The International Economy

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When was the World Trade Organisation set up

- 1995

What are some evaluation points regarding trade deficit vs trade surplus

- A deficit financed by long term capital investment in more sustainable than a deficit finances by borrowing - a deficit may occur due to high growth and strong consumer spending rather than uncompetitiveness

How does the exchange rate impact the balance of payments

- A strong exchange rate will make imports cheap causing domestic consumers to switch their spending towards cheaper imported products whilst also making exports more expensive resulting in decreased demand and they are less price competitiveness. This is turn causes the balance of payments position to worsen. - A weak pound will make exports cheaper resulting in increased demand as more price competitive where as the price of imports will rise resulting in decreased demand. This in turn will improve the balance of payments position

Show and explain the impact of export subsidies on a diagram

- A subsidy will reduce the cost of production for domestic firms shifting the domestic supply curve downwards from Sd toSd+sub. - the market price remains at Pw however as the value of the subsidy is not enough for domestic producers to outcompete world suppliers, therefore domestic demand remains at Q2 - domestic production now increased to q3, as they receive the subsidy to Pw+ sub which increases their revenue from A to abdef - foreign producers now supply the excess demand Q3Q2 units with their revenue falling from BC to C. The number of imports decrease from Q1Q2 to Q3Q2 units but this comes with allocative inefficiency of domestic producers producing units at a higher cost

show and explain the impact of tariffs on a diagram

- A tariff will shift world supply upwards from Sw to Sw + T. This will raise the market price from Pw to PW+T - Due to the higher price, domestic demand will contract from Q2 to Q4 and domestic production will extend from Q1 to Q3 increasing domestic producer revenue from A to ABEFG - The excess demand that remains will be satisfied from foreign producers Q3Q4 but because they have to pay a tariff their revenue falls from BCD to C. - The amount of Government revenue is H - the number of imports has decreased from Q1Q2 to Q3Q4 units but this comes with allocative inefficiency of domestic producers producing units at a higher cost that foreign producers

What is multi-lateral aid?

- Aid channeled from international bodies such as the United Nations

What is bi-lateral aid?

- Aid from one country to another

how can aid help promote growth and development

- Aid provides temporary assistance to a country, such as humanitarian aid offered to countrues after conflicts or natural disasters. It helps them rebuilt therefore preventing a drop in growth and development e.g. rebuild hospitals to prevent fall in life expectacny or infant mortality - could be a grant for a project that a country might not have the funds for e.g. improving infrastructure which can make the country more productive

Reasons for change in trading patterns

- Changes in comparative advantage - the growth of trading blocs - the impact of emerging economies

What are the policy tools for a managed floating exchange rate

- Changes in interest rates: e.g. lower IR causes movements of 'hot money' banking flows out of country causing depreciation - Quantitative easing: increase liquidity in the banking system leading to lower interest rates, usually causing outflow of money - depreciation of the exchange rate - Direct buying/ selling in currency markets - Taxation of overseas currency deposits and capital controls: cuts the profit from hot money inflows into the country which reduces demand - depreciation in exchange rate

What are the 3 parts of the UK's balance of payments

- Current Account - Capital Account - Financial Account

What is the Prebisch-Singer Hypothesis? and how does it relate to why primary product dependency is bad

- Demand for primary products is income inelastic - as incomes rise, demand changes very little. However demand for manufactured goods is more income elastic meaning as incomes rise, demand for these goods rises quickly. This will usually lead to large increases in price - as the price of manufactured goods increases, countries exporting mainly primary products will find they're able to import fewer manufactured goods for a given level of exports

what are the disadvantages of joining a currency union

- Despite less red tape, labour mobility is still limited across Europe due to language barriers and the differences in economic performances between member countries means a common monetary policy might not be effective - the exchange rate is not flexible to meet each country's needs, such as if they need a boost in exports - the one off costs of joining a currency union of changing labels and prices can be significant

How does trade impact dynamic efficiency

- Economies open to trade may see more innovative businesses who invest more in research and development and also in human capital of their workforce to raise labour productivity

what is humanitarian aid

- Emergency disaster relief, food aid, refugee relief and disaster preparedness. - It is likely that donor countrys/ bodies will not expect to see an return on this aid

What are the consequences of globalisation for the environment

- Environmental degradation has resulted from globalisation as international trade has led to an increase in the international transportation of goods which means more fossil fuels are used up, contributing to climate change and resource depletion. (tragedy of the commons) - carbon emissions are also increased by rising production levels of manufactured goods to meet rising global demand - increased deforestation from logging for wood and the clearing of factories for factories and farmlands

What is the reasoning behind the J curve effect

- Export demand will be inelastic in response to the exchange rate change as it takes time for export businesses to increase their sales following a fall in price e.g. customers may not realise price has fallen - Initially, the quantity of imports bought will remain steady e.g takes time to find new supplies or tied up in contracts

What are the benefits of MNC's

- FDI by MNC's create new jobs and bring new skills and wealth to an economy. MNC's also buy local goods and services, leading to inflows of foreign currency - higher tax revenue can be generates for a country through profits generates, incomes earned and extra spending

How does the promotion of FDI improve growth and development

- FDI can help create employment, encourage the innovation of technology and help promote long term, sustainable growth - It provides LEDC's with the funds to invest and develop

What is the main characteristics of the Single European Market

- Free Trade in Goods: businesses can sell their products anywhere in the EU member states and consumers can buy where they want with no penalty - Mobility of Labour: Citizens of EU states can live, study and work in other EU countries - Free movement of capital: financial capital can flow freely between member states and EU citizens can use financial services such as insurance in any EU state - Free trade in services: services such as pensions, architectural services, telecoms and advertising can be offered in any EU member state

What are the three different types of exchange rates

- Free floating - Managed - Floating - Fixed

How does trade encourage innovation

- Free trade implies competition which provides a powerful incentive to innovate resulting in new goods and services being put on the market, but firms also compete to find production methods which cut costs and improve the quality and reliability of goods and services - North Korea highlights the benefits of trade for innovation as its isolation meant that its economy has stagnated as on their own they do not have the incentive to keep pace with innovation

What are the consequences of globalisation for consumers

- Globalisation leads to a general increase in world GDP, which increases consumer living standards and helps lift people out of absolute poverty - consumers take advantage of a wider ranger of goods and services become of their increased availability of goods and services. - Globalisation is leading to a fall in the price of some goods and services because production is being switched from high-cost locations to low-cost locations. meaning consumers benefit from lower cost of living - Globalisation os leading to a rise in prices in some goods and services and it is increasing average world incomes. higher incomes means higher demand for individual products where supply is perfectly elastic

why is protecting product standards a reason for protectionism

- Government may impose product safety or environmental standards on imported goods to protect domestic consumers and to ensure that standards of products entering the country match those of domestic products. - as long as such protectionism is not discriminatory, this is allowed by the WTO

why is there higher rates of GDP growth with free trade

- Greater market size and specialisation means higher export potential and revenue generated from exports for countries with larger comparative advantages. - As (X-M) is a component of AD, assuming M expenditure doesn't increase by more than X, AD will increased thus economic growth

