Unit 3: Economic and Trade Flashcards
1
Q
What is the difference between an “economic system” and a “political system”?
A
- An Economic system: Way a country organizes its resources, goods and services to its citizens.
- A political system is the type of government.
2
Q
What is the “Circular Flow Model”?
A
- Businesses provide income for Labour.
- That income is then spent by the individuals on goods & services
3
Q
What are the “four questions” that define a country’s economic system?
A
- What to produce and quantities?
- How should resources be allocated?
- How should goods and services be distributed?
- What should the price be?
4
Q
What are the Five Political Systems?
A
- Theocracy: Based on religion (Vatican City)
2.Autocracy: Ruled by one person (North Korea) - Aristocracy: Ruled by wealth, educated class (U.K. - in the past)
- Monarchy: ruled by king/queen (Saudi Arabia)
- Democracy: Governed by the people (Canada)
5
Q
What is the difference between “Democracy” and “Autocracy”?
A
- A democracy includes free and fair elections, rule of law, free speech, the right to assembly, a free press and freedom of religion.
- An autocracy or authoritarianism means to rule by a single individual or small group of people.
6
Q
What are the Three UN Classifications?
A
- Developed economies
- Economies in transition
- Developing economies
7
Q
What are the Four Stages of the Business Cycle?
A
- Recession
- Trough
- Expansion
- Peak
8
Q
What are the Three Indicators of a Business Cycle?
A
- Leading indicators
- Lagging indicators
- Coincident indicator
9
Q
What are the Two Ways Governments impact the world economy?
A
- Monetary Policy
- Fiscal Policy
10
Q
What are Monetary Policies?
A
- Monetary policy are decisions a country’s federal government makes through its central banks
- Examples: Bank of Canada and the United States Federal Reserve
- Affect money supply (the amount of money in circulation in the country), interest rates, and the inflation rate.
11
Q
What are Fiscal Policy?
A
- How the government collects and spends money
- Money is collected through taxes (income, corporate, property, sales and tariffs).
- This money is spent on education, health care, defense, welfare, transportation, etc
12
Q
Define: Competitive Advantage.
A
- When a country/company can produce cheaper or more efficient then it’s competitors
13
Q
What are the 9 Factors that contribute to a country/business competitive advantage?
A
- Technology
- Materials
- Marketing
- Management
- Quality
- Price
- Productivity
- Warranty
- Service
14
Q
What is Absolute advantage?
A
When a company or country has full advantage in production cost and productivity over the competition
15
Q
What is Opportunity Cost?
A
Whenever one opportunity is chosen or pursued by an organization, others are sacrificed.
16
Q
What is Comparative Advantage?
A
Comparative advantage is created when a country or company has a lower opportunity cost in producing a product than its competitors.
17
Q
What roles do governments take in generating international trade/business?
A
- When an election is imminent (controlling parties often spend money on various social programs to influence voters’ decisions before an election).
- Fiscal policy can impact the business cycle.
18
Q
Define Globalization
A
- The whole become one global market
19
Q
What are the Three Globalization Strategies?
A
- Global Strategy
- Multidomestic Strategy
- Transnational Strategy
20
Q
What is Global strategy
A
- Treats the world as one big market
- Product and marketing are uniform (the same)
- Ethnocentric view: the idea that all people want the same product and will respond in a similar fashion to the marketing strategies used in the home country
- Advantage: Companies can take advantage of economies of scale.
- Disadvantage: Not being able to cater to the local market.
21
Q
What is Multidomestic strategy
A
- This strategy tries to customize products, services, and marketing for the local culture.
- Example: In japan there are over 30 kit kat flavors
- Polycentric view: the idea that local management is the most capable of determining what is best for the local subsidiary
- Decisions are decentralized and made with locals in mind
- Advantages include less political and exchange rate risk, increase product differentiation
22
Q
What is Transnational strategy?
A
- This strategy combines the best elements of the global and multidomestic strategies
- It attempts to respect the local market while maintaining the efficiencies of the global strategy
- Geocentric view that values both local differences and what is best for the company
23
Q
What is a Trade Agreement?
A
- A agreement between countries that addresses the
- movement of goods and services,
- eliminates trade barriers
- establishes terms of trade
- encourages foreign investments.
24
Q
What is the USMCA?
A
- The United States-Mexico-Canada Agreement (USMCA) is the replacement of the former NAFTA deal
- Goods traded between Canada, USA and Mexico are tariff-free
25
How is the USMCA different from NAFTA?
* Country of origin rule: 75% of automobile components must be manufactured in USMCA countries tariffs. NAFTA was 62.5%
* The Dairy Market: US will be able to export up to 3.6% of Canada’s dairy market. NAFTA was 1%
* Sunset Clause: Duration of USMCA is 16 years. After six years, the three countries if needed and discuss a possible extension. NAFTA had no ending date.
26
What are the advantages and disadvantages of the USMCA?
Advantages:
* Increase in trade
* Lower prices
* Economic growth
* Job creation
Disadvantages:
* Lost jobs
* Lower wages
* Human rights issues
* Deterioration of the environment
27
What is a Tax Treaty?
