Unit 3 - Understanding the impact of the Global Economy

Question 1

What is a trading bloc?

Answer 1

A trading bloc is a group of countries that come together and form agreements to promote trade among themselves by removing or reducing barriers to trade

Question 2

Give examples of trading blocs.

Answer 2

-European Union
-NAFTA
-SAFTA
-African Union

Question 3

Describe the European Union.

Answer 3

The most integrated trading bloc. The EU27 have free trade and common regulations and are part of a customs union.

Question 4

Describe NAFTA

Answer 4

North Atlantic Free Trade Association. A free trade area between Canada, US and Mexico

Question 5

Describe SAFTA

Answer 5

South Asia free trade area based around the Indian subcontinent. Includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

Question 6

Describe the African Union

Answer 6

55 countries of the continent of Africa. Created to forge closer political and economic ties. It has aspirations to become a free trade area.

Question 7

What are the benefits of being part of a trading bloc? (5)

Answer 7

-Tariff removal leads to an increase in trade between member countries. This can lead to increased economic growth and decreased unemployment.

-No internal border checks/free movement of goods and services within the bloc. This means that there are fewer opportunities for delays for firms and reduced administration costs for governments

-A common external tariff can be applied to those outside the bloc.

-Member countries can negotiate trade deals as a bloc making them stronger. This leads to more favourable trade terms with outside members.

-A trading bloc can attract foreign direct investment as multinationals will want access to the larger free market.

Question 8

What are some examples of developing countries?

Answer 8

Afghanistan
Cambodia
Chad
Liberia
Sierra Leone
Rwanda

Question 9

What are the characteristics of developing countries? (13)

Answer 9

-High rates of unemployment and underemployment

-Unskilled, poorly educated labour force (low literacy rates)

-Lack of capital investment – subsistence economies with no surplus to invest

-Poor infrastructure and lack of investment in infrastructure

-Corruption of Government and officials

-Lack of foreign investment other than in mining and primary production

-Reliance on market price of one export, usually a primary product

-Weak tax base so little Government revenue

-Political instability and military conflicts divert resources

-Inadequate health services, high HIV rates, low life expectancy, high infant mortality

-Dependent population is high relative to the working population

-Low GDP per capita

-Dependency on agricultural products

Question 10

What are the different types of aid given to developing countries by developed countries? (10)

Answer 10

-Food aid
-Emergency aid
-Medical aid
-Technical assistance
-Educational support
-Soft Loans
-Military Aid
-Assistance with Capital Projects
-Liberal trade policies
-Debt relief

Question 11

What are developing economies?

Answer 11

They are countries that have an underdeveloped industrial base while others will link it to a low Human Development Index score.

Question 12

What is food aid?

Answer 12

This is the supply of food

Question 13

What is emergency aid?

Answer 13

The supply of temporary shelters, water

Question 14

What is medical aid?

Answer 14

The supply of vaccines, healthcare professionals

Question 15

What is technical assistance?

Answer 15

This is giving advice on how best to run a government or on how firms and workers can become more efficient.

Question 16

What is educational support?

Answer 16

This could focus on the training of teachers in order to improve the quality of education delivered

Question 17

What are soft loans?

Answer 17

This is a loan with a low interest rate

Question 18

What is military aid?

Answer 18

This could be in the form of a training team or military equipment

Question 19

What is assistance with capital projects?

Answer 19

A donor country can provide aid to assist with capital projects such as building hospitals and transport infrastructure.

Question 20

What are liberal trade policies?

Answer 20

This is the reduction of barriers to trade. This will allow exporters in developing countries the ability to sell their products without having to pay tariffs.

Question 21

What is debt relief?

Answer 21

This is when part of a debt is written off or the amount owed is reduced.

On the one hand, debt relief will allow developing countries to use the money spent on paying back debt, or in some cases paying just the interest, to invest in education and healthcare that will create economic growth. However, if a country has its debt written off, then it might think it can build up debt again and it will be written off.

Question 22

What are the different ways of giving aid?

Answer 22

Bilateral aid, Multilateral aid and tied aid.

Question 23

What is bilateral aid?

Answer 23

the assistance from one country to another.

Question 24

What is multilateral aid?

Answer 24

Multilateral aid is assistance provided by a group of countries, or an institution representing a group of countries such as the World Bank, the United Nations, or the International Monetary Fund (IMF) to one or more recipient countries.

Question 25

What is tied aid?

Answer 25

the country receiving the aid must spend the money on goods and services from the country providing it.

Question 26

What are some examples of emerging economies?

Answer 26

-BRICS - Brazil, Russia, India, China, South Africa
-MINT - Mexico, Indonesia, Nigeria, Turkey
-CIVETS - Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa

Question 27

What is an emerging economy?

Answer 27

An emerging market economy (EME) is an economy with low to middle per capita income. It is going through rapid economic growth because of changes in markets, technology, business culture and social practices.

Question 28

What are the characteristics of an emerging economy?

Answer 28

-Specialisation in the production of manufactured goods: Emerging economies have moved from having production in the primary sector when they were a developing economy to the secondary sector.

-High rates of economic growth

-Higher spending on education and training: Emerging economies are able to invest large sums in education and training. This will improve the quality of labour in their countries and make them more productive.

-Large volume of exports:

-Large increases in investment:

-Pegged currencies: It is common for emerging economies to ‘peg’ their currencies to the US Dollar. This ensures that their currency remains relatively weak to the dollar. Therefore, their exports remain competitive.

-High spending on infrastructure:

-Lower infant mortality

-Longer life expectancy

-Improved healthcare

-Higher literacy rates