What are the main characteristics of globalisation

- Greater trade, in goods and services between countries - increasing levels of international labour migration - increasing transfers of capital (money) between countries through FDI and Portfolio investment - increasing connectivity of people and businesses through mobile and wifi networks - Rising number of global brands - the availability of technology and intellectual capital (knowledge) to be used on an international scale). - increased regional specialisation and division of labour i.e components come from many nations - greater use of outsourcing/offshoring

What are the disadvantages of micro-finance schemes

- High interest rates - low success rates for small businesses e.g. In Tamil Nadu, India less that 2% of microfinances were still operating 5 years after their establishment

What does an expenditure reducing policy include

- High taxation: reduces real disposable income - Lower Government expenditure: - Higher Interest rates: increases cost of borrowing to fund high value overseas purchases

What is the impact of a currency depreciation on the macroeconomic inflation objective

- Higher import prices for raw materials may result in firms increasing the price of goods to protect profit margins. - May help a country avoid deflation. - Higher demand for exports may put upward pressure on prices (demand pull) in there is a lack of spare capacity in the economy - higher inflation threatens real living standards, especially for groups with weak bargaining power in the labour market who are unable to bid for higher wages

What are the economic problems of a trade Surplus

- If GDP is close to full capacity a rise in trade surplus might cause demand pull inflation - Persistent trade surpluses might lead to threat of protectionism from trade deficit nations - If surplus is due to high saving/ low consumption, living standards might be too low - surplus might be the result of exporting high priced commodities - prices are volatile/ unpredictable.

How does interest rates influence the value of currency in a floating exchange rate system

- If a country as a relatively high interest rates can expect to see 'hot money' as foreign investors want to advantage offer higher rates of return. This increases demand for the pound causing a rise in the value of the currency

How does volatile global prices influence the balance of payments

- If a country who is an exporter of primary commodities experience an increase in prices, it could result in a fall in demand as now less price competitive - If a country who imports primary commodities are faced with higher commodity prices, they could be faced with an increase in the value of imports if they are forced to pay the high price if there is no other alternative.

show and explain the impact of quotas on a diagram

- If an import has been imposed on Q1Q3 units. domestic producers will produce q1 units at Pw with foreign producers supplying part of the excess demand up until the quota of Q1Q2 units - the excess demand has not been satisfied at Pw; Q3q2 excess demand remains putting pressure on domestic supplies causing the price to rise to ration the excess demand. - with no more imports allowed into the country, the higher price incentivises more domestic firms to enter which shifts the domestic supply to the right from SD to SD+ quota. - the price settles at the new supply curve meets demand at Pquota

How does comparative advantage/ trade benefit trade and output

- If both countries were to specialise and trade goods rather than produce it themselves, according to their comparative advantage, radio output will be at 12 whilst cooler output will be at 48

How does price competitiveness influence the current account balance.

- If countries have higher prices that other countries it is likely that they will see a reduction in exports as people from other countries will seek cheaper alternatives. - If countries have low prices for their goods and services it is likely that will export price levels as consumers from foreign countries will seek the lowest price possible.

What are some of the issues with expenditure switching policies

- If large amounts of raw materials are imported this may cause cost push inflation which may result in exports less price competitive - imposition of tariffs may risk retaliation from other countries. - devaluation of currency leading to improved current account position is very much dependent on PED.

What are the various protectionist policies

- Import tariffs - Import quotas - subsidies - embargoes - reducing the value of currencies - imposition of tight standards regulations

what are the main gains from attracting foreign direct investment

- Improved infrastructure - Higher capital intensity/capital deepening (more capital per worker which leads to higher productivity) - better training for local workers leading to improved human capital and less risk of structural unemployment - investment grows a country's export capacity - more competition in markets which then lower prices for consumers and increases their real incomes - creates new jobs leading to higher per capital incomes and increased household savings - FDI can promote a shift to higher productivity jobs and high value added institutions

what factors influence the value of a currency in a floating exchange rate system

- Interest rate - expectation/ speculation - trade balances - Foreign direct investment - inflation

Explain the theory of comparative advantage using a table

- Jamaica produces 12 coolers for every 6 radios they make. This means that to produce 1 unit of cooler it has an opportunity cost of 0.5 radios. - Norway produces 24 coolers for every 3 radios they make. This means that to produce 1 cooler it has an opportunity cost of 0.125 radios - This means that Norway has comparative advantage in the production of coolers as it has a lower opportunity cost - Jamaica has comparative advantage for radios. This is because it has a lower opportunity cost of 2 coolers as opposed to 8 in Norway.

What are the reasons for the UK's persistent trade deficit

- Low investment and productivity affecting price competitiveness ( 20% below average of rest of G7) - High income elasticity of demand for imported foods and services - Majority of British exports go to slower growing countries in Europe e.g. Ireland and Spain as well as the USA. Less successful in exporting to emerging nations where there is high

Why have increasing numbers and influence of MNC's contributed to increasing globalisation

- MNC's wishing to increase profits may invest in setting up a factory in a developing country where labour is cheaper resulting a higher Foreign Direct investment. to finance growth e.g. China and Malaysia

How does a Government maintain a fixed exchange rate coming under increasing upward pressure

- Manipulate currency reserves: The central bank could sell reserves of domestic currency and buy up reserves of foreign currency. This would increase supply of domestic currency in Forex and as a result of the increased supply it would be seen as less valuable as there is more of it available which will therefore push the prise of the domestic currency down relative to others - lowering interest rates: if interest rates fall, investors will move their money out of domestic financial institutions as they would no longer be getting high returns and so will move their money elsewhere. the 'hot money' out flow will increase the supply of domestic currency as well as demand lowering and so reduce its value resulting in a fall

How does a Government maintain a fixed exchange rate coming under increasing downward pressure

- Manipulate its currency reserves: the central bank will sell reserves of foreign currency and buy up domestic currency adding to domestic currency reserves. This will reduce supply for the domestic currency and as a result of it being in lower supply it will be seen as more valuable which will therefore push the price up relative to others - Increasing interest rates: as interest rates increase, investors looking for the best IR for their money are more likely to move their money into domestic banks which attracts 'hot money' inflows into the economy, increasing the demand for domestic currency and so increases its value back to fixed rate

How can primary product dependency limit growth and development

- Many countries depend on primary products e.g. Mining accounts for just over 60% of South Africa's exports -the volatility of commodity prices means that producers income and earnings from exports can change quickly. This uncertainly makes it difficult to plan and attract investment - in addition both supply and demand of primary products is likely inelastic which therefore means that the goods are vulnerable to big fluctuations in prices - relying of primary products is not sustainable since they could be over extracted and run out