* A Tax treaty is created to prevent tax evasion and to prevent double taxation for people who would pay taxes in Canada and another country with the same income.
* The treaty determines how much tax each country can collect on income received from pensions, wages, salaries, or interest
* Tax treaties allow goods, capital, and technology to move more easily across borders
* Example: Tax Treaty for athletes between the U.S. and Canada states athletes can be taxed a maximum rate of 15% on their signing bonuses.
28
What is the European Union and why does it exist?
* Criteria to become an EU member:
* Economic stability, market economy, democratic government, positive human rights record, and the ability to administer EU laws and policies
* Purpose of the EU: to promote peace, economic growth, government co-operation.
* The single markets allows labor, goods, services, and investments to flow freely across borders
29
What are the Three Major Organizations of the European Union?
* Three major organizations of the EU:
* Council of the European Union: with one member from each member state, it is the main decision making body
* European Parliament: Establish laws, budgets, and supervises other EU institutions
* European Commisions: Manages the day-to-day operation of the EU as a whole, such as trade agreements and international
30
What is the Euro?
* The euro is the common currency of the EU
* Today 1.00euro = $1.47. $1 Cdn = 0.68 Euro
* 19 of the 27 members use the Euro
* Sweden, Bulgaria, Czech Republic, Denmark, Hungary, Poland, and Romania are the EU countries that do not use the Euro
* Any new member is expected use the euro
31
What are the advantages and disadvantages of the Euro for EU nations?
Advantages of the Euro
* Decreasing the risk of exchange-rate fluctuations
* Elimination of transaction costs
* Easy billing
* Economic stability
* Price transparency
* Price Stability
* Increased markets
* Increased trade and travel
* Enhanced labor movement
Disadvantages of the Euro
* Centralization
* Initial costs
* Lack of national control
* Loss of tradition
32
What is Brexit?
The United Kingdom’s separation from the European Union
33
What are the three primary reasons the citizens of the UK wanted Brexit?
* Economics: U.K. sends money to the EU which then gets redistributed to various other member states. “Why should we have to pay for that?” attitude
* Immigration: any citizen of an EU member state can relocate and work in U.K. without needing a work visa
* Identity: As a member state, the U.K. must abide by various EU policies, some which can seem constricting
34
Define: Trade organization.
Trade organizations are groups established to help with the free flow of goods and services
35
What are the seven Trade Organizations that participate with Canada?
* World trade organization (WTO)
* Asia Pacific Economic Cooperation (APEC)
* Group of seven (G7)
* Group of Twenty (G20)
* Organization of economic development and cooperation (OECD)
* The World Bank
* International Monetary Fund (IMF)
36
What are the three Purposes of the WTO?
* A forum for negotiations: it's a place where countries can discuss disparities and come to agreements
* A set of rules: Agreements are signed by governments of member countries to promote the flow of goods and services;
* Dispute Settlement: A forum for countries ro consult, mediate and arbitrate discrepancies
37
What are the seven countries that are part of the G7?
Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States
38
Why does the G8 no longer exist?
Russia’s invasion of Crimea caused a riff between the nation and the other countries, resulting in their absence in the now G7
39
What is the difference between the G7 and G20?
In terms of members, the G7 has less while the G20 acknowledges countries such as Brazil, Russia, India, and China
40
What is BRICS and what countries make up this organization?
* This group is not formal trading bloc but meets annually and attends summits together
* These countries represent growth opportunities
* Countries include: Brazil, Russia, India, China and South Africa
41
What are the three activities of the IMF?
Three activities of the IMF:
* Encouraging countries to adapt responsible economic policies
* Lending money to emerging and developing countries
* Providing technical training in areas such as banking regulation and exchange rate policies
42
What countries are part of OPEC?
* Founding countries: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela (1960)
* Countries that joined later: Qatar (1961), Indonesia (1962), LIbya (1962), the UAE (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), Angola (2007), Equatorial Guinea (2017) and Congo (2018).
43
What is the purpose of OPEC?
Opec is a cartel (a group of independent producers who supply and fix prices in an attempt to reduce market competition.)
OPEC sets limits (quotas) on the for daily oil production
44
What is a Market economy
* Market economy is also known as capitalism or private enterprise
* The four questions are answered by individuals and businesses
* Limited government involvement
* Private property: People and corporations can own property
* Profit: Profit belongs to the owners of the business
* Competition: Competition encourages business to offer more goods lower prices
45
What is Centrally planned economy
* Centrally planned economy is also known as communism or a command economy
* The four question are answered by the government
* Heavy government involvement
* Cuba and North Korea. China has adopted some market economy
* Private property: Government owns everything. Some individuals may own some
* Profit: All profits belong to the government. Profit may go back to the business or to social programs or military
* Competition: Competition limited as government determines what and who sells
46
What is a Mixed economy
* Is also known as free enterprise system
* The four questions are answered by individuals and government
* Government involvement depends on politics, wealth, culture, etc.
* Examples: Canada and U.K.
* Private property: Owned by individuals, corporations and government
* Profit: Profit is taxed to support social programs
* Competition: Competition is strong and can include the government
