The International Economy

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  • The International Economy
    • Globalisation
      • Characteristics
        • Free trade without protectionism
      • Causes
        • Improved World Infrastructure
        • Creatin of Trading blocs and customs unions like SEM and the EU
        • More Technology
        • More Mobility
        • Growth of MNC's
      • Consequences for Developing countries
        • Find their comparative advantage more easily
        • Can trade easily with better world infrastructure
    • The EU
      • The Institutions
        • The European Commission
          • Does the day to day running of europe, like a cabinet, has a presidente named Borrosso
        • European Council of Ministers
        • European Parliament
          • Elections are every 5 years, next one this year. They sit as europeans, not British or French.
        • Europeand Centralk Bank
          • Only part of the Euro, is based in frankfuyrt and controls the monetary policy of the Euro
      • Free trade and Customs Union
        • Obviously free trade is law in the EU, there is no protection amongst EU countries
        • Th Customs union means members have to pay a tarrif to import goods from outside the EU
          • This makes it harder for foreign countries to find their comparative advantage
      • The Euro
        • Reasons for the Euro
          • SEM, the Single European Market, that allows free movement of all factors of prudction owuld be greatly helped if we joined the Euro
          • Four Cs
            • Competition, entrepreneurs will not be able to hide behind a devalued currency
            • Certainty, you will alwyas know you have partners in the EU you can sell to
            • Costs, are lowered as there woudl be no transaction costs
            • Convenience, it takes time to exchange money
          • PRice Transparency
            • It'd be easier to spot the comparative advantage of countries with in the EU
        • Reasons against the Euro
          • LOss of Monetary Sovereignty
            • One Size fits all problem
      • ENlargement of the EU
        • Mor emoney required to fund EU financing programmes
        • Another country to trade with
        • Find their comparative advantage easier
        • Throught the CET they may cut out other countries from trade
    • Trade
      • Comparative advantage
        • Where someone has the least opportunity cost
      • Absolute advantage
        • Where soemone is the best at producing something
      • Trade between developed and developing countries is important to help the developing country find it's comparative advantage and then further trade with the developed country to support the global economy
      • There are obvious implications for tarrifs and quoteas and other forms of protectionism., whilst they mayu help the original country they do damagaeto the rest of thw world and "somkescreen" prices making it harder for other countriies to find their comparative advantage.They also may the host's exports go down as the other countries wouldn't return trade to a country who doesn't accpet imports.
    • The Balance of Payments
      • Current Account
        • Trade in Goods, Trade in services, Inward and Outward investment
          • Inward investment is the money lost from foreign companies' profits going back overseas, whislt outward investments is the profit coming back from our assets abroad
      • Capital Account
        • Long term and Short Term investment
          • Long term comes from inward investment, and is the money gained through multipliers etc, from overseas investment
          • Short term investment is derived from speculators chasing "Hot Money".
      • IF you have a floating exchange rate, it self regulates as it's just the demand and supply for the pound.
    • Exchange Rate Systems
      • Floating exchange rate
        • Totally controlled by Supply and Demand, just like carrots
          • 4 things affect this
            • The BoP, if we have a urplus it means more people demand pounds and vice versa.
            • Inward investment, people who wish to invest in britain require pounds.
            • ~Interest Rates persuade people to put their money into british banks.
            • BEars and Bulls (SPeculators) who buy and sell currency
        • Benefits
          • Self adjusting, so a BoP Deficit will lead to a surplus through changing the value of the pound
        • You have a monetary policy to use when ever you like
      • Fixed Exchange Rate
        • Controlled only by your monetary policy and foreign reserves
        • Forcce your producers to be more productive in order to keep up teith the world (Price transparity)
          • However this all relies on you setting the rate correctly or it could either destroy entrepreneurs or not make them work at all
        • creates cast iron certainty of what your goods cost abroad
        • It takes up your moentary policy, if you have little foreign reserves and you want to be manipulating your exchange rate you may have to use and expansionary policy with your interest rates at a time when you need a contractionary policy.
      • Adjustable peg
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