Name the three countries with the lowest HDI values in 2020

- Niger: 0.394 - Central African republic: 0.397 - Chad: 0.398

Name the three countries with the highest HDI values in 2020

- Norway: 0.957 - Ireland: 0.955 - Switzerland : 0.955

Give an example of an infrastructure investment project in a developing country

- One belt road initiative: proposed by China to promote cooperation and connectivity between Eurasian and North African countries - the initiative will go through developing countries such as Afghanistan, Khazakhstan, Indonesia and Kenya - £44 billion was invested by China in Kenya's railway and was the most significant project since Kenyan Independence in 1963 - £43 b was invested by Chin in Pakistan into improvements of a hydro power station which helped generate 5.15kw/h - A £2.123m loan was given by Chinese companies to Brunie in order to build pipe lines so they can make use of their abundant oil and gas resources. the project produced 1000 tons of oil and gas which generated $100m and also created 300 jobs

What are Multi-National Corporations (MNC's)

- Organisations which own or control the production of goods and Services in multiple countries

What are the consequences of globalisation for individual countries

- Possibility of trade imbalances between countries e.g US runs a large current account deficit and China has a large current account surplus. This could create imbalances and inequalities in consumers and countries access to health, education and markets - within individual countries there could be income and wealth inequalities if the benefits and costs of globalisation are not evenly spread. e.g. China where the population in the rural and urban areas have vastly different levels of income and living standards - culture could spread across the globe. some may argue that this will weaken culture and that there has been a loss of cultural diversity due to global bands, however, others will argue that the spread of culture has been positive and helped improve their quality of life - can allow countries to produce the things they have a comparative advantage in leading to an improvement in efficiency and allocation of resources - can lead to economic dependency so this can lead to instability in economies e.g. if US economy goes into recession and reduces imports, this may cause European countries to go into recession too

What factors influence the current account balance

- Price competitiveness - exchange rate - economic position of trading partner countries - Commodity prices - level of consumer spending -

What are some of the reasons for low price competitiveness.

- Productivity: low productivity compared to other countries means less output is produced per factor input resulting in higher costs. - Inflation: If a countries inflation rate is higher than foreign inflation it means that the price of its goods and services is rising faster that those of goods and services produced overseas meaning their goods will become less price competitive. - lack of research and innovation: if countries don't innovate it means they won't be able to find new ways to lower their costs compared to a country who does.

What is the impact of a currency appreciation on the price of imports and exports

- Strong Pound: imports cheaper, exports dear (SPICED)

what are the disadvantages of debt relief

- There is a risk of moral hazard as governments will spend and borrow more knowing that it would be likely that some of their debt would be written off in the future - debt cancellation can be used by a donor country as a way to secure influence in the recipient country

What are the aspects of the Current account on the balance of payments

- Trade Balance in goods - Trade in services - Primary income (Investment and employment income) - Secondary income (Transfers)

What is the impact of a currency depreciation of price of imports and exports

- Weak Pound: Imports dear, exports Cheap (WIDEC)

what happens to consumer surplus with export subsidies

- While consumer surplus does not decrease as the price in the market remains at Pw, consumers are likely to suffer from higher taxes in the future to fund this subsidy.

Why is there large economies of scale with free trade

- With a large international market to access, business have to potential to grow larger and sell to many more consumers all around the world - with increased output, businesses will be able to exploit economies of scale and lower their average cost of production which increased productive efficiency - lower costs translate to higher profitability and potentially lower prices for the consumer

How does trade liberalisation improve growth and development

- World GDP can be increased using free trade, since output increases when countries specialise. Therefore, living standards might increase and there could be more economic growth

how can a foreign currency gap limit growth and development

- a consequence of the gap is that a nation does not have enough foreign currency to pay for essential imports such as medicines, food and critical raw materials and replacement components parts for machinery - as a result , SR economic growth can be limited and also hurt development outcomes

What is comparative advantage?

- a country has a comparative advantage in the production of a product if it can be produced at a lower opportunity cost than in another country

What does the J curve observation and show the graph

- a depreciation in currency may worsen the current account in the short term.

What is a customs union?

- a form of economic integration and cooperation between two or more countries which are more closely integrated than a free trade area but are not as closely integrates as a single or common market

why is the success of a depreciation/ devaluation of the exchange rate dependent on the size of the depreciation

- a large depreciation is likely to increase the demand for exports significantly as a large drop in the price of exports will sway foreign firms and consumers to purchase exports that have dropped by a greater margin and have become more competitive relative to other countries

what is the impact of a currency depreciation on unemployment

- a more price competitive currency will help increase domestic production which will stimulate jobs

What are the economic problems of a trade deficit

- a persistent trade deficit on the current account not matched by a surplus on the capital and financial account balances will lead to a fall in the Government foreign currency reserves. This will run out and the Government will be forced to borrow which may involve increased Interest rates or special terms in order to attract borrowed funds. - Loss of aggregate demand which causes slower real GDP growth and reduced living standards.

What is the impact of a currency depreciation on the macroeconomic objective of economic growth

- a weaker currency typically results in higher net exports and therefore GDP growth, however this will depend of the price elasticity of demand for exports

How does trade reduce prices

- additional markets allow for firms to exploit more economies of scale and the increased competition and contestability of markets reduces prices for consumers

why is there easier trading for businesses with a fixed exchange rate

- allows for businesses to plan for investment, because they know that they will not be affected by harsh fluctuations in the exchange rate leading to greater investment and subsequent growth

What are the benefits of trade

- allows for specialisation - increases market competition and choice - increased innovation. - reduced prices/costs

What are the criticisms of the world trading organisation

- allows rich countries to exploit developing countries workers, paying them low wages and poor condition which would be unacceptable in developed countries - forces poor countries to lower their barriers of trade whilst rich countries keep their barriers in place - destroying native cultures and ways of life and replacing it with a shallow, materialistic American way of life

how can the development of primary industries help improve growth and development

- although, the primary sector may not be as productive as other sectors, it a country depends too much on primary products it can be worth a country developing its agricultural sector if thats where it has a comparative advantage

How does the economic position of trading partner countries influence the balance of payments

- an economic downturn in a country in which the UK exports to will cause a worsening of the balance of payments as it is likely that there will be less demand for UK exports. - if one of the UK's trading partner countries is experience economic growth it is likely that the UK will experience increased demand for their exports as the people it their trading partner countries will import more due to increased income.

what are some examples of policies designed to attract FDI

- attractive rates of corporation tax - high quality critical infrastructure - flexible labour force + skilled workers - trade and investment agreements - soft loans/ tax reliefs

why can a floating exchange rate create uncertainly if volatile

- businesses planning for the future find it difficult to make accurate predictions about what their likely cost and revenue will be. As a result the level of risk and return of investment becomes harder to assess whic reduces the levels of investment - exporters and importers find it difficult to interpret short term vs long term changes in the exchange rate creating uncertainty and reduces volume of trade. - the consequence of both is reduced actual and potential growth for the economy

how can the development of human capital help improve growth and development

- by developing human capital, the skills base in the economy would improve. This would improve productivity and allow more advanced technology to be used, since workers will have the necessary skills - in less developed countries, although primary school enrolment has increased, secondary and tertiary enrolment is still low. By developing human capital, the country can move their production up the supply chain from primary products, to manufactured goods and services which can earn them more

what are the risks of competitive devaluation

- can be seen by other countries as a form of trade protectionism that invites some form of retaliatory action such as an import tariff.

