Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Theme 4: A global perspective > Flashcards

Theme 4: A global perspective Flashcards

1
Q

What may make deciding on macroeconomic policies more difficult for policymakers? (4.5.4)

A
  • Inaccurate information (GDP, BoP faces multiple revisions)
  • Risks and uncertainties (difficulty predicting, agent behaviours, SR / LR)
  • Inability to control external shocks
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is transfer pricing? (4.5.4)

A

Price of transactions within TNC, used to reduce tax liability and maximising profits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are direct controls and how are they used? (4.5.4)

A

Government measure affecting price / quantity of product / FoP.

Uses:

  • Maximum price controls (price caps)
  • Minimum guaranteed prices (e.g. minimum wage)
  • Fixed import quotas
  • Limiting foreign currency purchase
  • Fixed loan interest rates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What policies / measures / agreements can be used to increase international competitiveness in an
economy? (4.5.4)

A

Supply-side policies:

  • Increasing occupational mobility (education & training)
  • Macroeconomic stability (stable inflation / exchange rate, public finances)
  • Deregulation
  • Improving infrastructure
  • Privatisation
  • Investment incentives

Free trade agreements, easing exportation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How are changes in interest rates and the supply of money used in an economy?
(4.5.4)

A

Interest rate:

  • Influences investment
  • For inflation targets
  • Business costs rise
  • Exchange rate fluctuations
  • Confidence may offset (stagflation)
  • Time lags

Money supply:

  • QE (encouraging lending)
  • Cost-push inflation
  • Affects exchange rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What measures can be used to reduce poverty and inequality in an economy?
(4.5.4)

A
  • Welfare benefits
  • Provision of goods / services
  • Progressive taxation
  • Increased minimum wage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What measures can be used to reduce fiscal deficits and national debts? (4.5.4)

A
  • Increased tax, reduced public expenditure
  • Reduced AD
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the significance of a country’s size of their fiscal deficits and national debt, on a domestic and global scale? (4.5.3)

A
  • Opportunity cost for future generations
  • Crowding out (interest rates)
  • Danger of inflation (AD)
  • Credit ratings (country debt rating)
  • Less FDI attraction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What factors influence the size of national debts? (4.5.3)

A
  • Fiscal deficits / surpluses
  • Unplanned events (wars / disasters)
  • Government policy (borrowing)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What factors influence the size of fiscal deficits? (4.5.3)

A
  • Automatic fiscal policy (if GDP 🡇, expenditure on stabilisers 🡅, tax revenue 🡇)
  • Demographics (population size / age)
  • Discretionary fiscal policy
  • Debt interest
  • Housing market (stamp duty)
  • Political priorities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the difference between a cyclical and a structural fiscal deficit?
(4.5.3)

A

Cyclical: economic downturn → tax revenue 🡇, expenditure 🡅, disappear upon
trend growth

Structural: remains at full potential

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the difference between fiscal deficit and national debt? (4.5.3)

A

Fiscal deficit: expenditure exceeds tax revenue, borrowing required

National debt: cumulative past government borrowing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is are automatic stabilisers? (4.5.3)

A
  • Fiscal policy changes through economic cycle
  • Recession 🡆 benefits 🡆 spending 🡅 automatically
  • Offsetting effects, increases AD, stabilises
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What effect does changing tax rates have on the trade balance and FDI flows?
(4.5.2)

A
  • Increased tax reduces disposable income & consumption, improved trade balance
  • High corporation tax disincentivises FDI
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What effect does changing tax rates have on the price level? (4.5.2)

A

Direct: AS/AD equilibrium lower price level

Indirect: Cost-push inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What effect does changing tax rates have on tax revenues, and what diagrams
could be used? (4.5.2)

A

Higher marginal tax rate disincentivises work, less tax revenue, increase in
avoidance, and migration.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What effect does changing tax rates have on incentives to work, real output, and
employment? (4.5.2)

