Unit 18: The Nation & the World Economy Flashcards
How is globalization measured?
- measure the amount of trade within a region over time
- measuring net exports as a share of GDP
- comparing the costs of exporting goods relative to selling them domestically
Law of one price
Law that holds when goods are sold for the same price across all markets of buyers and sellers
Arbitrage
Occurs when a good is sold at one price and then resold at a higher price in another
Three signs of globalization according to prices
- Falling import costs
- Rising export costs
- Closing of the price gap between these two costs (see graph 18.3)
Three signs of globalization according to prices
- Falling import costs
- Rising export costs
- Closing of the price gap between these two costs (see graph 18.3)
Balance of payments definition
Records all payments which happen between a home country and foreign economies
Foreign portfolio investment
When a company buys an asset in a foreign company and does not have total control over the asset (eg: buying shares in a Chinese company)
Foreign direct investment
When a company buys an asset in a foreign country and has total control over it (eg: buying a Chinese factory building)
Money sent home by migrant workers to family members in their home country
Remittances
Balance of payments equation
BP ≡ CA + (capital and financial accounts)
Current Account equation
CA ≡ exports - imports + net payment from assets abroad
≡ X-M+NFP
CA deficit
A country is borrowing more money than it is lending out
CA surplus
Happens when a country is lending out more money than it is saving
It is easier to internationally trade/transport labour than it is to transport goods and financial assets (T/F)
False
Economies of agglomeration
Reduced costs and other benefits firms enjoy by having their locations in close proximity to similar firms (eg Silicon Valley)
