Theme4.1

Question 1

Globalisation

Answer 1

Refers to the increase integration betweens countries economically, socially and culturally

Question 2

Foreign direct investment

Answer 2

Occurs when a company in one country establishes operations in another country or when it acquires physical assets or a stake in an overseas company

Question 3

Capital flows

Answer 3

Refer to all the money moving between countries as a consequence of investment flows into and out of countries around the world

Question 4

Economies of scale

Answer 4

Refers to falling long-run average costs when output increases

Question 5

Offshoring

Answer 5

Refers to companies transferring manufacturing to a different country

Question 6

Transfer pricing

Answer 6

Refers to the price that has been charged by one part of a company for products and services it provides to another part of the same company. This system enables TNCs to declare profits in the country in which the corporation tax is lowest

Question 7

Consumer surplus

Answer 7

Refers to the difference between what the consumer was willing to pay for a product as the market price

Question 8

External costs

Answer 8

Refer to the costs to third parties who are not part of the transaction, they are not reflected in the price mechanism

Question 9

Absolute advantage

Answer 9

Where a country can produce more output than another with the same factors of production

Question 10

Comparative advantage

Answer 10

Where ion country can produce a good/service at a lower opportunity cost than another

Question 11

Opportunity cost

Answer 11

Is the next best alternative forgone when a choice is made

Question 12

Terms of trade

Answer 12

Measure the price of a country’s exports relative to the price of its imports

Question 13

Monopsony

Monopsony power

Answer 13

Refers to a sole buyer of a product/service

Refers to the buying power of rich developed countries

Question 14

Trade balance (trade in goods/services balance)

Answer 14

Refers to the value of exports minus the value of imports

Question 15

Dumping

Answer 15

Occurs when a product is sold in a foreign country for less than the cost of making a product, under the rules of the WTO this practice is illegal

Question 16

Sectoral imbalance

Answer 16

Refers to an imbalance in the three main sectors or the economy - primary, secondary and tertiary sectors

Question 17

Monopolies

Answer 17

Are sole supplies of a product

Question 18

Terms of trade calculation

Answer 18

Index of export prices
———————- X100
Index of import prices

Question 19

Trading blocs

Answer 19

Are groups of countries that agree to reduce or eliminate trade barriers between themselves

Question 20

Types of trade blocs

Answer 20

Free trade area
Customs union
Common markets
Monetary unions

Question 21

Free trade area

Answer 21

Trade barrier are removed but each member can impose trade restrictions on non-members

Question 22

Customs union

Answer 22

Free trade between members combined with a common external tariff on goods from non member counties

Question 23

Common market

Answer 23

Free trade area combined with a common external tariff on goods from non member countries and include free movement of factors or production (e.g. Labour)

Question 24

Monetary unions

Answer 24

These are customs unions which adopt a common currency

Question 25

Trade diversion

Answer 25

Occurs when trade is diverted from a more efficient exporter towards a less efficient producer

Question 26

Trade creation

Answer 26

Where trade is created as a result of the formation of a free trade agreement between a group of countries by the establishment of a trading bloc

Question 27

Protectionism

Answer 27

Means methods of restricting trade

Question 28

Tariffs

Answer 28

Are taxes on imported goods

Question 29

Quotas

Answer 29

Are limits on the quantity of a product imported

Question 30

Current account deficit

Answer 30

Occurs on the balance of payments when more money is flowing out of the country than is flowing in

Question 31

Current account surplus

Answer 31

Occurs on the balance of payments when there is more money flowing into the country than is flowing out

Question 32

Expenditure-reducing policies

Answer 32

Are policies designed to reduce aggregate demand e.g. Deflationary fiscal policy and monetary policy

Question 33

Expenditure-switching policies

Answer 33

Are policies designed to alter the pattern of a countries expenditure between domestic and imported goods and services

Question 34

Global trade imbalances

Answer 34

Occur when some countries have large current account deficits whilst other have large current account surpluses

Question 35

Currency war

Answer 35

Refers to a situation where a number of nations seek to deliberately depreciate the value of their currency in order to stimulate their economies

Question 36

Marshall-Lerner condition

Answer 36

States that a depreciation or a devaluations of the currency will only lead to an improvement in the the trade balance if the sum of the price elasticities of the demand for imports and exports is greater than one

Question 37

J-Curve effect

Answer 37

Describes the situation in which a country’s trade balance initially worsens following a devaluation of its currency and only improves in the long run

Question 38

International competitiveness

Answer 38

Is a measure of the cost of a country’s goods and services export relative to those of other countries

Question 39

Unit labour costs

Answer 39

Measure of the average cost of labour per unit and are calculated as the ratio of total labour costs to real output

Question 40

Multiplier

Answer 40

Describes the process by which a change in an injection (government expenditure, investments or exports) cause a more than proportionate change in national income