How does a quota work

- can be used to divert demand for certain goods to domestic products by limiting the amount that can be imported

How can promoting tourism help improve growth and development

- can create thousands of jobs and help shift a developing country away from dependency on primary products - it helps to diversify the economy and could make the country more attractive to FDI, as well as developunbg infrastructure - the structure of the economy is likely already suited for tourism and so requires little transition as tourism tends to require low technology and labour intensive work

what are the disadvantages of a floating exchange rate

- can create uncertainty if volatile - may worsen inflation

Why may trade cause increased unemployment

- changes in demand for exports can lead to unemployment e.g. Parts of the UK suffered structural unemployment in the late 20th century as primary and manufacturing industries shrank in size due reduces domestic and export demand as a result of the lower prices in low cost countries and reduced export demand

How does trade allow for specialisation

- comparative advantage shows that world output can be increased in countries that specialised in what they are relatively best at producing and trade rather than produce it themselves

How does trade impact allocative efficiency

- competition from lower-cost import sources drives market price down closer to marginal cost and then reduces the level of supernormal profits

How does economist Amartya Sen define economic development

- concerned with improving the freedoms and capabilities of the disadvantages, thereby enhancing the overall quality of life - she says developments allows them to free themselves from deep suffering caused by early/ premature mortality; persecution and intolerance; starvation/ malnutrition and illiteracy

How can supply side policies help improve the balance of payments position

- could help increase productivity with increased spending on education and training, which could result in the country becoming more internationally competitive due to reduced costs leading to a rise in exports. - policies such as deregulation and privatisation will force firms to lower their average costs resulting in more price competitive exports

Why does trade encourage over-dependence

- countries can become dependent on exports of one or two commodities, if the price of those commodities fall, or demand falls, these countries can experience large falls in GDP

How does the trade balance influence the value of currency

- countries that have strong trade and current account surpluses tend to see their currencies appreciate as money flows into the circular flow from exports of goods and services and from investment income

Why is there a likelihood of retaliation with protectionism

- countries will frown upon the fact that their exports and economy are made to suffer due to a trade deficit in a different country and not react kindly to protectionism imposed on them - retaliation would take place where protectionism is enacted back on the initial country's imports but much more strongly reducing the country's export revenue more so than the import revenue they have saved . - protectionism therefore can be argued to culminate in tit-for-tat

What is the single European Market

- creates in 1993 - meant that the EU became much more like a common market

What are some of the issues with an expenditure reducing policy

- deflationary policies reduce the rate of economic growth which may lead to higher cyclical unemployment - increasing rate of taxation may have the effect of damaging the work incentives within the labour market as some low paid workers may find themselves better off if they leave the labour market and claim benefits - high interest rates may increase the exchange rate, leading to lower volumes of exports which effectively cancels out the current account improvements that the policy set out to achieve

why is there higher unemployment rates with free trade

- demand for labour is derived from demand for goods and services. - therefore with more economic growth and higher export demand, firms will respond by hiring more labour

what is the impact of a currency depreciation on balance of trade

- dependent on price elasticities of demand for x&m, possible J curve effect in the short run

Why has trade in goods and services contributed to increasing globalisation

- developing countries are acquiring the capital equipment

What are the limitations of using HDI to measure economic development

- does not consider how free people are politically, their human rights, gender equality or people's cultural identity - does not take the environment into account as it could be argues that this should be included to focus on human development more e.g. high levels of pollution can have adverse affects on health - Does not consider the distribution of income, a country could have a high HDI but be very unequal. This can mean many people might still be in poverty

What are some evaluation points of imposing protectionism to protect against dumping

- dumping is difficult to prove as finding info in regards to cost of production and proving that products have been purposely sold at prices below cost is a real challenge. - if protectionist measures are imposed by a country due to perceived dumping, the accused country may feel wrongly targeted and retaliate heavily in return leading to tit for tat protectionism that benefits no one

How is HDI calculated

- each of the three measures us given a value between 0 and 1 (0 being low , 1 being high) - the average is taken of the 3 indicators to give an overall measure of development

what are the advantages of a fixed exchange rate

- easier trading for businesses

What are the functions of the EU

- encourages countries to lower protectionist barriers to increase trade - ensures that countries act according to various trade agreements

What are the drawbacks of trade

- encourages over-dependence - unemployment - increased risk - worsening of distribution of income - loss of culture - environment

why do critics say that fair trade schemes are insignificant in helping promote growth and development

- fair trade is simply a psychological influence on consumers in developed countries, who believe they are helping by buying fair trade goods. - Fair trade could distract from other policies and development and it could make producers not part of fair trade worse off. This is because it divides the market into fair trade and non-fair trade markets and could be argues as distorting price signals, fair trade is less efficient

What are the consequences of globalisation for producers

- firms operate in a more competitive environment, which encourages them to lower their average costs and become more efficient. - the spread of technology has resulted in firms being able to employ the most advanced machines and production methods - can benefit from economies of scale because markets become bigger when countries trade. - individual firms may be outcompetes by foreign firms and go out of business

What are the aspects of the Eurozone currency union

- floats against the pound sterling and the US dollar - member nations are required to control their government finances, so budget deficits cannot exceed 3% of GDP - Gross National Debt has to be below 6% of GDP - Inflation has to be below 1.5% of the three lowest inflation counytries - average government bond yield has to be below 2% of the yield of the countries with the lowest interest rate.

