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IB Economics HL 2022+ > Unit 4: The Global Economy > Flashcards

Unit 4: The Global Economy Flashcards

1
Q

Absolute advantage

A

A country has an absolute advantage in the production of a good if it can produce more of it with the same resources or, equivalently, if it can produce the same amount using fewer resources compared to another country.

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2
Q

Administrative barriers

A

Trade barriers in the form of regulations that aim to limit imports into a country. These barriers may take the form of product safety standards, sanitary standards or pollution standards but may also include more stringent than necessary application of customs procedures.

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3
Q

Anti-dumping

A

Typically refers to tariffs that aim at raising the artificially low price of a dumped imported good to the level of the higher domestic price. A dumped good is one that is exported at a price below the cost of producing it.

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4
Q

Appreciation

A

When the price of a currency increases in a floating exchange rate system.

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5
Q

Appropriate technology

A

Technology that relies mostly on the relatively abundant factor an economy is endowed with.

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6
Q

Balance of payments

A

A record of the value of all transactions of a country with the rest of the world over a period of time.

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7
Q

Balance of trade in goods

A

Part of the balance of payments, it is the value of exports of goods of a country minus the value of imports of goods over a given period of time.

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8
Q

Balance of trade in services

A

Part of the balance of payments, it is the value of exports of services of a country minus the value of imports of services over a given period of time.

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9
Q

Bilateral trade agreement

A

An agreement between two countries to phase-out or eliminate trade related barriers.

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10
Q

Capital account

A

A subaccount of the balance of payments that includes credit and debit entries for non-produced, non-financial assets as well as capital transfers between residents and non-residents.

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11
Q

Capital flight

A

Occurs when money and other assets flow out of a country to seek a “safe haven” in another country.

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12
Q

Capital transfers

A

Include financial or non-financial assets for items including debt forgiveness, investment, non-life insurance claims. They are part of the capital account of the balance of payments.

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13
Q

Common market

A

When a group of countries agree not only to free trade of goods and services but also to free movement of capital and labour.

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14
Q

Comparative advantage

A

When a country can produce a good at a lower opportunity cost compared to another country.

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15
Q

Composite indicator

A

An indicator that is comprised as an average of more than one economic variable, for example, the HDI.

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16
Q

Credit items

A

Refers to transactions within the balance of payments of a country that lead to an inflow of currency (for example, the export of goods); these transactions enter the account with a plus sign.

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17
Q

Current account

A

A subaccount of the balance of payments that records the value of net exports in goods and services, net income and net current transfers of a country over a period of time.

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18
Q

Current account deficit

A

Exists when the sum of net exports of goods and services plus net income plus net current transfers is negative (or simply when debits or outflows are greater than credits or inflows).

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19
Q

Current account surplus

A

Exists when the sum of net exports of goods and services plus net income plus net current transfers is positive (or simply when credits or inflows are greater than debits or inflows).

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20
Q

Current transfers

A

An entry in the current account that records payments between residents and non-residents of a country without something of economic value being received in return and that affect directly the level of disposable income (for example, workers remittances, pensions, aid and grants, and so on).

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21
Q

Customs union

A

An agreement between countries to phase out or eliminate tariffs and other trade barriers and establish a common external barrier toward non-members.

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22
Q

Debit items

A

Refers to transactions within the balance of payments of a country that lead to an outflow of currency (for example, the import of services); these transactions enter the account with a minus sign.

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23
Q

Debt relief (cancellation)

A

A reduction of the debt burden of developing countries organized by the World Bank and the IMF.

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24
Q

Debt servicing

A

Refers to the repayment of principal and interest on the debt of a person, a firm or a country.

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25
Q

Depreciation

A

A decrease in the value of a currency in terms of another currency in a floating or managed exchange rate system.

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26
Q

Devaluation

A

A decrease in the value of a currency in a fixed exchange rate system.

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27
Q

Development aid

A

Aid aimed at assisting developing countries in their development efforts. Includes project aid, program aid and debt relief. It is concessional meaning there are low interest rates and long repayment periods.

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28
Q

Dumping

A

When a firm sells abroad at a price below average cost or below the domestic price.

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29
Q

Economically least developed countries (ELDCs)

A

According to the UN these are low-income countries facing severe structural constraints to sustainable development, with low levels of human assets, highly vulnerable to economic and environmental shocks.

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30
Q

Economic development

A

A multidimensional concept involving a sustained increase in living standards that implies higher levels of income and thus greater access to goods and services, better education and health, a better environment to live in as well as individual empowerment.

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31
Q

Economic integration

A

Economic interdependence between countries usually involving agreements between two or more countries to phase-out or eliminate trade and other barriers between them.

