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National 5: Economics > Unit 3 - Global Economic Activity > Flashcards

Unit 3 - Global Economic Activity Flashcards

1
Q

Multinational

A

A multinational company/enterprise (MNC/MNE) is one that operates in more than one country. It has a headquarters in one country and branches or production facilities located worldwide.

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2
Q

MNC - Example

A

Apple Inc. - Headquarters in San Francisco, CA. Manufacturing facilities in China

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3
Q

MNC - Reasons for locating

A

Access to resources - natural resources or cheap labour
Quality of resources - e.g. highly skilled labour
Proximity to market
English speaking (in the case of the UK)
Access to EU - now in jeopardy
Grants offered by governments
Transport links - ports/roads/rail/airports

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4
Q

MNC - Advantages to host country

A 
Jobs are created - unemployment reduced
Increased exports
Benefits to related businesses/suppliers
Increased tax revenue for government
Reduced benefit payments
May bring ideas and innovations that can be used by other firms
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5
Q

MNC - Disadvantages to host country

A

Negative impact on competing firms
External costs - pollution, traffic congestion etc
Repatriation of profits to home country
The MNC may leave
Cost of government incentives
MNC may only provide low paid “screwdriver” jobs
Senior positions may be brought in from home country

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6
Q

Exchange Rate

A

The value of one currency in terms of another

e.g. £1 = $1.26

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7
Q

Exchange Rates - Appreciation

A

An increase in the value of a currency

e.g. £1 = $1.26 becomes £1 = $1.50

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8
Q

Exchange Rates - Depreciation

A

A decrease in the value of a currency

e.g. £1 = $1.50 becomes £1 = $1.26

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9
Q

Determinants of Exchange Rates

A 
FOREX Market : Factors affecting supply and demand
UK unemployment
FTSE Market Trends
Economic Growth
Speculation
Interest Rates
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10
Q

Appreciation Impacts - Individuals

A

Stronger £1 buys you more foreign currency
Increases a UK citizen’s purchasing power abroad
Cheaper to import goods from abroad
Cheaper to go abroad on holiday

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11
Q

Appreciation Impacts - Firms

A

If the firm exports, then demand for exports will fall
If the firm imports raw materials and components for production, then it is cheaper - and this represents a fall in the costs of production

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12
Q

Appreciation Impacts - Economy

A

Imports will increase - meaning a worsening of the current account deficit
Exporters will lay off workers
Importers can reduce prices so inflation may fall

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13
Q

Depreciation Impacts - Individuals

A

Weaker £1 buys you less foreign currency
Decreases a UK citizen’s purchasing power abroad
Dearer to import goods from abroad
Dearer to go abroad on holiday

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14
Q

Depreciation Impacts - Firms

A

If the firm exports, then demand for exports will rise
If the firm imports raw materials and components for production, then it is dearer - and this represents a rise in the costs of production

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15
Q

Depreciation Impacts - Economy

A

Exports will increase - meaning a reduction of the current account deficit (or a surplus)
Importers may lay off worker due to an increase in the costs of production
Inflation may rise because importers increase prices to protect their profit margins

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16
Q

Features of the EU - Single Market

A

There are no trade barriers between the 27 member countries

27 after Brexit

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17
Q

Features of the EU - Shengen

A

Workers can move freely to work in other EU countries. Also there is free movement of capital

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18
Q

Features of the EU - Common External Tariff

A

All goods imported to any country in the EU (from outside) face the same tariff

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19
Q

Features of the EU - Maastricht

A

Set workers rights - for example there is a maximum number of hours workers can work for each week

20
Q

EU - Reasons for trading

A

Proximity
Culture
Single Market
Demand

21
Q

Eurozone - Features

A

Countries which use the euro as their currency
Currently 19 member countries
They all have a common monetary policy
The interest rate is set by the European Central Bank

22
Q

Global (Free) Trade - Advantages

A

Allows countries to benefit from specialisation
Increases consumer choice
Increases competition - and therefore efficiency
Creates additional business opportunities
Enables firms to benefit from the best workforces, resources and technologies from anywhere in the world

23
Q

Global (Free) Trade - Disadvantages

A

Protectionism :
International trade with low cost economies is threatening jobs in many developed economies and reducing opportunities for growth in less-developed economies
Contributing to rapid resource depletion and climate change
May increase the exploitation of workers and the environment
May be increasing the gap between the rich and the poor countries

