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Theme 4 Flashcards

1
Q

Explain the components of the balance of payments

A

A record of all financial transactions made between consumers, firms and the government from one country with other countries. States how much is spent on imports and exports

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2
Q

Explain an export

A

Goods and services sold to foreign countries and are positive in the balance of payments

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3
Q

Explain an import

A

Goods and services bought from foreign countries and are negative on the balance of payments

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4
Q

Explain the current account

A

Includes all economic transactions between countries such as the trade in goods and services, income and current transfers.

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5
Q

Explain the financial account

A

It involves investment such as direct investment, portfolio investment and reserve assets

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6
Q

Explain globalisation

A

The interdependence of world economies for trade

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7
Q

State why globalisation has come about

A

Better transport systems
More free trade agreements
The internet
The pursuit of profit

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8
Q

Impact of globalisation on employment

A

Makes it easier for migrants to enter and work in the Uk
Less unemployment as theirs more migrants to fill jobs

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9
Q

Impacts of globalisation on worker wages

A

Allows trade liberalisation so it allows business owners to earn more

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10
Q

Impact of globalisation on consumer choice, price and availability

A

Increased choice of consumer goods
Increased competition and lower prices

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11
Q

Impact of globalisation on producer specialisation

A

Can benefit from being able to produce at a comparative advantage

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12
Q

Impact of globalisation on producer footloose locations

A

Where big companies move to other nations for less tax and cheaper labour

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13
Q

Impact of globalisation on environmental and social concerns

A

Ships and aircraft’s used to transport goods cerastes a lot of pollution

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14
Q

Terms of trade calculation

A

Export price index
—————————. X100
Imports price index

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15
Q

Factors influencing costs of imports and exports

A

Exchange rate
Inflation
The added value
Inelastic or elastic goods

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16
Q

Explain terms of trade

A

How many exports the country has to sell to pay for its imports

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17
Q

Explain trading blocs

A

Where two or ore countries come together to create trading opportunities with one another

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18
Q

Explain free trade area

A

A group of countries that have agreed to mutually lower or eliminate trade barriers for trade

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19
Q

Explain customs unions (trade)

A

A group of countries that apply one common system of procedures, tules and tariffs for imports and exports

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20
Q

Explain common market

A

An agreement between two or more countries, to remove all trade barriers between themselves

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21
Q

Explain economic Union

A

An agreement between two or more nations to allow good, services, money and workers to move over borders freely

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22
Q

Explain advantages of trading blocs

A

Forces firms to compete with each other
Economies of scale
Increased foreign direct investment
Trade effect.

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23
Q

Explain disadvantages of trading blocs

A

Competition for weaker members
Interdependence
Loss of sovereignty
Insular (trade creation and trade diversion)

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24
Q

Explain causes of deficits and surpluses on the current account

A

Appreciation of the currency - a stronger currency means imports are cheaper and exports are more expensive
Economic growth - when income increases, demand increases so import demand increases consequently
More competitive- if a country is more internationally competitive with lower inflation exports will increase
Deindustralisation - manufacturing sector has been declining since 1970
Membership of trade union - Uk has negative current transfers since fees are paid for membership of the EU