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32
Q

Exchange rate

A

The value of one currency expressed in term of another currency; for example, €1 = US$1.5.

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33
Q

Expenditure reducing

A

Contractionary demand side policies aiming at decreasing national income and thus expenditures on imports so that a current account deficit narrows.

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34
Q

Expenditure switching

A

Policies aimed at switching expenditures away from imports towards domestically produced goods and services by making imports more expensive in order to narrow a current account deficit. It includes lowering the exchange rate as well as adopting trade protection.

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35
Q

Exports

A

Goods and services produced in one country and purchased by consumers in another country.

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36
Q

Export promotion

A

Growth policies aiming at expansion of export revenues as the vehicle of economic growth; often contrasted to import substitution.

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37
Q

Export revenue

A

The revenues collected by exporting firms.

38
Q

Export subsidy

A

Payments made by the government to exporting firms on the basis of the number of units exported.

39
Q

External balance

A

A situation where the value of a country’s exports is balanced by the value of its imports over a period of time, such that a current account surplus or deficit does not persist over long periods.

40
Q

Financial account

A

In the balance of payments this records inflows and outflows of portfolio and FDI funds over a period of time, official borrowing and changes in reserve assets.

41
Q

Fixed exchange rate

A

An exchange rate system where the exchange rate is fixed, or pegged, to the value of another currency (or to the average value of a selection of currencies) and maintained there with appropriate central bank intervention.

42
Q

Floating exchange rate

A

An exchange rate system where the exchange rate is determined solely by the market demand and market supply of the currency in the foreign exchange market without any central bank intervention.

43
Q

Foreign aid

A

Refers to flows of grants or loans from developed to developing countries that are non-commercial from the point of view of the donor and for which the terms are concessional (that is, the interest rate is lower than the market rate and the repayment period longer).

44
Q

Foreign direct investment (FDI)

A

When a firm establishes a productive facility in a foreign country or acquires controlling interest (at least 10% of the ordinary shares) in an existing foreign firm.

45
Q

Foreign sector

A

In an open economy the term refers to exports and imports.

46
Q

Free trade

A

International trade that is not subject any kind of trade barriers, such as tariffs or quotas.

47
Q

Free trade area/agreement

A

An agreement between two or more countries to phase-out or eliminate trade barriers between them, members of the agreement are free to maintain their own trade policy towards non-members.

48
Q

Gender inequality index (GII)

A

A composite indicator that measures gender inequalities in three dimensions of human development, namely reproductive health, empowerment and economic status.

49
Q

Human Development Index (HDI)

A

A composite index of development that reflects the three basic goals of development, which are a long and healthy life, improved education, and a decent standard of living. The variables measured are life expectancy at birth, mean years of schooling and expected years of schooling, and GNI per capita (PPP US$).

50
Q

Humanitarian aid

A

Aid given to alleviate short-term suffering, consisting of food aid, medical aid, and emergency relief aid usually as a result of a natural catastrophe or war.

51
Q

Import expenditure

A

The value of imports of goods and services.

52
Q

Imports

A

The value of goods and services purchased domestically that are produced abroad.

53
Q

Import substitution

A

A growth strategy where domestic production is substituted for imports in an attempt to shift production away from the primary sector and industrialize. This strategy requires that the domestic industry is protected from import competition.

54
Q

Inequality adjusted Human Development Index (IHDI)

A

A composite indicator consisting of an average of a country’s achievements in health, education and income all adjusted for the degree of inequality characterizing each.

55
Q

Infant industry

A

Refers to a new industry that should be protected from foreign competition until it is large enough to achieve economies of scale that will allow it to be internationally competitive. It is used as an argument in favour of trade protection in developing countries.

56
Q

International Monetary Fund (IMF)

A

An international financial institution of 189 countries whose objectives include to improve global monetary cooperation and secure financial stability by monitoring the economic and financial policies of its members and providing them with advice and with loans, if they face balance of payments difficulties.

57
Q

International trade

A

Trade that involves the exports and imports of goods or services between countries.

58
Q

Managed exchange rate

A

An exchange rate that floats in the foreign exchange markets but is subject to intervention from time to time by domestic monetary authorities, in order to prevent undesirable movements in the exchange rate.

59
Q

Microfinance

A

The provision of small loans to poor entrepreneurs who lack access to traditional banking services.

60
Q

Monetary union

A

Where two or more countries share the same currency and have a common central bank.

61
Q

Multidimensional Poverty Index (MPI)

A

An international measure of poverty covering over 100 of the economically least developed countries. It complements traditional income-based poverty measures by capturing the deprivations that each person faces at the same time with respect to education, health and living standards.