24
Q

Trade Barriers

A

Import Quota - Limit on amount
Import Tariff - Indirect Tax on imports
Higher Standards - e.g. stricter health and safety regulations)
Campaigns to buy local goods
Subsidies - protects infant industries so they can go on to compete with MNCs
Embargoes - complete ban on imports from another country

25
Q

Developing Countries/Economics - Characteristics

A 
Low GDP per capita
Lack of human capital
Lack of investment in infrastructure 
Lack of education and training
Dependency on agricultural products
Reliance on on or two exports
High unemployment
Poor level of healthcare
26
Q

Aid to Developing Economies

A

Free trade - e.g. reduce trade barriers
Debt relief - allowing non-repayment of debt interest
Capital equipment - providing machinery
Tied Aid - Giving cash provided it is used to buy UK exports
Technical expertise - provide people who can help e.g. with engineering projects
Education - provide teachers, books etc
Military Aid - provide equipment and personnel
Emergency Aid - e.g. provide food in a drought or flood

27
Q

NIC (Emerging Economy)

A 
Newly Industrialised Country : i.e. BRICMINT
Brazil
Russia
India
China
Mexico
Indonesia
Nigeria
Turkey
28
Q

NICs - Characteristics

A 
High level of foreign direct investment
Availability of cheap labour
Moving from primary to secondary industry
High Levels of Exports
High Rates of Economic Growth
Increased Infrastructure
Increased levels of education
Reduced poverty and higher living standards
Favourable tax and regulatory regimes
Improved Healthcare
29
Q

UK Main Exports

A

Machinery (including computers)
Vehicles
Pharmaceuticals

30
Q

UK Main Imports

A

Cars
Transportation
Textiles

31
Q

UK Export Partners

A

Europe - Germany and Switzerland
United States
Asia - China

32
Q

UK Import Partners

A

Europe - Germany and France
Asia - China
United States

33
Q

Eurozone Membership - Advantages

A

Reduce risk of trading (Exchange rate does not fluctuate)
No transaction costs so increased investment
Price transparency - easier to compare prices
Could increase (or at least protect) FDI in Scotland
Could lead to low inflation and increased competitiveness

34
Q

Eurozone Membership - Disadvantages

A

Monetary policy committee no longer able to set interest rates
Interest rate said by European Central bank might not suit every country - e.g. UK has higher percentage of variable rate mortgage holders
Cost of changing over to the Euro is very high i.e. High menu costs

35
Q

EU Membership - Disadvantages

A

Contribution to EU Budget - Membership Fee (eg 2016 UK fee was £13.1bn)
Lack of Control - eg Tariffs and Migration policies may not suit every country
Competition for U.K. Firms
Lower wage economies

36
Q

EU Membership - Advantages

A

Unrestricted movement of goods, services and labour among countries
Greater consumer choice
Greater competition encourages efficiency
Bigger market for exporters
More employment opportunities
Cheaper supplies
Economic Growth encouraged

37
Q

Trade Barriers - Reasons for Imposing

A

To protect domestic industries from foreign competition - to safeguard domestic output and employment
To correct a significant deficit on the balance of payments - restricting imports should reduce the value of imports in relation to the value of exports, thereby restoring balance
To protect infant industries from foreign competition - giving them time to become established
To protect strategic industries such as agriculture - needed in countries, especially in times of war or disasters
To preserve health and safety within a country (Or to preserve particular species or the environment)

38
Q

World Bank - Low income

A

$1035 or less per person

39
Q

World Bank - Lower middle income

A

$1036 to $4085 per person

40
Q

World Bank - Upper middle income

A

$4086 to $12615 per person

41
Q

World Bank - High income

A

$12616 or more per person

42
Q

Developing Economies - Examples

A

Afghanistan
Sierra Leone
Chad
Cambodia

43
Q

EU Enlargement - Advantages

A

Addition of labour and land should boost economic growth and create new jobs
Lower wage costs in new member states provides opportunities for firms to cut costs by relocating their operations
UK skill shortages could be reduced by an inflow of labour from Eastern Europe

44
Q

EU Enlargement - Disadvantages

A

Jobs may be lost if firms relocate to take advantage of the lower wage costs in the new entrant countries
A sudden influx of labour from Eastern Europe could dampen wage growth
All the new entrants have living standards below the EU average so the distribution of new regional funds will be altered in favour of new entrants
The UK (and particularly Scotland) will not only receive less regional aid, it may also lose its rebate

45
Q

EU Enlargement

A

When new economies/countries join the European Union e.g. Most recent member is Croatia

National 5: Economics (3 decks)

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