What is the Marshall- Lenner condition

- for a fall in the value of a currency to lead to an improvement in the balance of payments, the price elasticity of demand for imports plus the price elasticity of demand for exports must be greater than one. - i.e. PEDm + PEDx > 1

why is protecting against unemployment a argument for imposing protectionism

- for countries that lose their comparative advantage, deindustrialisation will be the end result leading to structural unemployment for workers that used to work in such industries - this imposes a large cost upon the Government who will lose a key macroeconomic objective, popularity and will be tasked with the difficult and financially costly job of having t retrain workers to make them more occupationally mobile - using protectionism can prevent this happening

What were the arguments for the UK leaving the EU

- greater threats to competitiveness of domestic businesses, especially those with lower wage costs in poorer EU countries - The financial contribution made to the EU budget was £9 billion a year - wages may be forces downwards due to competition from poorer countries - need to comply with rules and regulations, which may impose extra costs on businesses

why may a floating exchange rate worsen inflation

- if a country has a high relative inflation, this will make exports less competitive and imports cheaper. the ER will then fall with more supply of the currency than demand for it. - However this could increase demand pull inflation whilst also increasing import prices of components and raw materials which will push up cost push inflation

how can lack of education limit growth and development

- if children don't go to school, this can lead to further problems. Low educational standards are likely to mean a workforce thats less productive as they have less skilled human capital. - A less productive workforce will make it difficult t attract FDI. - it could also have a knock of affect of other aspects of living standards e.g. less doctors therefore impacting health care

How does absolute advantage work with specialisation

- if countries specialised in the products they have an absolute advantage in, then world production would increase - more output is produced using the same amount of resources and so cost per unit is reduced - if we allow trade, then each country can be made better off and the country can consume beyond its internal PPC

Why is the success of a depreciation/ devaluation of the exchange rate dependent on the severity of the restrictions of trade by foriegn governments

- if foreign governments have strict controls restricting the quantity of domestic exports entering the country, a fall in the exchange rate may do little to increase the overall revenue brought in by exports

why can protectionism be costly

- if money is borrowed for export subsidies, taxes in the future will have to rise and if indirect taxes go up to part fund this spending, these are regressive and can lead to a worsening of income inequality going against a major macroeconomic objective. - if the government funds these policies through cutting spending in other areas of the economy such as health care, once more the negative impacts will be suffered more by the poor

how does the absence of property rights limit growth and development

- if people' aren't sure they will be able to keep the land they have, then they may not invest in improvements to their homes, or in setting up businesses, This can harm development.

why is a fixed exchange rate vulnerable to speculation

- if speculators feel a fixed exchange rate is undervalued or overvalues, they may take advantage of this which could lead to a collapse and trigger an economic crisis

What are some evaluation points of imposing protectionism to protect against unemployment

- if the industry is already in decline than protectionism is only delaying the inevitable with costs of protection outweighing the benefits - it can be argued that despite the social costs of unemployment and the costs to the Government of increases in unemployment will be better to allow workers to become more occupationally mobile and transfer into other sectors where there employment is secure

What are some evaluation points of imposing protectionism to protect infant industries

- imposing protectionism for this reason may fail in th medium to long term due to complacency and protectionism dependency preventing costs of production decreasing enough to become competitive - developing countries may not have the international power to enact such imposing protectionism on developed countries. the reality of this taking place without damaging repercussions is unlikely

What does an expenditure switching policy include

- imposition of tariffs: makes imports more expensive for domestic consumers - devaluation of the exchange rate: make exports cheaper and imports more expensive.

how can debt relief can promote growth and development

- in developing countries, debt is considered to be a principal cause of poverty since it causes human suffering and misery and hampers development - with high levels of debt, financial resources are diverted from infrastructure, education and healthcare. - debt forgiveness can allow a country to import more and increase the populations living standards. It improves the governments finances so public services could be funded instead.

why is raising Government revenue a reason for protectionism

- in many developing countries, raising and collecting tax revenue is difficult whereas tariffs are much easier to collect and can substantially increase tax revenue for developing countries.

What are the benefits of free trade

- increase in world efficiency - large economies of scale - Increased competition and lower prices - increased choice for consumers and businesses - higher rates of GDP growth - higher employment

How does trade impact inefficiency

- intense competition in markets provide a discipline on businesses to keep their unit costs under control to remain price competitive and profitable

why is there a loss of monetary sovereignity with a fixed exchange rate

- interest rates cannot be used for domestic purposes and have to be kept at the same level as those in the economy whose currency the exchange rate is being fixed against.

How does trade increase choice

- international trade can give countries access to resources and products they otherwise wouldn't be able to use. - countries can export goods in order to import things they can't produce themselves e.g. the UK exports tea, rice and diamonds that it can't produce itself - consumer welfare is thus increased because some consumers at least will prefer to buy foreign goods rather than domestic goods.

how can a lack of disease limit growth and development

- it can result in lower productivity if people are unable to work, and put a strain on the country's health care system

How can corruption and civil war limit growth and development

- it can result in the country's resources being diverted away from their most productive use, so Governments and firms become less efficient - civil wars lead to large numbers of people killed or flee the country therefore reducing size of workforce; absolute poverty increase and infrastructure is damaged. Even after the war ends there would likely be capital flight and military spending remaining high. As a result it makes it harder for countries to compete internationally and attract FDI

How can using fair trade schemes help growth and development

- it ensures that farmers can receive a fair price for their goods which helps them since they have a guaranteed income and certainty about their sakes, so they can plan for the future - fair trade schemes also support community development and social projects as well as ensuring working conditions meet a minimum standard

how will micro finance schemes improve growth and development

- it increases incomes over those who receive the loan and could result in a multiplier effect from investment of the loan - it allows low earners to break away from aid and gives borrowers financial independence and detach the poor from high interest, exploitative loan sharks - they could help businesses to be set up and could stimulate employment

how can capital flight limit growth and development

- it results in a lack of domestic investment which makes economic growth more difficult to achieve - it also means that less tax revenue is collected which limits Government spending.

When did the UK join the EU and when did it leave

- joined in 1973 - votes to leave in 2016

why is there a large opportunity cost with a fixed exchange rate

- large reserves of foreign currency is needed for government intervention - holding large amounts of currency is extremely expensive and carries large opportunity cost leading to reduces expenditure in other areas of the economy

What are the arguments against Protectionism

- likelihood of retaliation - increased prices for consumers - goes against the aims and principles of the WTO - can be inflationary - worsen the world allocation of resources - very costly

what are the risks/drawbacks of using tourism to improve growth and development

- little revenue is retained for the country as its likely that travel agents and hotel owners will repatriate their profits. - Income from tourism is likely to be unstable, since it relies heavily on the business cycle in developed countries e.g. likely countries that rely on tourism saw a decline after financial crash - investing in tourism can be risky and expensive - locals could feel stigmatised by tourism, especially if they cannot afford the luxuries that the tourists have

what are the disadvantages of a fixed exchange rate

- loss of monetary sovereignity - large opportunity cost - vulnerable to speculation

what are the common characteristics of a less economically developed country

- low life expectancy - high infant mortality rates - high dependency ratio - low GDP - Fast population growth - Low levels of education - poor nutrition, lack of access to clean and sage drinking water and a lack of sanitation - poor of absent health care provision

what is the impact of a currency depreciation on FDI

- makes a country's FDI assets (investments abroad that are denominated in foreign currency) appear more valuable when converted into the domestic currency. - - Likewise FDI liabilities appear less valuable to overseas investors which reduces inwards FDI

How has the UK pattern of trade changed

- manufactured goods have steadily declined relative to both exports of services and to the imports of manufacturers. - exports of services has increased in importance for the UK economy - decline in trade with commonwealth/former empire countries - increased trade with EU, USA and emerging countries

How does the Human Poverty index measure economic development

- measures life expectancy, education and the ability of citizens to meet basic needs. - There are two types; HPI - 1 (measures poverty in developing countries) and HPI-2 (Measures poverty in developed countries)