62
Q

Multilateral development assistance

A

Assistance provided by multilateral organizations such as the World Bank when they lend to developing countries for the purpose of helping them in their development objectives.

63
Q

Multilateral trade agreement

A

An agreement between many countries to lower tariffs or other protectionist measures, currently carried out within the framework of the WTO.

64
Q

Non-governmental organization (NGO)

A

Organizations that are not part of the government that promote economic development and/or humanitarian ideals and/or sustainable development.

65
Q

Non-produced, non-financial assets

A

A measure of the net international sales and purchases of non-produced assets (such as land) and intangible assets (such as patents and copyrights).

66
Q

Official Development Assistance (ODA)

A

Aid that is provided to a country by another government or multilateral agency. It is the most important part of foreign aid.

67
Q

Overvalued currency

A

A currency whose value or exchange rate is greater than its equilibrium exchange rate, usually achieved through central bank intervention; may occur in a pegged or managed exchange rate system.

68
Q

Portfolio investment

A

The purchase of financial assets such as shares and bonds in order to gain a financial return in the form of interest or dividends. Appears in the financial account of the balance of payments.

69
Q

Poverty trap/cycle

A

Any circular chain of events starting and ending in poverty—for example, low income leads to low savings, leads to low investment, leads to low growth, leads to low income.

70
Q

Preferential trade agreement

A

Where a country agrees to give preferential access (for example, reduced tariffs) for certain products to one or more trading partners.

71
Q

Property rights

A

The exclusive, legal, authority to own property and determine how that property is used, whether it is owned by the government or by private individuals.

72
Q

Purchasing power parity (PPP)

A

A method used to make the buying power of different currencies equal to the buying power of US$1. PPP exchange rates are used to make comparisons of income or output variables across countries while eliminating the influence of price level differences.

73
Q

Quota

A

An import barrier that set limits on the quantity or value of imports that may be imported into a country.

74
Q

Regional trade agreement

A

An agreement between a group of countries usually within a geographical region to lower or eliminate trade barriers.

75
Q

Remittances

A

The transfer of money by foreign workers to individuals, often family members, in their home country.

76
Q

Reserve assets

A

Foreign currencies and precious metals held by central banks as a result of international trade. Reserves may be used to maintain or influence the exchange rate for the country’s currency. Reserves appear as an item in the financial account of the balance of payments.

77
Q

Revaluation

A

An increase in the value of a currency in a fixed exchange rate system.

78
Q

Specialization

A

Refers to when a firm or country focuses on the production of one or a few goods or services. This forms the basis of theory of comparative advantage in international trade.

79
Q

Speculation

A

Refers to a process where something is bought or sold with a view to making a short term profit, for example, currency speculation where currencies are bought or sold so that a profit can be made when the exchange rate changes.

80
Q

Subsidy (international)

A

An amount of money paid by the government to a firm, per unit of output, to encourage production and provide the firm an advantage over foreign competition.

81
Q

Sustainable development

A

Refers to the degree to which the current generation is able to meet its needs today but still conserve resources for the sake of future generations.

82
Q

Tariff

A

A tax that is placed on imports to protect domestic industries from foreign competition and to raise revenue for the government.

83
Q

Trade creation

A

In international trade it occurs when higher cost imports are replaced by lower cost imports due to the formation of a trading bloc or a trade agreement.

84
Q

Trade diversion

A

In international trade it occurs when lower cost imports are replaced by higher cost imports due to the formation of a trading bloc or a trade agreement.

85
Q

Trade liberalization

A

The process of reducing barriers to international trade.

86
Q

Trade protection

A

Government intervention aiming to limit imports and/or encourage exports by setting up trade barriers that protect from foreign competition.

87
Q

Trading bloc

A

A group of countries that have agreed to reduce protectionist measures like tariffs and quotas between them.

88
Q

Undervalued currency

A

A currency whose value or exchange rate is lower than its equilibrium exchange rate, usually achieved through central bank intervention; may occur in a pegged or managed exchange rate system.

89
Q

Unfair competition

A

In international trade this refers to practices of countries trying to gain an unfair advantage through such methods as undervalued exchange rates.

90
Q

Sustainable development goals (SDGs)

A

The UN set out 17 global goals including those that aim to end all forms of poverty, fight inequalities and tackle climate change.

91
Q

World Bank

A

An international organization that provides loans and advice to economically less developed countries for the purpose of promoting economic development and reducing poverty.

92
Q

World Trade Organization (WTO)

A

An international body that sets the rules for global trading and resolves disputes between its member countries. It also hosts negotiations concerning the reduction of trade barriers between its member nations.

IB Economics HL 2022+ (4 decks)

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