year 2 macro definitions Flashcards
Exchange rates
the price of a currency in terms of another
Fixed exchange rates
when 2 currencies are exchanged at a set price
floating exchange rates
when the price of a currency is determined by the free market
FOREX
Foreign exchange market
international competitiveness
the level of competitiveness between countries
Marshall lerner condition
devaluation of a currency improves the current account BOP
causes of globalization
Improved transport
Improved technology
Firms exploiting economies of scale
Reduced trade barriers
Growth of global financial system
Terms of trade calculation
average price of exports / average price of imports
Terms of trade
A measure of relative competitiveness
MNC
Multinational corporation
developed economies
a country with an abundance of wealth
Primary sector
the sector of the economy that produces raw materials
mobility of capital
the ease with which capital can be moved across borders
Comparative advantage
when a country can produce a commodity at a lower opportunity cost than others
absolute advantage
when a country produces a commodity with the best quality and at a faster rate than any others
Tertiary sector
the sector of the economy which produces services
Consequences of globalization
Greater trade in goods and services
More FDI
Greater transfer of technology
greater specialization
Greater labour migration
Development of global brands
Sustainable growth
growth which meets the needs of current nations without compromising the ability of future generations to meet their needs
Secondary sector
the sector of the economy which produces goods for consumption
Tariffs
A tax on imports
Quotas
A quantitative maximum on the level of imports
Fledging industry
Industries which posses comparative advantage but do not yet have economies of scale
Technical barriers to trade
Ways of increasing product compliance costs which increases the cost to those exporting into the country
Intellectual property laws
Laws protecting intellectual creations
Domestic subsidies
Government help for domestic businesses facing financial problems
Free trade area
When at least 2 states partially or fully abolish custom tariffs and quotas on most or all goods
Export subsidies
a payment to encourage domestic production by lowering costs
Import licensing
Government grants importers the right to import goods
Strategic industries
an industry that the government considers to be important for the countries economy or safety
Export dumping
when goods are exported for less than their normal value to destroy international competition
Trade wars
a situation in which countries conflict with each other using protectionism
Monetary union
A customs union\single market with a common currency
Customs union
an FTA which features common external tariffs and quotas
A single market
A customs union which features common policies on product regulation and freedom of movement of the FOP
Full economic union
Complete free trade, a common external tariff, a single market, monetary union and also common fiscal and supply side policies
Economic integration
the level of integration between economies
Trade creation
the increase in economic welfare from joining a free trade area
poverty
A situation in which individuals are unable to afford basic necessities
Income
The flow of money into a household
Trade diversion
when trade is diverted from a more efficient supply to a less efficient one due to an FTA or customs union
Wealth
the stock of value of a households assets
Absolute poverty
When a household has to survive on $2 a day or less
Relative poverty
Households who earn 60% or less of the median income
Lorenz curve
A curve which shows the cumulative distribution of income against population
Brain drain
When a countries smartest individuals leave because there is better work available elsewhere
Stagflation
High rate of inflation at the same time as high unemployment
NRU
the natural rate of unemployment
Phillips curve
A curve which establishes a link between inflation and unemployment
Demand pull inflation
Inflation that is caused by a decrease in AD
Cost push inflation
Inflation that is caused by an decrease in AS
neo classical economics
A school of economics which believes that the market is self correcting
neo classical Philips curve
similar to the Keynesian curve but believes that unemployment will always return to a fixed value
Money illusion
When households think they have more money but their real wealth hasn’t changed
Adaptive expectations
when the expectation changes over time
