UNIT 3 Flashcards
Autocracy
state goverened by a single individual or a small group of people with unlimited power
Business cycle
Economies contracting and expanding over time (recession, trough, expansion, peak)
Recession
The economy slows down- two consecutive quarters during which the growth GDP declines (decline in consumer purchasing, increase in unemployment)
Trough
Bottom of the cycle-production and employment reach their lowest levels
-at this point the economy completes recession and turns toward prosperity
Expansion
The economy begins to grow again- employment, wages, production and profits all expand
-Investments are strong, new businesses are created, and the economic climate is good
Peak
Top of business cycle- economy stops expanding and begins contracting
Centrally planned economy/communism/command economy
The government-controls elements of economy and how income is distributed
- provides education, healthcare, employment and housing to all members of society
- Ownership of private property is restricted, profit belongs to government, competition is limited
Coincident indicators
Move in conjunction with the business cycle (international trade)
Democracy
Government through elected representatives, characterized by free and fair elections, the rule of law, free speech, right to assembly, a free press, and freedom of religion
Developed economies
Characterized by high per capita income and GDP, high standards of living, high literacy rate, advances in healthcare and technology, rely less on primary industries and more on tertiary industries, strong trade alliances
Developing economies
- Moving away from agriculture and natural resources toward more industrialization, manufacturing, and technology
- characterized by lack of social services (healthcare and education), poor infrastructure and low literacy levels
Economic system
The way a country organizes its resources and distributes goods and services to its citizens
Economies in transition
- Moving from centrally planned toward market economic system (still mixed)
- Transition includes decreasing role of the government and privatization
- Possible problems like inflation, increased unemployment, widening income gaps
EU
- Political and economic union
- EU members are party to a trade agreement encompassing 28 countries in Europe (as of 2018) and a population of almost half a billion people
- Has its own flag, anthem, and currency
- Has common financial, security, and foreign policies
Fiscal policies
The way the government at all levels (municipal, provincial, federal) collects and spends money
G7
- Established 1975, a trade organization encompassing the top major economies of the world
- Canada, France, Germany, Italy, Japan, United Kingdom, United States (EU as a silent member)
Globalization
The process whereby national and regional economies and cultures have become integrated through new global communication technologies, foreign direct investment, international trade, immigration, and the flow of money
International Monetary Fund
- Organization the tracks economic trends, analyzes a countries financial performance, warns government of potential financial problems, provides expertise to government, and provides a forum for discussion
- 186 member countries
Leading indicators
Predict where the economy is heading (housing starts, construction contracts)
Lagging indicators
Do not adjust until after the economy has experienced the change (employment rate)
Market economy/capitalism/private enterprise
- Businesses, consumers, and government act independently of one another
- Market forces and self-interest determine what goods are created and sold
- The government has little direct involvement in businesses
- Private property ownership is encouraged, profit is encouraged, competition is critical (consumers have greater selection)
- No pure market economies but U.S.A comes closest
Mixed Economy/ modified free enterprise
- Most economies of the world
- feature characteristics of both market and centrally planned economies
- Private property is owned by government, individuals, and corporations, profit is encouraged but taxed, competition exists but government is a player
- Social programs (healthcare, pension plans, parental leave, employment insurance etc.) mix with capitalist private enterprises- balance is different in each country
Monetary policy
A set of decisions a country’s federal government makes through its central bank e.g The Bank of Canada
-Impacts the money supply, interest rates and inflation
USMCA (formerly known as NAFTA)
- Between Canada, Mexico, and United States
- In effect since 1994, renegotiated 2020
- Advantages: Increase in trade, lower prices, economic growth, job creation
- Disadvantages: Lost jobs and lower wages, human rights issues, environmental damage
Political System
The type of government by which a country is run
The World Bank
-Not actually a bank, 189 member countries
Goals: to reduce number of people living in extreme poverty by 3% by 2030
To increase the income of the poorest people by 40% in every country
Trade agreements
An enforceable treaty by two or more countries that address the movement of goods and services, eliminates trade barriers, establishes terms of trade, and encourages foreign investment
Trade Organizations
Groups established to help with the free flow of goods and services between countries
UN
-Intergovernmental organization
-Purpose: maintain international peace and security
protect human right
deliver humanitarian aid
promote sustainable development
uphold international law
WTO
- Established 1995, promotes trade liberalization (easing trade restrictions) throughout the worlds
- economic prosperity and social development are the heart of the WTO
- decisions made by consensus
Global Strategy
- Regards world as one big market
- Product and marketing are uniform across the globe
- Key decisions are centralized at the corporate headquarters in the businesses home country
- Strength: Allows companies to take advantages of economies of scale, develop products faster, and co-ordinate activities
- e.g red bull
Multi-domestic strategy
- Tries to customize products, services and marketing to local culture, effective when cultural differences are prominent
- Decisions are decentralized
- Advantages: less political and exchange rate risk, increased product differentiation, greater responsive to local needs
- e.g lit kat
Transnational Strategy
- Tries to combine the best elements or global and multi domestic strategies
- attempts to respect the needs of the local market while maintaining the efficiency of a global strategy
- Products are manufactured at least expensive source while Human Resources and marketing are managed at a local level
- e.g Dominos
EU and benefits of common currency
- Decrease the risk of exchange rate fluctuations
- Elimination of transaction costs
- Easy billing
- Economic stability
- Price Transparency
- Price stability
- Increased markets
- Increase trade and travel
- Enhanced labour movement
Disadvantages of Euro
- Centralization
- Initial Costs
- Lack of national control
- Loss of tradition
- Sovereign debt crisis
- Brexit
International Monetary Fund Goals
- Promote financial stability
- Prevent and solve economic crises
- Encourage growth
- Prevent and relieve property
