Theme 4 - A global perspective Flashcards
This theme develops the macroeconomic concepts introduced in Theme 2 and applies these concepts in a global context. Students will develop an understanding of: ● international economics ● poverty and inequality ● emerging and developing economies ● the financial sector ● role of the state in the macroeconomy.
Define globalisation
the growing rate of interdependence of countries and the rapid rate of change it brings about
the increasing integration of local, regional, and national economies into a single international market
factors contributing to globalisation
- improvement in transport infrastructure and operations
- improvement in IT and communications
- trade liberalisation (since 1945) and reduced protectionism
- international financial markets
- TNCs (large companies around the world)
What does the current account on the BOP consist of?
Trade balance: trade in goods, trade in services
Income balance: investment income (primary income), current transfers (secondary income)
Name examples of what is measured in the capital account (smaller part of BOP)
- debt forgiveness
- inheritance taxes
Name examples of what is measured in the financial account
- Portfolio investments, such as bonds, shares, and derivatives
- foreign direct investment
- reserves e.g. currency, gold
How is a country who has a current account deficit’s BOP balanced?
e.g. USA has CA deficit, FA surplus
China has CA surplus, FA deficit
countries who are running a CA surplus have excess cash reserves - selling more to rest of world than buying, invest in countries where they have a FA surplus like buying bonds or shares. Balances everything out as overwritten
What happens if capital account and financial account together cannot balance BOP?
- Net errors and omissions (part of the BOP) - fiddle out the numbers as a balancing tool
Impact of globalisation on consumers
For
- lower prices as firms take advantage of comparative advantage and produce in countries with lower costs e.g. low labour costs
- consumers have more choice
Against
- higher prices since incomes are rising which leads to increase demand for goods and services
- loss of culture
Impact of globalisation on workers
For
- TNCs provide training for workers and create new jobs
- increased migration - skills - AD increases
Against
- increased migration means current workers may see displacement or lower wages
- not everyone benefits from increased employment as manufacturing jobs transferred to Poland and China
- inequality - more demand for high-skilled workers
Impact of globalisation on producers
For
- more countries, reduces risk
- exploit comparative advantage and work in countries with lower labour costs
Against
- some firms unable to compete internationally
Impact of globalisation on the government
For
- higher taxes since TNC and their workers may taxes
Against
- tax avoidance
- TNC’s have power to bride and lobby governments leading to corruption
Impact of globalisation on the environment
For
- world can work together to tackle climate change, share ideas, and tech
Against
- increased emissions
- more raw materials is bad for enviroment
Impact of globalisation on economic growth
- increased investment by TNCs - multiplier effect
- encourages countries to employ supply side policies to encourage TNCs to operate in their countries
- trade increases ouput - exploitation of comparative advantage
Against
- political instability of TNCs if support unpopular regimes
- comparative advantage change over time
Define comparative advantage
Comparative advantage state that countries should produce goods and services that they can produce with the lowest opportunity cost
- can produce goods and services cheaper relative to other goods and services
Define absolute advantage
Absolute advantage is when a country can produce goods and services in absolute terms cheaper than another country can
Assumptions and limitations of the theory of absolute and comparative advantage (Specialisation and trade)
- assumes factors of production are perfectly mobile - no trade barriers, no tariffs, and there is perfect information
- assumes that for trade to take place depends on the terms of trade
- assumes that the goods are homogenous - L
- assumes that costs are constant and there is no economies of scale - L
- assumes that there are no transport costs - L
