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A-level Economics > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

What is the definition of globalisation?

A

The integration of local, regional and national economics

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2
Q

What factors boost globalisation?

A
  • More trade in goods and services
  • More trade liberalisation (WTO)
  • The growth of MNC’s
  • Increasing financial flows such as FDI
  • Easier communication
  • Cheaper and faster transportation of goods
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3
Q

Globalisation can cause countries to run…

A

Account deficits

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4
Q

Drawbacks of globalisation?

A
  • Benefits aren’t fairly distributed causing inequality
  • Can lead to weakening cultural identity
  • May reduce sovereignty
  • More production can damage the environment
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5
Q

What is an absolute advantage?

A

Where you can produce more of a good or service with the same input

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6
Q

What is a comparative advantage?

A

When you can produce a good or service with a lower opportunity cost

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7
Q

The theory of comparative advantage assumes…

A
  • Its a perfectly competitive market
  • Doesn’t take into account exchange rates
  • Only takes into account two countries
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8
Q

Advantages of countries specialising?

A
  • Greater world output
  • Potentially higher quality goods
  • Lower average costs
  • Outward shift of PPF
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9
Q

Disadvantages of countries specialising?

A
  • Countries become dependent on each other
  • Causes structural employment
  • Venerable to economic shocks on other countries
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10
Q

Trade blocs cause…

A

Trade to be created between members but create to be diverted from elsewhere

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11
Q

What do trading blocs impose on non-members?

A

Protectionist barriers

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12
Q

How is terms of trade calculated?

A

(index price of exports) / (index price of imports) *100

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13
Q

Factors affecting terms of trade?

A
  • Reduction in price of manufactured goods has meant service based economies like UK has seen improvements
  • How elastic demand fro exports is
  • An appreciation of the currency will boost the ToT
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14
Q

Impacts of changing terms of trade?

A
  • Improvements means the economy can import more but that could damage the BOP
  • Worsening means the exports need to cost more reducing productivity
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15
Q

What is a free trade area?

A

Where countries agree to trade goods and services with no protectionist measures

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16
Q

What is a customs union?

A

Where countries have free trade but also a common trade policy with the rest of the world

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17
Q

What is a common market?

A

Where countries have free trade and common policy but also have the free movement of labour and capital

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18
Q

What is a monetary union (currency union)?

A

Where members share the same currency like the EU

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19
Q

What are the benefits of trade agreements?

A
  • Trade creation between members
  • Reduced transaction costs
  • More economies of scale due to larger market
  • More competition so more efficiency
  • Migration can fill labour shortages
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20
Q

What is the WTO?

A

Its an organisation which promotes world trade through reducing trade barriers and policing existing agreements

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21
Q

Issues with the WTO?

A
  • It’s too powerful

- Ignores developing countries

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22
Q

What are the reasons for restricting free trade?

A
  • To reduce a trade deficit
  • To help weak domestic industry
  • To correct market failure (demerit goods)
  • To retaliate on restrictions being opposed on them
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23
Q

What types of restriction that can be opposed on free trade?

A
  • Tariffs
  • Quotas
  • Subsidies to domestic firms
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24
Q

What are the other barriers which aren’t tariffs?

A
  • Voluntary export restraints between two countries
  • Embargoes
  • Excessive red tape
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25
Q

What is the impact of protectionism?

A
  • Can distort the global market
  • Tariffs effect those on the lowest wages more
  • Risks of retaliation
  • Can lead to government failure
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26
Q

What is the balance of payments?

A

It is a record of all the financial transactions made between consumers, firms and the government with other countries

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27
Q

What does the current account include?

A

Trade in goods and services (also income transfers)

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28
Q

What does the capital and financial account include?

A

Transfers of fixed assets and investment

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29
Q

Causes of surpluses and deficits in the current account?

A
  • Changes in the exchange rate
  • Economic growth
  • How competitive firms are
  • Costs of membership to a union (EU)
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30
Q

Measures to reduce the current account deficit?

A
  • Increase income tax
  • Reduce government spending
  • Impose taxes on trading partners
  • Supply side policies to improve productivity
  • Deregulation and privatisation
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31
Q

What is the significance of global trade imbalances?

A
  • It leads to countries becoming interdependent

- Deficit may be hard to finance in the future

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32
Q

What is the value of the exchange rate determined by in a floating system?

A

Supply and demand

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33
Q

How is the value of an exchange rate determined in a fixed system?

A

By the by the central bank buying and selling foreign currency

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34
Q

What happens in a managed floating exchange rate?

A

The currency is allowed to fluctuate in a certain range

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35
Q

What is a revaluation/devaluation?

A

Where a currencies value is changed relative to others

36
Q

What is appreciation/depreciation?

A

Where a currencies value either increases or decreases due to market powers

37
Q

What factors effect floating exchange rates?

A
  • The amount of inflation
  • What speculation there is
  • The strength of other currencies
  • The amount of government debt
38
Q

How do governments intervene in a currency market?

A
  • Change interest rate

- The supply of quantitive easing

39
Q

What is the Marshall Learner condition?

A

It states that a devaluation only improves the balance of trade if the sum of the long term export and import demand elasticities are greater than or equal to one

40
Q

What is the J-curve effect?

A

If theres a devaluation, in the short term the BOP will actually worsen

41
Q

Why do exchange rates effect AD?

A

Because they effect imports and exports

42
Q

What is international competitiveness?

A

It is a nations ability to compete overseas

43
Q

What measures of competitiveness are there?