What is the Gender- Related development index

- measures the relative inequality between men and women - it combines HDI with a consideration of Gender

why is being a partial automatic correction for a trade balance an advantage of the foreign exchange rate

- offer a degree of adjustment when the balance of payments is in a fundamental disequilibrium e.g. large trade deficit puts downward pressure on the exchange rate which should help boost export revenue and reduce demand and thus expenditure on imports which self rectifies the trade deficit. - once more a large trade surplus puts upward pressure on the exchange rate which will reduce export revenue and increase import expenditure, reducing the surplus back to balance

why does protectionism go against the aims and principles of the WTO

- one of the core rules of the WTO is for member nations to only impose protectionist measures approved by the WTO, which are fair and consistent. - breaking rules using tariffs to reduce current account deficits will either lead to a heavy fine being imposed or the WTO allowing trading partner countries to impose stricter, legal retaliatory protectionism back

What are the advantages of joining a currency union

- participating countries have more currency stability and the currency is less prone to speculative shocks. This gives future markets certainty so there is more investment and growth potential - fewer admin fees and less red tape when traveling abroad or exchanging money - For eurozone members, the German monetary credibility might result in all members having a lower interest rate which encourages more investment and spending which might create more jobs

What is an expenditure switching policy

- policies to encourage a switch away from imports and to encourage a growth in exports

What is an expenditure reducing policy

- policies to improve the current account balance by reducing spending in the economy (reducing the amount spent on imports)

How does the level and quality of infrastructure affect growth and development

- poor infrastructure makes it difficult for a country's economy to grow or be internationally competitive e.g. in energy supplies were unreliable, then firms and factories won't operate efficiently - poor infrastructure also makes it very difficult to attract foreign investment meaning development of infrastructure can help solve these problems which will likely result in economic growth

how does poor infrastructure limit growth and development

- poor infrastructure makes it difficult for a developing country's economy to grow or be internationally competitive e.g. if energy supplies are unreliable, then firms and factories won't be able to operate efficiently - poor infrastructure can also make it very difficult to attract foreign direct investment

why is changes in comparative advantage a reason for changes in trading patterns

- previously developed countries had comparative advantage of manufactured goods but increased globalisation has seen the growth of industries in low-cost countries which meant that they know how comparative advantage in this sector - more developed countries have seen their comparative advantage shift from older industries towards services and higher tech knowledge industries

What are the arguments for protectionism/the costs of trade

- protection of infant industry - protect against dumping - protect against unemployment - to protect product standards - to compete with low cost labour abroad - to promote economic growth - to raise Government revenue

how can protectionism help improve growth and development

- protectionism can help reduce a trade deficit. This is because they will be importing less due to tariffs and quotas on imports - it can protect infant industries, which are relatively new and need support. Protectionism is usually short term until the industry develops, at which point the industry can trade freely

why can protectionism be inflationary

- protectionism promotes more domestic production when domestic producers do not necessarily have the comparative advantage. - As a result more resources will be going to such producers because they are less efficient compared to more efficient foreign producers. Consequently, comparative advantage is distorted with resources being misallocated leading to allocative inefficiency

why does protectionism increase prices

- protectionism such as tariffs will increase prices for consumer and create a deadweight loss of consumer surplus. - this is because a tariff is a tax on imports which increases the price of imported gods and therefore be argued as being regressive

why is eliminating the current account deficit a reason for protectionism

- protectionist policies will either increase the price of imported goods or block imports from entering the country thus reducing expenditure on imports which ceteris paribus will improve the trade balance of the current account. - as net exports will increase, with improvements in the current account position in the AD equation this will boost actual growth

What are the advantages of a floating exchange rate

- reduces need for currency reserves - freedom for domestic monetary policy - partial automatic correction for a trade imbalance - reduced risk of currency speculation

why has containerisation contributed to increasing globalisation

- resulted in it becoming cheaper to ship goods across the world causing prices to fall which helps make the market more competitive.

what is an appreciation in the exchange rate

- rise in the value of a currency in a floating exchange rate system

what are the main risks of attracting foreign direct investment

- risk of inequality as the profits from FDI flow disproportionately to powerful elites - many global corporations use tax avoidance techniques to increase their profits leading to reduces Gov revenue - Ethical standards from TNC's may be poor - Limited job creation effects/ small spillover for local suppliers - Monopsony and monopoly power of TNCs who set low wages and high prices

What are some other features of customs unions

- safety measures for imported goods such as for food are common across all members - common custom rules and procedures - common trade policy to create and guide trading relationships with countries and blocs outside the customs union

what is the impact of a currency depreciation on business investment

- should help improve business profitability making more money available for investment as a fall in the external value of the £ increases overseas earnings of UK plcs in US dollars and Euros

What are the consequences of globalisation for Governments

- some Governments might lose their sovereignity due to the increase in international treaties. Individual states would find it hard to resist the force on them and if countries become members of organisations they will have to abide by their rules - increased growth and employment helps governments to achieve two of their macroeconomic objectives. - increase in GDP as increased efficiency means firms can increase output - specialisation can lead to overreliance on a few industries by an economy which is risky e.g. UK Staples in the 1920s.

What are the drawbacks on MNC's

- some argue that MNC's exploit workers in developing countries by paying them lower wages than in developed countries - the effect on unemployment levels may no be as significant as hopes as MNC's will bring skilled labour from developed economies and will recruit workers only for less skilled jobs - property rights and other regulations are usually less clear in less developed countries and MNC's can exploit this by depleting natural resources and not producing output in a clean way. - tax revenue may not be as significant as profits can be transferred around the business to ensure that taxes are paid only in economies with low rates of tax e.g. Google and Air BnB have their European headquarters in Ireland due to it being a low taxing country

what are the drawbacks of aid

- some people claim that aid leads to a dependency culture, meaning that countries start to count on receiving aid indefinitely, instead of developing their own economies - aid can be missused by corrupt agreements, meaning money doesn't help the people it was meant to help - dumping physical goods as a form of aid e.g. mosquito nets or medical supplies means private firms cannot compete and are forced our of business

How does trade impact Productive efficiency

- specialising and selling in larger markets encourages increased returns to scale and economies of scale which lowers the long run costs of production

why is freedom for domestic monetary policy an advantage of the floating exchange rate

- the absence of exchange rate targets allows interest rates to be set to meet domestic macroeconomic objectives such as growth or controlling inflation - this could not happen under a fixed exchange rate as changes to IR would lead to the fixed rate not being maintained

Why is trade liberalisation a factor contributing to increasing globalisation

- the growing strength and influence of organisations such as the World Trade Organisation which advocates for free trade, has contributed to the decline in trade barriers making foreign trade more worthwhile

why is the growth of trading blocs contributed to the change in trading patterns

- the growth of trading blocs has resulting in increased trade between these members - e.g. the EU as a bloc is the UK's largest trading partner accounting for 42% of UK exports and 50% of imports

why may trade worsen the environment

- the increased transportation of goods can increase carbon emissions therefore contributing to climate change - possibility of tragedy of the commons with increased resource depletion e.g. deforestation to make wood or make room for factories

How is HPI - 1 calculated

- the probability of living to the age of 40 - the adult literacy rate - the percentage of underweight children and the percentage of people not using improved water sources

How is HPI-2 Calculated

- the probability of not surviving to at least 60 - the percentage of adults which do not have literacy skills - the percentage of people living below the poverty line

why is the growth of emerging economies contributed to changes in trading patterns

- the rise of countries such as China,India and other emerging countries ha resulted in developing countries doing more trade with these countri es - e.g. Trade with China now accounts for 10% if UK imports compared with 2% in 1999 and its the UK's third largest source of imports

Why has communications and IT contributed to increasing globalisation?

