A2 Economics OCR F585 Key Terms- Integration and Balance of Payments

Flash cards to help memorise key terms and definitions.

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  • Created by: E.A.B
  • Created on: 25-01-13 09:59
Balance of Payments
The record of economic and financial flows into and out of a country over a specific amount of time.
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Capital Account
The account that records long-term flow of capital into and out of an economy. It records purchases and sales of assets and compoprises of long-term capital flows and short-term capital flows.
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Thirwell's Law
The more inelastic your YED for imports, the higher the level of economic growth you can have whilst keeping your Balance of Payments in equilibrium.
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Marshall-Lerner Condition
For a depreciation of the currency to improve the balance of trade the sum of the price elasticities of demand (PEDs) for imports and exports must be greater than 1.
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Foreign Direct Investment (FDI)
Investment made by multinational corporations or other foreign bodies in a country other than that in which the company is based.
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Trade Diversion
Where economic integration results in trade switching from a low-cost supplier outside the economically integrated area to a less efficient source within the area.
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Trade Creation
Where economic integration results in high-cost domestic production being replaced by imports from a more efficient source within the economically integrated area.
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Free Trade Area (FTA)
Stage of Integration: Removal of tariffs & quotas but that is all. Causes "Trade Diversion"
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Customs Union
Stage Of Integration: Common external trade policy, usually common external tariffs. But within Europe Non-tariff barriers may still exist.
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Single Market
Stage Of Integration: No restrictions on movements of Labour & Capital, no Non-tariff Barriers (NTB). Often common policies such as employment law.
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Economic Union
Stage Of Integration: Centralising policies in some areas, usually through taxation.
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Monetary Union
Stage Of Integration: Common approach to monetary policy, and often a single currency. Leads to Central Bank and harmonised fiscal policy. Simplifies trade (no changing of currency), reduces transaction costs, easier to predict future.
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Positive Integration
Price Disparities are narrowed, as trade within the FTA is encouraged.
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Real Exchange Rates
An exchange rate calculated to take into account the inflation rates of the respective countries.
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Fixed Exchange Rates
An exchange rate system where one currency's value is permanently set against another country's currency.
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Floating Exchange Rates
An exchange rate system where the currency's value is determined by the forces of supply and demand.
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Revaluation of a Currency
In a fixed exchange rate system, when the value of a currency goes up.
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Devaluation of a Currency
In a fixed exchange rate system, when the value of a currency goes down.
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Depreciation of a Currency
In a floating exchange rate system, when there is a fall in the value of the currency.
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Appreciation of a Currency
In a floating exchange rate system, when there is a rise in the value of the currency.
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Other cards in this set

Card 2

Front

The account that records long-term flow of capital into and out of an economy. It records purchases and sales of assets and compoprises of long-term capital flows and short-term capital flows.

Back

Capital Account

Card 3

Front

The more inelastic your YED for imports, the higher the level of economic growth you can have whilst keeping your Balance of Payments in equilibrium.

Back

Preview of the back of card 3

Card 4

Front

For a depreciation of the currency to improve the balance of trade the sum of the price elasticities of demand (PEDs) for imports and exports must be greater than 1.

Back

Preview of the back of card 4

Card 5

Front

Investment made by multinational corporations or other foreign bodies in a country other than that in which the company is based.

Back

Preview of the back of card 5
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