A
  • Relative unit labour costs, average output per unit labour

- Relative export prices

44
Q

What factors effect international competitiveness?

A
  • Ability to attract FDI and skilled workers
  • Ability to produce entrepreneurs
  • The unit labour costs
  • The relative value of the currency
  • How stable the economy is
  • Tax policies
  • How regulation/ red tape there is
45
Q

What is absolute poverty?

A

It’s defined as living below subsistence, normally assumed to be less than $1.25 a day

46
Q

What is relative poverty?

A

In the UK its defined as people living off less than 60% of the media income

47
Q

Why is there inequality?

A
  • Varying levels of quality of education across the country
  • Decreases in welfare payments
  • Regressive taxes
  • Health issues
  • Wars and natural disasters
  • Corruption and political oppression
48
Q

What is wealth?

A

The total stock of assets

49
Q

What is wealth inequality?

A

The unequal distribution of assets

50
Q

What does the Lorenz curve show?

A

The actual distribution of income and wealth

51
Q

What value would show perfect equality for the Gini-coefficient?

A

0

52
Q

What does Kuznets hypothesis suggest?

A

That inequality increases as a country develops but then wealth is redistributed by the government and education

53
Q

What does the price mechanism and the free market ignore?

A

Inequality

54
Q

What are the components of HDI?

A

Education, Life expectancy, standard of living (GNI per capita)

55
Q

The average world HDI rose from ___ to ___ ?

A

0.48 (1970) to 0.68 (2010)

56
Q

What are the advantages of HDI?

A
  • Easy to compare countries

- Much broader than GDP

57
Q

What are the disadvantages of HDI?

A
  • Doesn’t consider how free people are
  • Doesn’t take in account the environment
  • Doesn’t consider distribution of income
58
Q

What issues come with primary product dependency?

A
  • Commodity prices are volatile

- May overproduce and run out

59
Q

What is the savings gap (Harrod Domar model)?

A

The Harrod Domar model states savings, investment and technological change for economic growth. The savings gap is where theres not enough saving which stops investment occurring

60
Q

What is a foreign currency gap?

A

When a country is not attracting sufficient capital flows to make up for the deficit in the capital account

61
Q

How does infrastructure effect growth?

A

MNC and domestic firms won’t be able to operate and without investment and jobs there will be no economic growth

62
Q

How do property rights effect growth?

A

If entrepreneurs can’t protect their ideas then they’re unlikely to innovate

63
Q

What market-orientated strategies can be used to increase growth and development?

A
  • Trade liberalisation
  • Promotion of FDI
  • Reduction/removal of government subsidies
  • Use a floating exchange rate
  • Microfinance schemes
  • Privatisation
64
Q

What interventionist strategies can be used to increase growth and development?

A
  • Development of human capital
  • Protectionism
  • Managed exchange rate
  • Infrastructure development
  • Buffer stock scheme
65
Q

What other strategies can be used to increase growth and development?

A
  • Industrialisation (Lewis model)
  • Developments in tourism
  • Development of primary industries
  • Fairtrade schemes
  • Aid/debt relief
66
Q

What can the world bank do?

A

It can offer loans to other member countries to promote economic and social progress

67
Q

What does the IMF aim to promote?

A

Free trade and exchange rate stability

68
Q

What is the role of financial markets?

A
  • To facilitate savings
  • To lend to businesses and individuals
  • To provide forward markets in currencies and commodities
  • To provide a market for equities (stock market)
69
Q

What types of market failure are in the financial sector?

A
  • Asymmetric information
  • Externalities (due to their importance in the economy)
  • Moral hazard
  • Speculation and market bubbles
  • Market rigging
70
Q

What is the role of central banks?

A
  • To implement monetary policy
  • Banker to the government
  • Lender of last resort to banks
  • Roles in regulation for the industry
71
Q

What is current government expenditure?

A

Spending which recurs, on goods and services which are consumed

72
Q

What is capital government expenditure?

A

Spending on assets which can be used multiple times

73
Q

What are transfer payments?

A

They are welfare payments from the government

74
Q

Effects of government spending?

A
  • Changes in productivity and growth
  • Crowding out
  • Equality and living standards
75
Q

What does the Laffer curve show?

A

That there is an optimal rate of tax to maximise revenue

76
Q

What is discretionary fiscal policy?

A

Is a one of policy change due to economic conditions

77
Q

What are automatic stabilisers?

A

Policies which offset fluctuations in the economy automatically

78
Q

What is the fiscal deficit?

A

The difference between spending and money received in tax receipts in a year

79
Q

What is the cyclical deficit?

A

A temporary deficit occurs during recessions

80
Q

What is the structural deficit?

A

Is due to an imbalance between spending and tax receipts and exists at every stage in the business cycle

81
Q

What is the significance of the size of the deficit and debt?

A
  • Cost of borrowing may increase
  • Confidence may fall
  • Higher taxes an austerity
  • Crowd out private sector
82
Q

How to reduce a fiscal deficit?

A
  • Reduce spending and increase taxes
  • Promote growth
  • Issue bonds to finance it
83
Q

What measures are there to reduce inequality?

A
  • Use more progressive tax systems
  • Implement a minimum wage
  • Improve education
84
Q

Transfer pricing is known as…

A

The price of the transactions for the same MNC across different countries

85
Q

Problems facing policy makers?

A
  • Inaccurate information
  • Risks or uncertainty
  • Inability to control external shocks

A-level Economics (6 decks)

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