- the spread of IT has resulted in it becoming easier and cheaper to communicate, which has led to the world being more interconnected. - there are better transport links and the transfer of information has been made easier

What are the limitations and unrealistic assumptions of the theory of comparative advantage

- the theory assumes perfect competition which in reality this is likely to be different which results in the full benefit of specialisation not happening as it could lead to structural unemployment, since workers might not gain the transferable skills they need to change between sectors. - does not consider the exchange rate when looking at the costs for both countries. therefore if the price of one good increases, it is more worthwhile producing that good, even if the country has a comparative advantage in the other good. - comparative advantage is derived from a simple model with two countries the global trade market is significantly more complex than this - countries do not only produce a handful of goods and services like the theory suggests. Rather a wide variety of goods and services are produced with very little specialisation.

why is reduced need for currency reserve an advantage of the floating exchange rate

- there is no exchange rate target so there is little requirement for the central bank to hold large scale reserves of foreign currency for intervention. - holding large amounts of currency is extremely expensive and carries large opportunity cost and so saving on this expense can allow for greater expenditure in other areas

how does the promoting joint ventures with global companies help improve growth and development

- they allow the firm to participate in international trade, without the responsibilities involved of it. This can help technological knowledge be transferred and can help improve and develop small companies is less developed countries - joint ventures open up a new market for small firms, so they can distribute their products to customers. This saves them time and funds and spreads the risk, which is important in industries where developing a product is expensive

why may trade worsen distribution of income

- trade can lead to less equal distribution of income e.g. if the benefits mainly go to other countries than a country may find itself less well off or the benefits of trade may go mainly to rich elites within a country and the poor may end up worse off

What are some evaluation points of imposing protectionism to compete with low cost labour abroad

- using protectionism for this reason will significantly worsen the trade allocation of resources as it promotes more inefficient domestic production which as a result will mean more resources will be going to such producers because they are less efficient compared to more efficient foreign producers where the comparative advantage lies

What are some evaluation points of imposing protectionism to eliminate the current account deficit

- using protectionism to close a trade deficit runs the risk of retaliation of trading partners as countries will frown upon the fact that their countries economy is made to suffer due to a trade deficit in a different country.

What are some evaluation points of imposing protectionism to protect product standards

- valid as long as there is scientific evidence backing it up; often there isn't and for the countries that suffer from protectionism they may feel hard done by and retaliate - the extra costs to meet standards e.g. extra fertiliser or high standard machinery will be significantly high and it may be difficult for those in developing countries to meet these costs, damaging their livelihoods and harming developmental progress

What is a managed floating exchange rate and give examples

- when the central bank may choose to intervene in the foreign exchange markets to affect the value of a currency to meet specific macroeconomic objectives - Kenya, Japan and Mexico all have a managed floating exchange rate

why is protection against dumping a reason for protectionism

- where countries feel as though products from abroad are being dumped in their markets, protectionism is likely to be imposed. - this is because dumped products will be artificially far more competitive than home products leading to industry decline, structural unemployment and anger against the Government if no action is taken

why is the ability to compete with low cost labour abroad a reason for protectionism

- where imports are coming in from a country with low cost labour advantages, a government who finds such advantages unfair may impose protectionism - developed countries will argue that protection of domestic workers with minimum wage laws and strong workers rights is important and whilst this increases costs of production it should not be the dominant reason why exports are uncompetitive compared to countries who don't protect workers in such a way

What is a free floating exchange rate and give examples

- where the external value of a currency depends wholly on market forces of supply and demand i.e. there is no central bank intervention - The UK, Canada and Norway all have free floating exchange rates

What are some evaluation points of imposing protectionism to raise Government finance

- whilst tax revenue will increase when tariffs are imposed, consumers will have to pay a higher price for the imported goods reducing their consumer surplus and potentially burdening the poor depending on which products are subject to tariffs - if demand and supply for the product in question is price elastic, the quantity of imports entering the country will fall substantially thus the tariff revenue will be lower than theory suggests

What were the arguments for the UK remaining as part of the EU

- wider choice for consumer who are presented with a greater variety of goods and should benefit from more price competition - potential economies of scale gained by selling to many more people - the benefits of being able to buy products tariff free which would no be possible if not a member of the EU - some argue that firms would relocate to one of the EU's remaining members if the UK was no longer a member. There could - the UK does much of its trading with other EU countries such as Germany, leaving the EU would risk loosing some of this trade and as a result less money injected into the UK economy

Why is there increased competition and lower prices with free trade

- with larger market access, competition becomes global as opposed to local with producers doing whatever they can to stay ahead of rivals - this leads to allocative efficiency and great benefit to the consumer in the form of lower prices, higher quantity, higher quality and greater choice in order to stay competitive - Businesses may also be forced to re-invest and be innovative whereby consumers benefit from accessing the latest technology and a more diverse product range

Show a free trade diagram

- without any foreign trade the equilibrium price and quantity in the market will be at P1 Q1. - if the Government opens up the economy for free trade, the price will decrease to Pw. The supply curve is horizontal at this price as supplies can supply this small domestic market without needing to increase the price to incentivise greater production - at this lower price domestic supply contracts to Q2 and domestic demand extends to Q3 causing an excess demand for products in the domestic market. - as there are no restrictions on imports, excess demand is satisfied by imports of quantity Q2Q3 - consumers now purchase q1q3 more units and at a lower price increasing their consumer surplus

what are the consequences of globalisation for workers

- workers benefit from increased job opportunities as globalisation has made it increasingly easier to take job opportunities across the globe rather than just in their home country - Workers can be left structurally unemployed if industries move abroad to take advantage of lower production costs - Working for a MNC in a lower labour cost country may run the risk of being exploited and working in poor working conditions however working for an MNC might also provide you with a higher, more stable income than any alternative.

why is there a reduced risk of currency speculation with a floating exchange rate

-often in currency markets, speculators target a fixed exchange rate as they believe it to be over or under values but under floating exchange rate systems this risk is minimal as in theory PPP is reflected by the exchange rate - the consequence is less likelihood of a speculative attack and thus an exchange rate this is unlikely to collapse and trigger economic crisis