A
  • Lower tax: incentivises, improves supply-side, more overtime, incentivise econ activity
  • Corporation tax disincentivises investment
  • High tax reduces AD and LRAS, reduces output, increases unemployment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the 2 types of crowding out and what are their effects? (4.5.1)

A

Resource crowding:

  • Full employment, increased expenditure results in inefficiency

Financial crowding:

  • Expenditure / cut financed by public sector borrowing
  • Loan demand 🡅, interest rates 🡅
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the impact upon living standards and equality of changes in public
expenditure? (4.5.1)

A
  • Lacking intervention 🡆 market failure, poverty
  • Improves equal opportunity
  • High expenditure 🡆 higher benefits / pensions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the impact upon productivity and growth of changes in public
expenditure? (4.5.1)

A
  • Infrastructure, healthcare, education, improve AS
  • Increased AD, multiplier on GDP, economic growth 🡅
  • Free-market argument: can be transferred to private, more efficient
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Why might size and composition of public expenditure change in any given economy in the long-run?
(4.5.1)

A
  • Economic cycle (econ. growth 🡇 → welfare 🡅)
  • Changing age distribution
  • Changing expectations (tech, innovation)
  • Financial crises (bailouts)
  • Economic philosophy
  • Political priorities
  • Discretionary fiscal policy
  • Debt interest
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the different types of public expenditure? (4.5.1)

A
  • Capital expenditure (long-term capital projects)
  • Current expenditure (day-to-day)
  • Transfer payments (without exchange, e.g. UC)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the key functions of central banks? (4.4.3)

A
  • Implementation of monetary policy (credit availability, capital requirements,
    QE)
  • Banker to the government (national debt, loaning, issues bonds)
  • Banker to banks - lender of last resort (commercial bank survival)
  • Role in regulation of the banking industry (prevent systemic risk and
    bailout)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What market failure can occur in the financial system? (4.4.2)

A
  • Asymmetric information (1 party more informed, exploiting info gap, poor
    decisions)
  • Externalities (costs upon third-party, bailing out banks)
  • Moral hazard (increasing risk willingness due to bailout safety net)
  • Speculation (buying with profit intent)
  • Market bubbles (excessive overvalue falls, price maximises)
  • Market rigging (colluding fixed prices, LIBOR scandal 2007)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are the roles of the financial markets? (4.4.1)

A
  • Facilitates saving (to households / firms)
  • Lend to businesses and individuals
  • Facilitate exchange of goods and services (payment systems, cheques, transactions)
  • Provide forward markets in currencies and commodities (advance buying, reducing volatility risk)
  • Provide equity market (issuing shares funding investment)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are the roles of the World Bank, IMF, and other NGOs in supporting economic development? (4.3.3)

A

World Bank:

  • Low-interest loans / grants supporting infrastructure, healthcare, education
  • Supports capital investment encouraging trade

IMF:

  • Stability of international monetary system
  • Each member quota on resources required by IMF, distributed through loans to
    poorer
  • Provides support on stability maintenance

NGOs:

  • Private orgs and charities for reducing poverty, protecting environment /
    equality / economic growth.
  • Small, community scale support
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What other strategies can influence a country’s economic development? (4.3.3)

A
  • Industrialisation (primary 🡆 manufacturing, higher productivity): Lewis model (excess in agriculture labour, no opportunity cost moving them to industry)
  • Tourism development (create jobs, encourage FDI)
  • Fairtrade schemes (minimise externalities & higher wages)
  • Aid (reduces poverty, savings gap, creates multiplier)
  • Debt relief (freeing government funds)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What interventionist strategies exist to influence economic development? (4.3.3)

A
  • Development of human capital (improving workforce skills / productivity w/ education)
  • Protectionism (protecting domestic firm growth)
  • Managed exchange rates (correcting imbalance)
  • Infrastructure development (easing trade, eliminating barriers)
  • Promotion of joint ventures with global companies (combine strengths, increase competitive advantage, minimise risk)
  • Buffer stock schemes (reducing price fluctuation, setting ceiling/floor prices through stock transactions)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What market-oriented strategies exist to influence economic development? (4.3.3)

