Topic 1 - The Global Economy Flashcards

Question

List 2 Disadvantages of Multilateral Agreements and Bilateral Agreements.

Answer 1

Multilateral: - Multiple nations must agree to set conditions, limiting the effectiveness of FTAs. - Some nations tend to prioritise national interests over regional FT interests. Bilateral: - Excludes other economies from specialised G&S. Distors trade as commodity prices and U/E rise. - Diverts trade from efficient to less efficient countries, triggering retaliatory effects of other bilateral agreements competing.

Answer 2

1) Monitoring and enforcing global trade agreements. 2) Reviewing protection barriers to world trade. 3) Resolve trade disputes between economies. Impact: From Healthy FT relations, WTO have assisted in the increase of trade agreements from 23 in 1990 to 500 in 2022, resulting in lower prices for consumers, greater globalisation rates and limited retaliatory effects.

Answer 3

Role: G20 (G7 + G12 + EU) coordinates and supervises global, fiscal policies, financial systems and institutions. Accounts for around 80% of total GWP. Function: Resolves current economic and global complications + Lifts trade restrictions during global downturns + Assists member countries that are facing economic hardships.

Answer 4

1) To preserve international peace & security. 2) Allow all countries to have equal participation in international affairs + safeguarded rights & interests. Impact: Established a set of global wellbeing goals that advocates for greater globalisation rates and reduced social + economic inequality. E.g.: Allowed multiple developing/emerging economies to have more rights in international organizations.

Answer 5

1) Assists economic growth, employment rates and higher living standards by promoting economic and social policies. 2) Promotes sustainable economic development by coordinating economic cooperation. Impact: Brings nations together as they assist in understanding the major implication of globalisation through OECD reports on international economies.

Answer 6

IMF focus their assistance on: 1) Solving International downturns that may affect other economies or are facing forex currency difficulties. 2) Promoting international monetary stability by overseeing excessive inflation/ER changes. World Bank priorities funds for: 1) Developing economies such as funding infrastructure shortages/capital growth. 2) Aims to reduce extreme world poverty within developing countries.

Answer 7

1) Infant Industry Protection - Manufacturing Car Industry (MCI) in Elizabeth being funded $4billion. 2) Domestic Employment - Unemployment increased by 4x in Elizabeth after MCI closed. 3) Dumping - China produces and sells steel at much cheaper prices than the U.S due to government subsidisation. 4) Reliance on Defence - USA produces ALL of their weapons to reduce reliance on other countries.

Answer 8

1) Build capacity – Gain sufficient resources and market share to compete against foreign firms D&I. 2) Establish markets – Gain a strong position in market share to compete internationally with G&S and labour. 3) Achieve economies of scale with the specialised production of G&S, and sustain domestic employment. - Although, firms may become too reliant on these subsidisations and lack incentive to innovate, leading to lower competition rates and diseconomies of scale. - Shifts resources from most efficient industries to less efficient industries.

Answer 9

+ D&S for local labour + goods will be greater - Increased domestic living standards. - Funds & productivity shift from Efficient export industries to less-efficient industries, reducing economies of scale and innovation of X firms.

Answer 10

When foreign firms attempt to sell their goods in another country’s market at unrealistically low prices. Used to dispose of large production surpluses or to establish a market position in another country. - Harms domestic producers, employment, and innovation once the local competition is gone. + Lower prices for domestic consumers in the short term, but does not last as foreign producers put up their prices.

Answer 11

Major powers want to retain their own defence industry for making their weapons as their demand can not always meet at lower costs due to greater military independence. – To maintain confidence during times of war and to provide defence equipment.

Answer 12

Tariffs (Price 1st) are taxes placed on foreign goods that are imported into domestic economies, whereas Quotas (Quantity 1st) are quantity limits on the no. of imported, foreign goods. Tariff --> Place a new price line above WP but below equilibrium. Government revenue is calculated from the ΔPrice x New ΔQuantity Quota --> Shift the new quantity values to the desired ΔQuantity, then draw a new price line where it meets DS. Old ΔQuantity - New ΔQuantity

Answer 13

Local Content Rules: Domestic-made requirement that a good made in that country must include a certain % of local materials to avoid tax. Export Incentives: Provides domestic producers financial assistance such as grants, loans, etc. to export at a cheaper cost to other countries. Subsidies: Cash payments made by Governments to local producers to increase domestic supply. --> GE = New Quantity x ΔPrice. --> Size of Subsidy = Vertical distance from old DS to new DS.