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25
State the expenditure switching policies
Exchange rate policies Protectionism Deflationary policy Supply side policies
26
Explain why some countries may have a surplus
Export orientated growth FDI - foreign direct investment Under valued exchange rate High domestic savings Closed economy Strong income from overseas investment
27
Explain demand side causes of current account surpluses
High income abroad Low income at home limits imports Weak exchange rate
28
Explain supply side causes of a current account surplus
Low relative inflation Low unit labour costs Strong investment Gains in comparative advantage New resource discoveries
29
Explain consequences of current account surpluses
Economic growth creating inflationary pressure Appreciation of the exchange rate Financial account deficit Can harm international relations Signs of an unbalanced economy
30
Explain a spot exchange rate
The rate for a currency at todays market prices
31
Explain a forward exchange rate
The delivery of currency at a specified time in the currency at a specified time in the future at an agreed rate (hedging)
32
Explain a bit-lateral exchange rate
The rate at which one currency can be traded against another
33
Explain a floating exchange rate
The value is determined by demand and supply
34
Explain advantages of a floating exchange rate
Stability in the balance of payments Foreign exchange is unrestricted Market efficiency enhances Act as a shock absorber if theirs an economic crisis Reduced need for currency reserves Partial automatic correction for a trade deficit Less opportunity for currency speculation
35
Explain drawbacks of a floating exchange rate
Exchange rate volatility Currency risk Inflation pass-through Loss of exchange as a policy tool
36
Explain a fixed exchange rate
One that is fixed by the central bank
37
Explain advantages of a fixed exchange rate
Price stability - some flexibility permitted Trade confidence Reduced exchange rate risk Foreign investment is easier and less risky
38
Explain drawbacks of a fixed exchange rate
Lack of flexibility Loss of monetary policy autonomy Balance of payments issues - must be maintained through fiscal policy or controls on capital flows Speculative attacks - if the currencies overvalued Dependence on reserves - need to have sufficient foreign exchange reserves
39
Explain a managed floating exchange rate
When the central bank may choose to intervene in the foreign exchange markets to affect the value
40
Explain advantages of a managed floating exchange rate
Provides a balance between the extremes of a fixed and a floating exchange rate Allows for some flexibility in monetary policy Act as a buffer against speculative attacks against the currency
41
Explain disadvantages of a managed floating exchange rate
Can lead to manipulation of the exchange rate Can be unpredictable Managing the exchange rate can be costly, it may contrast other macroeconomic objectives
42
Explain how to intervene a managed floating exchange rate (QE)
Government buys bonds back to stimulate the money supply Lowers the bond yield because the bond price rises Foreign investors take money out (hot money) Increase supply of pound Depreciation of the exchange rate
43
the central bank may bring about deprecation to
Improve the balance of payments Reduce the risk of a deflationary recession Rebalance the economy away from domestic consumption towards exports and investments Selling foreign currencies overseas
44
The central bank may bring about appreciation of the currency to
Curb demand-pull inflationary pressure Reduce the price of imported capital and technology
45
State reasons for government spending
Efficiency and market failure Equity and equality Macroeconomic management
46
Current government expenditure equation
Debt + general government final consumption
47
Explain crowding out
In a recession Government spending increases Sell bonds Private sectors buys bonds Shifts investment from public sector to private sector Government has to pay interest on yield so it raises taxes
48
State how to improve living standards for low income households
Increase personal allowance Transfer payments Increase minimum wage Tax thresholds
49
Explain a progressive tax
The marginal rate of tax rises as income rises
50
Explain a proportional tax
The marginal rate of tax is constant, leading to a constant average rate of tax
51
Explain a regressive tax
The rate of tax paid falls as income rises
52
Explain a direct tax
Levied on individuals and companies
53
Explain an indirect tax
Levied on goods and services
54
Explain the laffer curve
Once the tax rate exceeds a certain amount it could lead to a reduction in tax revenues
55
Reason is why tax revenues fall if the rate increases
Tax avoidance Tax evasion Brain drain Disincentive effects in the labour market
56
Explain an economics boom ( high inflation and confidence)
Lower government spending Increase taxes Lowers the deficit
57
Explain an economic recovery (low confidence and inflation)
Reduction in taxes Increased government spending Increases the deficit
58
Explain discretionary fiscal policy
The government manipulate the tax and spending to influence the economy
59
explain the cyclical fiscal balance
The size of the fiscal deficit is influenced by the state of the economy In a boom, tax receipts are relatively high and spending on unemployment benefit is low
60
Actual deficit equation
Cyclical deficit + structural deficit
61
Explain structural fiscal balance
A structural factor might be long-term effects of an ageing population or perhaps the corporation tax avoidance Not related to the economy
62
Explain benefits of being a member of the EU
Economies of scale Enables free moving of goods, services, money and people Greater consumer protection Easier to source cheaper raw materials
63
Explain drawbacks of being a member of the EU
Potential for brexit like scenarios Loss of sovereignty as you have to adhere to EU laws and regulations People leave as they see better opportunity elsewhere
64
Explain the world trade organisation
An organisation that seeks to reduce trade barriers, create world trade rules and solve disputes
65
Explain benefits of the world trade organisation
Helps promote peace Trade stimulates economic growth Encourages good government Provides more choice of products and quality Disputes are handled constructively Removes discrimination Transparency
66
Explain drawbacks of the world trade organisation
Criticised for trade rules that are unfavourable to developing countries May prevent developing economies developing their infant industries Being overshadowed by new TIPP trade rules
67
Explain protectionism
Protecting your domestic markets from foreign goods and services, usually done through tariffs, quotas, embargo’s, subsidies, quality standards and bureaucracy
68
Explain quotas
Allowing in a certain amount of imports
69
Explain benefits of quotas
Boosts domestic production by restricting foreign competition Benefits low income families Greater competition so better quality Improves balance of payments
70
Explain drawbacks of quotas
Foreign countries could retaliate A lot of bureaucracy Higher prices for consumers
71
Explain an embargo
A ban on goods coming in from other countries
72
Explain the Harod Domar Model
Increased saving Increased investment Higher capital stock Higher economic growth
73
Explain the warranted growth rate
This is the growth rate at which all saving is absorbed into investment
74
Explain debt relief
Cancelling debt of countries because they can’t pay. It
75
Explain the Lewis model
Moving surplus unproductive labour from rural areas into the city
76
Explain advantages of the Lewis model
Incentive to invest into education Better use of labour More government revenue through taxes Enhances productivity so more economic growth Demonstrates the path from agriculture to industry which means more money for the country Organic growth Long-term solution Attracts FDI
77
Explain disadvantages of the Lewis model
May not have the infrastructure to facilitate the amount of people So,em people may not want to move Less food if less people in rural areas Neglects international trade You still need rural workers High cost involved Over populated cities Workers are finite Time lag
78
Explain public sector debt
Owed by central and local government and by public corporations
79
Explain private sector debt
Owed by private businesses and households
80
State problems with high government debt
High interest payments Higher taxes / lower spending in the future Crowding out Worse structural deficit Rising interest rates Negative impact on exchange rates Government have to borrow more from the private sector People will invest abroad instead Reduced confidence in the economy Not sustainable Who will pay for the burden
81
State how to solve high government debt
Spending cuts Tax rises Reduced tax avoidance / evasion Expansionary monetary policy Efficiency policies in the public sector Privatisation Depreciation policies
82
Evaluation of high government debt
Borrowing is required to fund critical infrastructure Severe external shocks It is rational to borrow to invest when market bond yields are low Risk of crowding out is low if bonds remain attractive to overseas investors Modern monetary theory Can stimulate economy by self financing via higher tax revenues Depends on value judgements on public services

Economics (4 decks)

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