A
  • Trade liberalisation (increasing efficiency, economic growth)
  • Promotion of FDI (reducing tax, business ease, grants)
  • Removal of subsidies (inefficiency, opportunity cost)
  • Floating exchange rate (exports incentivised)
  • Microfinance schemes (low-income loans, encouraging business creation, fix
    savings gap)
  • Privatisation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What non-economic factors can limit economic development? (4.3.2)

A
  • War
  • Geography
  • Corruption
  • Disease
  • Poor governance
  • Political instability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What economic factors can influence the extent of economic development? (4.3.2)

A
  • Primary product dependency (unreliable, demand fluctuating)
  • Savings gap (Harrod-Domar)
  • Foreign currency gap (more imports than reserves)
  • Prebisch-Singer (primary-reliant has declining ToT)
  • Capital flight (moving savings abroad: higher interest, lower tax, stability)
  • Education, demographics, skills
  • International debt
  • Access to credit
  • Infrastructure
  • Absence of property rights (lacking investment collateral)
32
Q

What other indicators of nations’ development exist, apart from the HDI? (4.3.1)

A
  • Proportion of population in agriculture
  • Energy consumption per person
  • Proportion accessing clean water
  • Mobile phones per thousand
  • Internet access proportion
33
Q

What are the advantages and limitations of using HDI to compare country
development? (4.3.1)

A

Advantages:

  • Easy to collect / standardise
  • Indexed
  • Insight into human well-being

Limitations:

  • Life expectancy ≠ high life quality
  • Quality of education unaccounted
  • Inequality not measured
34
Q

What are the 3 dimensions of the HDI and how are they measured? (4.3.1)

A
  1. Health - life expectancy
  2. Education - average / expected years in school
  3. Standard of living (GNI per capita at PPP)
35
Q

What is the significance of capitalism within inequality? (4.2.2)

A
  • Inevitable with private ownership
  • Profit motive incentivises
  • Encourages enterprise, making businesses
  • Encourages employment over benefits
  • May trickle-down to poorer
36
Q

What is the impact of inequality on economic development? (4.2.2)

A
  • Absolute poverty high
  • Capital inaccessible for poorest, restricts growth
  • Low marginal propensity to save, less investment
  • Richer buy imports
  • Higher crime rates
37
Q

What are the causes of inequality within, and between different, economies? (4.2.2)

A

Within:

  • Education & training
  • Wage rates
  • Unemployment
  • Social benefits
  • Tax system (progressive?)
  • Asset ownership (inheritance)
  • Trade unions

Between:

  • Geography
  • Political state
  • Demographics
38
Q

What measurements of income inequality exist, and what diagrams can be used?
(4.2.2)

A

Lorenz curve: cumulative population against percentage of income

Gini coefficient: AreaAAreaA+AreaB\frac{Area\ A}{Area\ A+Area\
B}AreaA+AreaBAreaA  using Lorenz

39
Q

What causes changes in poverty rates? (4.2.1)

A
  • Economic growth (rising earnings)
  • Education / training (skills)
  • Government benefits (low-income support)
  • Tax / wage rates
  • Trade and FDI
40
Q

What is the difference between absolute and relative poverty? (4.2.1)

A

Absolute: income below basic needs levels

Relative: below threshold in economy

41
Q

What are the benefits of being internationally competitive? (4.1.9)

A
  • Surplus trade balance
  • Export-led economic growth
  • Low unemployment
  • FDI increase
42
Q

What factors influence an economy’s international competitiveness? (4.1.9)

A
  • Real exchange rate (export demand)
  • Wage costs (labour productivity)
  • Non-wage costs (regulation & benefits)
  • Supply-side policies (productivity)
43
Q

What measures of international competitiveness exist? (4.1.9)

A
  • Relative unit labour costs (labour cost per output)
  • Relative export prices (labour productivity)
  • Global competitiveness index
44
Q

What is the impact of a change in the exchange rate on economic growth,
inflation, and FDI? (4.1.8)

A

Economic growth:

  • If WIDEC, AD and output increase

Inflation rate:

  • If WIDEC, AD increase causes inflation
  • Imported inflation (rising import prices, shift AS left)

FDI flows:

  • Depreciation increase currency demand
45
Q

What is the impact of a change in the exchange rate on the current account of
the balance of payments? Use diagrams. (4.1.8)

A

Marshall-Lerner required for SPICED (net export elasiticty > 1).

