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Economics A level - Jaya > Theme 4 - international economics pt2 > Flashcards

Theme 4 - international economics pt2 Flashcards

1
Q

What are the 5 main characteristics of globalisation?

A
  1. Increased movement of labour
  2. Increased movement of capital
  3. Increased specialisation
  4. Increased international trade
  5. Increase in trade to GDP ratio
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2
Q

What is meant by increased movement of financial capital?

A

Financial capital is just money that is used for investments.

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3
Q

What is conglomerate integration?

A

The investment made by a business into one country which is completely unrelated to the business that they own

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4
Q

What is a TNC?

A

A firm that operates in more than 2 countries

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5
Q

How do you calculate trade to GDP ratio?

A

Trade to GDP ratio = (Total value of international trade/GDP over the same period)
The higher the %, the higher the countries reliance on international trade

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6
Q

What are the 4 main causes of globalisation?

A
  • Improvements in transport
  • Improvements in IT
  • Containerisation
  • Trade liberalisation
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7
Q

What is containerisation?

A

Metal containers that are put on large cargo boats have made moving goods around the world quicker and easier. This has then lead to an increase in globalisation

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8
Q

What is meant by trade liberalisation?

A

The removal of trade barriers on imported goods

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9
Q

Benefit and drawbacks of globalisation on individual countries

A
  • increase in living standards due to increased specialisation, importing goods for cheaper
  • Increase in over dependence which could cause problems if there were economic shocks
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10
Q

Benefit and drawback of globalisation on governments

A
  • An increase in tax revenue from tariffs

- Large TNC’s have avoided paying tax through transfer pricing

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11
Q

What is transfer pricing?

A

This is when large corporations push their profits into smaller daughter firms which are set up in countries with lower corporation tax (Ireland)

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12
Q

Benefit and drawback of globalisation on producers

A
  • Reduced costs through relocation - countries that have low labour costs - EOS
  • Only benefits TNC’s so high barriers to entry
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13
Q

Benefit and drawback of globalisation on consumers

A
  • Increase in international trade = more choice of goods

- Diderot effect effect is when the more we consumer, the more we want which could lead to a fall in happiness

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14
Q

The UK’s benefits from globalisation

A
  • Lower costs for firms and lower prices for consumer
  • More choice
  • Increased trade
    Monopolies have more competition, domestic producers decrease prices benefitting consumers
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15
Q

The UK’s cons from gloablisation

A
  • Skills gap from deindustrialisation which has increased structural employment
  • Pollution - environmental damage
  • Dominance of global brands
  • Large current account deficits
  • over dependence
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16
Q

How are exchange rates influenced?

A

Supply and demand of the currency which causes the value of it

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17
Q

How does imports and exports influence ER?

A
  • fall in I decreases supply and a increase in E increases demand leading to an appreciation
  • A fall in E and an increase in I leads to depreciation
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18
Q

How does speculation lead to a change in ER?

A

A prediction of a high E causes more pounds to be demanded and then sold later and a prediction of a low E leads to an increase in supply and then bought later

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19
Q

How do relative interest rates influence ER?

A

When IR increase, there is an increase in hot money flows so demand increases leading to an appreciation but when IR decreases, there is a decrease in hot money flows so leading to a depreciation

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20
Q

How do relative inflation rates influence ER?

A

High inflation = high prices = depreciation

Low inflation = low prices = appreciation

21
Q

How does FDI influence ER?

A

An increase in FDI will lead to an increase in demand for the currency and therefore leading to an appreciation of the currency

22
Q

How does QE influence ER?

A

When the central bank buys financial assets from high street bank this increases money supply which then leads to a depreciation of the ER

23
Q

How is growth and employment affected by ER?

A

Increase in export-led growth leads to an increase in growth shown by the AD diagram and more exports means more jobs which means more employment for consumers.
When the value appreciates this could lead to dearer exports leading to more structural unemployment and less export-led growth

24
Q

How are inflation rates affected by ER?

A

A depreciation in ER leads to more exports which leads to an increase in AD which could allow more trade where we can benefit from economies of scale but also higher prices due to an increase in demand. Appreciated could lead to more imports and therefore lead to an increase in imported inflation

25
Q

How is FDI affected by ER?