Why is there increased world efficiency with free trade

-with greater free trade and specialisation, resources are allocated where countries have their comparative advantage. - as a consequence allocative efficiency is attained and with money to act as means or exchange. - the basic economic problem is solved maximising net benefit to both consumers and producers

what are the components of the HDI

1. Level of Knowledge: this includes the mean years of schooling and expected years of schooling 2. Long and Healthy life: life expectancy calculated 3. A decent standard of living: gross national income per capital adjusted to PPP

What does Michael Todaro specify as the three objectives of economic development

1. Life sustaining goods and services such as food, shelter, health and protection 2. Higher incomes: to raise levels of living, including provision of more jobs, better education and greater attention to cultural and human values 3. freedom to make economic and social choices

what are the UK's top ten exports

1. Precious Metal production 2. Aircraft, engine and parts manufacturing 3. Motor vehicle manufacturing 4. Pharmaceutical Preparations 5. Petroleum Refining 6. Crude Petroleum + Natural gas 7. Off-Road vehicle manufacturing 8. Jewellery Manufacturing 9. Clothing Manufacturing 10. Organic Basic chemic Manufacturing

As of 2020, what is the UK's HDI value and rank

13th: 0.932

What is a tariff

A tax on imported goods

what are some examples of countries that have had huge amounts of debt relief

As part of the UN's and IMF funds's debt relief under the heavily indebted poor countries initiative launched in 1996, 39 countries have had substantial debt forgiveness e.g. Cameroon and Haiti

What does Primary income include

Covers the flow of money in and out of the country resulting from employment or earlier investment e.g. deposits in foreign banks; salaries paid to UK residents working abroad and dividends from shares brought in foreign firms

what is an example of a currency union

Eurozone

What are export subsidies?

Export subsidies are paid to producers on top of the world price to incentivise producers to increase output of exports.

How does expectation/speculation influence the value of currency in a floating exchange rate

If people this the exchange rate will rise, they may decide to beat the price change by buying now. As there is now increased demand this causes a rise in the value

evidence which shows that manufactured exports has decline

In the 1950s, the UK exported 3 times as much manufactured goods as it imported. Now the UK is a net importer of manufactured goods

What is debt relief?

Partial or total forgiveness of debt

What is an example of using a country using tourism to help economic development

Sri Lanka is trying to develop its tourism industry by building more hotels. It is expected that $1 billion of revenue could be made.

What is an examples of a customs union

The European Union

What is project Aid

The direct financing of projects for a donor country

What is Globalisation

The ever increasing intergration of the world's local, regional and national economies into a single international market

What does secondary income include

The movement of money between countries which aren't paying for goods and services and aren't the result of investment e.g. payments to family members abroad and aid to or recieved from foreign countries

What does a current account surplus mean

Value of goods and services exported exceeds the value of goods and services imported

What is a competitive devaluation

When a country deliberately intervenes to drive down the value of their currency to provide a competitive lift in demand, output and jobs in their export industries.

What is absolute advantage

a country has absolute advantage in the production of a product if it can be produced for a lower cost that in another country

What is a common market

a customs union that establishes free trade in goods and services, a common external tariff and allow free movement on capital and labour across borders

what is a devaluation in the exchange rate

a fall in the value of a currency in a fixed exchange rate system

What is a depreciation in the exchange rate

a fall in the value of a currency in a floating exchange rate

what is a fixed exchange rate and give examples

a regime applied by a Government or central bank that ties the country's official currency exchange rate to another country's currency of the price of gold - Saudi Arabia, Hong Kong and Jamaica's currency are pegged to the US dollar

What are Quotas

a restriction on the number of a particular kind of import into an economy

what is an revaluation in the exchange rate

a rise in the value of a currency in a fixed exchange rate system

What is the United Nations Human Development Index

an attempt to describe people's welfare and a country's economic development in a way that goes beyond just looking at national income figures

How does foreign direct investment influence the value of currency in a floating exchange rate system

an economy that attracts high net inflows of capital investment from overseas will see an increase in currency demand and a rise in the exchange rate

what are micro-finance schemes

borrowing small amounts of money from lenders to finance enterprises

What is the foreign currency gap

exists when the country is not attracting sufficient capital flows to make up for a deficit in the capital account on the balance of payments.

what is technical assistance aid

funding of expertise of various types including engineering and medicine to promote development

what is a currency union

groups of economies that agree to adopt a common currency

What is protectionism?

implementing policies that will protect ab economy through restrictions on imports

Why is protection of an infant industry a reason for protectionism

in developing countries, Governments may impose protectionist measures to allow small industries that do not have the economies of scale to compete with companies in large industries in developed countries to grow and reduce prices and become more established abroad.

evidence which shows that the UK service industry has grown in importance

in the 1950s the value of exports of goods exceeded services by a factor of 3:1, now the ratio is 3:2 and the UK is now the 2nd largest exporter if services

What does the financial account include

includes the flows of financial capital into and out of the country including net foreign direct investment, portfolio investment and short term movements of capital (hot money).

what does the capital account include

includes transfers of non monetary and fixed assets such as Sale/Transfer of transferable contracts such as franchises and patents; debt forgiveness/Cancellation

What is economic growth

increase in the size of aa country's GDP

What is free trade?

international trade left to its natural course without tariffs, quotas, or other restrictions.

What is a soft loan

loans to less developed countries at a less than market interest rates or with favourable payback conditions

what is economic development

multidimensional concept which is believed to depend on a number of criteria being achieved such as income, availability of basic goods and services and freedom for individuals to make choices on a social and economic level

How does professor Ian Goldin define development

the ability to shape our own lives and requires information, literacy, participation and capabilities

What is foreign direct investment?

the flow of capital from one country to another, in order to gain a lasting interest in an enterprise in the foreign currency

What is an exchange rate

the rate at which one country's currency can be exchanged for other currencies in the foreign exchange market

What is dumping

the sale of a product in a overseas market at a price below cost of production often due to heavy subsidies or minimum price schemes generating excess supply.

What is containerisation

the use of uniformed-sized containers for transportation of goods

How do tariffs work?

these work by increasing the price of imported products relative to domestic output. This should lead to a contraction of demand and also encourage a switch to domestic substitutes

Why may trade increase risks

trade exposes countries to the risk of their economic health being dependent on the economy of others or other economic conditions. - e.g. supplies can be cut from foreign countries; demand for countries exports fall or a credit crisis which cuts the finance for a country

What does a current account deficit mean

value of goods and services imported exceeds the value of goods and services exported

what does it mean to a joint ventures

when a partnership is formed between 2 firms based in multiple countries

When may a country use competitive devaluation

when faced with a deflationary recession or perhaps to attract extra foreign investment

what is capital flight

when people start holding their savings abroad often as a result of high taxes of political instability


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