt forgiveness/cancellation - capital transfers of ownership of fixed assets

Answer 61

Includes transactions that result in a change of ownership of financial assets and liabilities between UK and non-UK residents. - Net balance of FDII - Net balance of portfolio investment flows - Balance of banking flows - Changes to the value of reserves of gold and foreign currency

Answer 62

investment from one country into another that invooves establishing operations or acquiring tangible assets, including stakes in other businesses.

Answer 63

Inward investment - is positive for UK accounts - a foreign retail firm invests to open new stores in the UK Outward investment - is a negative for the UK financial account of the BoP - investment made overseas by UK businesses.

Answer 64

> Expenditure reducing > Productivity enhancing > Encouraging exporting > Protectionism > Reduce exchange rate

Answer 65

Reduce government spending Increase taxation Increase base rate Reduce money supply

Answer 66

Incentivise investment Provide education and training Tax incentivises for R&D Incentivise FDI

Answer 67

- preferential loans to buyers - insurance against non-payment - management training for exporters - subsided prospecting

Answer 68

- Tariffs, quotas, embargos and subsidies

Answer 69

A devaluation will shift a deficit toward a surplus if imports + exports > 1. A devaluation will widen a deficit if imports + exports < 1,

Answer 70

An account made up of the current account, capital account and financial account.

Answer 71

1. Low investment 2. Low productivity 3. Relatively higher inflation 4. High labour costs 5. Poor quality and low reliability of exports

Answer 72

1. Strong domestic growth // - higher incomes - higher living standards - demand for imports increase - more sterling used to buy foreign currency - worsening of the current account. 2. Recession overseas // - slower growth in main trading partners - income growth fall in MTP - lower MTP demand for imports - lower export revenue for the domestic economy - worsening of C/A 3. Strong currency - imports are relatively cheaper and exports more expensive - increases expenditure on imports and reduces exports revenues (relatively less competitive) - worsening of C/A

Answer 73

- Lower prices: Country having comparative advantage (produce lower). Therefore, goods will have lower prices - More Consumer Choice: By trading, consumers have access to more goods from other countries. - Larger Markets: Firms benefit because their audience is expanded to a bigger (global) market. - Economies of Scale: Because firms have a greater audience, there is greater demand for their goods. This means they have the opportunity to expand and gain from economies of scale. - Increased living standards: benefit from cheaper prices as other countries specialise from comparative and sell cheaper products.

Answer 74

- Trade Deficit: If a country is uncompetitive, then they could end up with a trade deficit. - Dumping: Countries with excess goods can sell them in foreign markets at a price far below the market price in order to get rid of them. The economy of the country that the goods are being ‘dumped’ into will be damaged as the increase in supply and fallen price can put some domestic producers out of business as it shocks the market. - Contagion(increased exposure to external shock): As has been seen by the recent global financial crash, economic shocks can be spread across economies. This is due to the interdependence of economies; as one economy begins to crash, the countries that were dependent on their trade will find they are also hit by their downturn and so economic shocks will be spread across economies. - Global Monopolies: International trade can allow the rise of global monopolies with global influence and power for market manipulation. - Problems Facing Emerging and Developing Economies: Emerging economies and developing countries are generally susceptible to exploitation from global monopsonies and from more developed countries that have access to the necessary finance, capital and knowledge.

Answer 75

the value of one currency when traded for another currency

Answer 76

a country allows the value of its currency to fluctuate according to the free market forces of demand for its currency and the (somewhat controlled) supply of its currency. Decreases and increases in a country’s currency are described as depreciations and appreciations in currency when under a floating exchange rate regime.