A

A depreciation in ER would mean lower value of the currency and so investors may be more confident to invest and therefore increase FDI. However, if FDI is too low, then investors may be too sceptical to invest

26
Q

How is the current account affected BY ER?

A

Appreciated ER means an increase imports as they are cheaper leading to an increase in leakages which will impact trade in goods and services and therefore worsen the current account deficit

27
Q

What does the J curve show?

A

In the short-run, import demand is inelastic because countries are tied up in contracts with other countries. However, in the long-run, producers are then able to react to changes in exchange rates

28
Q

What is the Marshell-learner condition?

A

The PEDx + PEDy > 1 in order for the marshell-learner condition to be met. So, in the long-run, the marshell learner condition is able to be met.

29
Q

What are fixed exchange rates? 2 pros and 2 cons

A
  • This is when one currency is fixed to another currency (pegged)
    Pros = Increase investment confidence and lead to trade creation
    Cons = speculation could change ER in the short-term, No automatic adjustment, expensive to hold large foreign reserves
30
Q

What are managed exchange rates? 2 pros and 2 cons

A

Supply and demand but government intervenes when ER goes beyond the range
Pros = Less government intervention required which means they can focus on other macroeconomic objectives, Less speculation because ER ranges are not released
Cons = Speculation may still occur and changing IR to influence ER may conflict with other macroeconomic objectives

31
Q

What are Floating exchange rates? 2 pros and 2 cons?

A

ER is completely determined by market forces (supply and demand) - no government intervention
Pros = current account deficit could be due to less demand for currency which decreases value and increase exports making them more competitive, Low requirement to hold large foreign reserve
Cons = Uncertainty of ER could damage investment, Speculators may damage currency value.

32
Q

What is speculation?

A

This is when investors predict changes of the currency value in the future and so they sell and buy currency to make profit which could change the ER now

33
Q

How does the government intervene in currency markets?

A

Interest rates and foreign currency transactions

34
Q

What are foreign currency transactions?

A

When a country uses foreign currency reserves to devalue the currency

35
Q

How do interest rates manipulate ER?

A

Hot money flows

36
Q

What are the 3 main measures of international competitiveness?

A
  • Export prices
  • Unit labour costs
  • The global competitiveness index
37
Q

How do we calculate unit labour costs?

A

Total cost of labour / total output

38
Q

What does a low unit labour cost mean?

A

A low unit labour cost:

  • High productivity
  • Increase in international competitiveness
39
Q

What are 6 factors that influence international competitive?

A
  • Productivity
  • Wage and no wage cost
  • Regulation
  • Quality
  • R & D
  • Taxation
40
Q

What does the global competitiveness index work?

A

It considers many factors like technology, education, health and infrastructure as well as the quality and price of exports. Then an average rating is created in index formed for every country to be compared

41
Q

What are the 4 factors influencing international competitiveness?

A
  • ER
  • Wage costs
  • Non-wage costs
  • Supply side policie
42
Q

How do non-wage costs influencing international competitiveness?

A

Legislation, pensions and corporation tax. These increase costs for firms which lead to higher export prices and reduce international competitiveness

43
Q

What are the 2 main components that influence the capital and financial account?

A
  • FDI
  • Hot money flows
44
Q

What are 5 main factors influencing the current account?

A
  • ER
  • Relative inflation
  • Productivity and costs
  • Quality and growth
  • Protectionism
45
Q

What are the 3 measures used to try reduce a country’s imbalance on the current account?

A
  • Expenditure switching
  • Expenditure reducing
  • Supply side policies
46
Q

How can expenditure reducing be used to improve the current account?

A
  • Increasing income tax or decreasing benefits to reduce disposable income of consumers and so they have less income to spend on foreign goods overall
47
Q

How can expenditure switching work to improve the currenct account?

A

Using interest rates and trade barriers to switch consumers to buying foreign goods to domestic goods
- Lower IR will reduce hot money flows so increase supply of pounds which depreciates ER
- Higher trade barriers makes imports more expensive

48
Q

How can supply side policies be used to improve the current account?

A
  • Reducing corp tax
  • Increasing government spending
    Reducing the minimum wage

Economics A level - Jaya (26 decks)

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