Currency fluctuation time lags cause J-curve: SR inelastic imports/exports, LR Marshall-Lerner.

46
Q

What is competitive depreciation and what effects does it have? (4.1.8)

A

Currency war, other currency retaliation. Effects:

  • Increased inflation (expensive imports)
  • Declining world trade (uncertainty)
47
Q

What government intervention methods exist in currency markets? (4.1.8)

A
  • Changing interest rates (affecting currency purchase for foreign savers)
  • Forex purchases (buying/selling own currency)
48
Q

What are the advantages and disadvantages of a fixed exchange rate? (4.1.8)

A

Advantages:

  • Confidence encourages FDI
  • Reduced speculation

Disadvantages:

  • Unstable current account
  • External shock difficulty
49
Q

What are the advantages and disadvantages of a floating exchange rate? (4.1.8)

A

Advantages:

  • Automatic BoP correction
  • Protection from external shocks
  • Less reserves required

Disadvantages:

  • Instability (difficult planning)
  • Speculation (irreflective of trading patterns)
50
Q

What factors influence a floating exchange rate? (4.1.8)

A
  • Relative inflation rates
  • Relative interest rates
  • State of the economy
  • BoP on current account
  • Politics
  • Speculation
51
Q

What are the different exchange rate systems? (4.1.8)

A
  • Fixed, central bank sets rate
  • Floating, set by market forces
  • Managed, floating with intervention
52
Q

Why are trade balance imbalances significant? (4.1.7)

A
  • Deficit reliant on external unsustainable finance
  • Surplus focused on exports
  • Currency fluctuations
53
Q

What measures can reduce a country’s current account imbalance? (4.1.7)

A
  • Exchange rate changes (WIDEC)
  • Deflationary policies (reducing spending)
  • Supply-side policies
  • Protectionism
54
Q

What are the causes of imbalances on the current account? (4.1.7)

A
  • Economic growth (import demand 🠝)
  • Productivity
  • Inflation rate
  • Overvalued/undervalued exchange rate
  • Import reliance
  • Protectionism
  • Interest rates (saving 🠝, spending 🠟)
55
Q

What is the balance of payments comprised of? (4.1.7)

A

Current account:

  • Trade in goods
  • Trade in services
  • Income balance
  • Current transfers

Capital account:

  • Non-monetary & fixed assets

Financial account:

  • FDI
  • Reserves
  • Portfolios
56
Q

How do protectionist policies impact living standards and equality, domestically and globally? (4.1.6)

A

Living standards:

  • Inefficient allocation reduces world output, lowering world standards
  • Benefits domestic

Equality:

  • Inequality between countries
  • Domestic better income distribution / security
57
Q

How do protectionist policies impact consumers, producers, and governments?
(4.1.6)

A

Consumers:

  • Higher prices
  • Less choice

Producers:

  • Import-reliant higher costs
  • Less incentive for efficiency
  • Increased domestic sales

Government:

  • SR: higher tax revenue
  • LR: changing policies difficult, inefficiency decreasing growth
58
Q

What types of restrictions exist on trade, and what diagram can be used? (4.1.6)

A
  • Tariffs
  • Quotas (limiting quantity)
  • Non-tariff barriers: standards, documentation (increasing foreign costs)
59
Q

Why might an economy restrict free trade? (4.1.6)

A
  • Protect infant industries
  • Retain self-sufficiency
  • Correct current account imbalance
  • Retaliation against other
  • Prevent dumping
  • Reduce labour competition
  • Protect strategic industries
  • Raise tax revenue
60
Q