Answer 77

``` Infant industries Employment Self-sufficiency Balance the balance-of-payments Retaliation Prevent dumping Reduces competition Protect strategic/important industries ```

Answer 78

A fixed exchange rate is when a country’s governing body or central bank keeps the value of the currency, in terms of another, at the same level. Revaluation and devaluation used when to change the value compared to another.

Answer 79

A managed exchange rate is when the monetary authorities of a country influence the demand and supply of the country’s currency via buying and selling the currency itself or by changing the interest rate. By influencing the foreign exchange markets, authorities, such as the Bank of England, are able to ‘manage’ the value of the country’s currency in terms of another.

Answer 80

Relative Interest Rates The UK interest rate affects the rate of return on UK investments, such as saving accounts in UK banks. •Relative Inflation Rates (purchasing power parity) If the UK has lower inflation rates compared to other countries then it means that UK prices are rising at a lower rate than others. This means in comparisons, UK goods will be more competitive. More people will demand pounds in order to purchase UK exports. Rising demand for pounds will cause the pound to appreciate. High rates of inflation would have the opposite effect; UK prices would be rising more than other countries, thus appearing less competitive. •The Level of Imports and Exports (Current Account) In order to purchase UK exports, foreign consumers need UK currency. This means if the demand for exports increases, the demand for pounds also increases. Buying imports will increase the supply of pounds in the market because UK consumers will need to swap their UK currency for the currency of the imported good. •Speculation Speculation is the act of trading on the anticipated price movements of financial assets. It is risky and similar to gambling. As investors speculate, the demand and supply for pounds and the stock market varies the demand and supply of currency in great volumes every second. Generally investors act on anticipation of expectations, which is a self-fulfilling prophesy. If investors believe pound to appreciate - demand rises, bought, pound appreciates... •Quantitative Easing Quantitative easing is a monetary tool the Bank of England uses to stimulate the economy. The Bank of England increases the supply of money to restore a liquidity shortage, but by increasing the supply of money the value of the pound will depreciate.

Answer 81

•Changing Interest Rate Changing the interest rate can change the demand for money because high interest rates will attract foreign investors to domestic investments. Foreign investors will need to change their currency into the domestic currency before investing and thus will demand the domestic currency and push up the price of the currency. •Influencing Foreign Exchange Market If the central bank buys its own currency then this would reduce the supply of the currency on the foreign exchange market. The value of currency will also rise. Equally, by buying the currency they will increase the demand for the currency and this would equally increase the value of the currency.

Answer 82

The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve

Answer 83

- Current Account of the Balance of Payment - Marshall Lerner Condition The Marshall Lerner condition states that there will be an improvement in a country’s current account deficit, following intervention, only if the total sum of all the elasticities of all the imported and exported goods and services is equal to or greater than - J-Curve - Economic Growth and Unemployment - Rate of Inflation - FDI Flows If the exchange rate falls, then it will be cheaper for foreign companies to invest in the country. Vice versa

Answer 84

Represents the flow of money that an individual or household recieves within a given period. As grows, better position to buy assets. Salary welfare benefits company dividends

Answer 85

The stock value of all assets that an individual or household owns at a point in time. Assets can be used to top up income (stock) Property Shares and bonds Pension

Answer 86

Equality is how evenly distributed the income and wealth of a country is across society Equity is how fairly.

Answer 87

A graph which indicates income inequality by plotting the cumulative %of total national income against the cumulative% of the corresponding population (ranked in increasing size of share) ( X-axis population, Y-axis total income) Graphical representation of inequality Helps visualise the state of inequality in an economic system relative to a system of complete equality. Want to be closest to the line and can split up into different segments (population)

Answer 88

A statistical measure of the level of income inequality in an economy calculated by analysing the size of any inflexion in the Lorenz curve. Statistical representation of inequality Provides a simple index figure that can be compared across time and countries A = area between Lorenz Curve and Line of equality B = complete Area under line of equality Area A / Area B = Calculation

Answer 89

- Primary product dependency - (main bulk of exported goods are primary products (raw materials) - Volatility of Commodity Prices - (economic instability - Savings Gap - (The higher the savings ratio the easier it is for banks to lend money and then firms can borrow to invest and grow. - Inadequate foreign currency - (pay for imports... - Removal of capital - Demographic factors - Infrastructure - Debt - Education and skills - Non-economic factors

Answer 90

* Market-Orientated Strategies are strategies where the government attempts to use the market forces to promote growth and development, rather than the government directly changing the conditions. * Interventionist Strategies are strategies where the government takes a more direct role. Instead of manipulating the market, the government will simply change the market conditions.

Answer 91

- Trade liberalisation - Promotion of FDI - Removal of government subsidies - Floating exchange rates - Privatisation

Answer 92

- Human capital - Protectionism - Managed exchange rates - Infrastructure Development - Buffer stock schemes - buying excess corn - selling later

Answer 93

- Asymmetric information - Externalities - Moral hazard - Speculation - Market rigging