Answer 14

↑ Production and Supply of Protected Industries ↑ Employment in Protected Industries ↑ GDP (↓ for Export Incentives) ↓ Resources and employment in export industries ↑ Government Expenses (↓ for Tariffs)

Answer 15

↓ in Global GROWTH. - Individual economies can't SPECIALISE. - Difficult for DEVELOPING economies to access advanced economies, especially high-cost FT Agreements. - Possible RETALIATION effects (Export country) --> Further global protection.

Answer 16

Economic Growth = The sustained increase in a country's production capacity over time through the value of its outputs. - Measured through AD (GDP) and GNI per capita. Economic Development = Broad measure of welfare in a country that measures wellbeing improvements, rather than money. - Measured through HDI, structural changes and real incomes.

Answer 17

With advanced economies earning over 2/3 of the world's income, D/E E's do not have the necessary funding in the first place for equal wealth distribution. Additionally, most income is concentrated in these economies due to the brain-drain effect. There is a greater disparity between world wealth than income since the top 1% richest own over 45% of global wealth, while the bottom 50% earn merely 2%.

Answer 18

HDI = 1) Life Expectancy (Maternity rates, birth rates) 2) Education Level (Mean & Expected years of schooling) 3) Material Standards of living (GNI per capita) Criticisms: Does not properly reflect inequalities of gender roles, income & wealth, or crime rates.

Answer 19

1) Global TRADE System. 2) Global FINANCIAL Architecture. 3) Global AID and Assistance. 4) Global TECHNOLOGY Flows.

Answer 20

1) Global TRADE System: Wealthy Countries protect infant industries to improve the specialisation of domestic goods and to reduce competition. - High difficulty for developing countries to establish FT agreements with A economies due to high costs and complexity of WTO procedures. (Failed Doha Round). 2) Global FINANCIAL Architecture: Despite FF's and FDI's favouring Emerging E's (Holds over 1/2 of FDI flows), they are exposed to economic volatility. - Many developing E's have large foreign debt burdens, increasing the I/W gap.

Answer 21

1) Global AID and Assistance: Around 20% of WB funds are not being fairly distributed and used to improve developing countries. - High-Income economies target their funds towards infrastructure & military, rather than reducing income equality. 2) Global Technology Flows: Greater 'Digital Divide' between economies from reduced access to new technology, infrastructure and education. - Innovative technology is more suited towards high-income countries due to improved forms of demand and supply of R&D and division of labour.

Answer 22

ER: 1) LAND and Natural Resources 2) LABOUR Supply and Quantity 3) CAPITAL and Indebtedness 4) ENTREPRENEURIAL Culture IF: 1) Political and Economic INSTITUTIONS 2) Economic POLICIES 3) GOVERNMENT Responses to Globalisation

Answer 23

1) Land and Natural Resources = Greater supply of natural, valued resources. - Leads to a narrow export base. - Leads to over-reliance, making developing economies more susceptible to downturns. 2) Labour Supply and Quality = Highly-Developed economies tend to have highly educated and skilled labour, while low-income economies face high population growth and low education/health levels. E.g.: Singapore committed more funds to education, whereas South Africa is hindered by HIV/AIDS.

Answer 24

3) Capital and Indebtedness = Decreased access to capital funds and investments force economies to face low growth rates, and lower living standards. - Reduced access to loans leads to reduced spending in the economy. 4) Entrepreneurial culture = Improved economic development and innovation for Advanced Economies that have high scientific R&D. - Corruption levels decrease innovation rates, leading to increased income and wealth inequality.

Answer 25

1) COVID-19 = Closure of borders reduced immigration/exchange student rates. - Countries ran short of medical supplies due to relying on global supply chains, with China holding roughly 50% of global medical supplies. 2) US vs China Trade War = Trump increased U.S tariff prices against China’s steel and cars. China retaliated by increasing tariffs on Whiskey and Vehicles. - Decreased Globalisation rates from increased costs and reduced profits from diseconomies of scale.