What are possible conflicts that may occur between regional trade agreements and
the WTO? (4.1.5)

A
  • Common external tariff contradicts WTO
  • Can favour developed countries
  • Against WTO equal trade treatment objectives
61
Q

What is the role of the WTO in trade liberalisation? (4.1.5)

A
  • Promotes trade liberalisation negotiations
  • Settles member trade disputes
62
Q

What are the benefits and costs of the different types of regional trade agreements? (4.1.5)

A

Benefits:

  • Trade creation in bloc
  • FDI increase
  • Lower production costs
  • Increased knowledge transfer
  • Eliminated transaction costs / currency fluctuations

Costs:

  • Trade diversion to inefficient regional producers
  • Distorted comparative advantage
  • Loss of independent monetary policy
63
Q

What types of trading blocs are there? (4.1.5)

A
  • Free trade areas
  • Customs unions (common external tariff)
  • Common markets (labour / capital movement freedom)
  • Monetary union (no barriers, single currency, centralised bank)
64
Q

What are the impacts of an improvement in a country’s terms of trade? (4.1.4)

A
  • Higher living standards
  • Reduces cost-push, lower prod. costs
  • Current account worsens
  • Fewer exports
65
Q

What factors influence a country’s terms of trade? (4.1.4)

A
  • Relative inflation rate (for exports)
  • Raw material prices
  • Exchange rate changes
  • Relative productivity rates (lower unit costs)
  • Tariffs
  • Primary product dependency (Prebisch-Singer)
66
Q

How is terms of trade calculated? (4.1.4)

A

ToT=indexexp⁡ortpricesindeximportprices⋅100ToT\ =\ \frac{index\ \exp ort\
prices}{index\ import\
prices}\cdot100ToT=indeximportpricesindexexportprices ⋅100

67
Q

What factors influence the pattern of trade between countries? (4.1.3)

A
  • Comparative advantage changes (cost advantages)
  • Emerging and developing economies (different trade patterns)
  • Trading blocs and agreements
  • Relative exchange rate changes (SPICED)
68
Q

What are the advantages and disadvantages of increased international trade/specialisation upon an economy? (4.1.2)

A

Advantages:

  • Lower prices / more choice for consumers
  • Innovation, encourages competition
  • Efficient resource allocation
  • Higher world output and living standards
  • Producers economies of scale

Disadvantages:

  • Dumping risk, eliminating competition
  • Increased unemployment
  • Overreliance on imports
  • Risk of external shocks
  • Environmental degradation
  • Infant industry
69
Q

What assumptions and limitations does the theory of comparative advantage have?
(4.1.2)

A

Assumptions:

  • Constant production costs
  • No transport costs
  • Perfect knowledge
  • No trade barriers
  • Perfect resource mobility

Limitations:

  • Transport costs exist
  • Diseconomies of scale
  • Trade barriers
70
Q

What are absolute and comparative advantages? (4.1.2)

A

Absolute: production at lower unit cost

Comparative: lower opportunity unit cost

71
Q

What impacts does globalisation have on workers? (4.1.1)

A
  • Rising employment
  • External competition
  • Wage decrease as GDP share
72
Q

What impacts does globalisation have on consumers and producers? (4.1.1)

A

Consumers:

  • Reduced prices
  • More choices

Producers:

  • Lower costs
  • Increased competition
73
Q

What impacts does globalisation have on countries, governments, environment?
(4.1.1)

A
  • Rising tax revenue
  • Better quality jobs
  • Increased migration
  • Resource depletion
  • Climate impacts
74
Q

What factors have contributed to globalisation? (4.1.1)

A
  • Improved transportation
  • Improved communication
  • Trade liberalisation
  • MNC growth
  • Trading blocs
  • Improved geopolitics
75
Q

What are the characteristics of globalisation? (4.1.1)

A
  • Increased FDI
  • Increased specialisation
  • Increased trade
  • Deindustrialisation
  • Increased capital / labour movements

Economics (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions