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  • Created by: durrah
  • Created on: 01-05-16 16:52
Balance of payment ?
a record of all economic transactions between resident of a country and the rest of the world in a particular period.
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Subsections of a Country's current account?
Trade in goods, trade in services, Income, Current transfer
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A current surplus arises when ?
when the value of a credit item exceeds the value of debit items.
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Cause of financial account deficit?
if the value of debit item is greater than the value of credit items.
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Consequence of financial account deficit?
when the investmet abroad in the year is greater than the foreign investment which has come into the country. this happens when domestic firms decide to set up in foeign countries because of lower tax rates, low cost of production, expanding markets.
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Difference between international trade and internal trade?
international trade is the exchange of goods and svc between countries, internal trade is trade within the country.
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difficulties arising when international trade happens?
differnce in culture, trade restrictions,competition can cuase some to become efficient or struggle, language.
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The factors that influence the country's export end import?
country's infaltion rate, country;s exchange rate,productivity, quality, marketing, domestic gdp, foreign gdp, trade restrictions.
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Cause of a current account deficit?
income at home and abroad(cyclical deficit), high exchange rate(high export prices and low import prices, problem with the manufactured by the firms in the country,, cost incurred to produce them.
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consequence of a current account deficit ?
means the country is consuming more goods and services than what it it producing,out put and employment is low.
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causes of a current account surplus?
low exchange rate, high quality of domestically produced products, high income abroad, low cost production.
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advantage of a country specialising in a product ?
higher output, lower cost, spread ideas of technology, increase competition,
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disadvantage of a country specialising?
decrease in demand, supply problems, interdependency, trade restrictions.
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comaparative advantage in terms of international trade
is when a country can produce products at a lower opportunity costs.when 2 countries can benefit from international trade, even when one country is better at producing products than the other
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when does change happen in comparative advantage?
change happens as relative cost change.
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value of a fixed exchange rate.
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devaluation/ revaluation
devaluation- a change in the value of the currency from one exchange rate to a lower one/ revaluation- a rise ina fixed exchange rate.
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appreciation/ depreciation
appreciation- if demand for the currency rises or the supply decreases, the value of the currency rising/ depreciation- is a fall in the value of a floating exchange rate.
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explain the effect of a change in exchange rate on export and import prices
the price of exports rise in terms of foreign currency, the price of import falls in terms of domestic currency. if export prices rise fewer products will be sold.
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advantage and disadvantage of a fixed exchange rate
adv- creates certainty( firms that buy and sell products will know exact amount they will pay and recieve. disadv- goverment will have to use a large amount of it's foreign currency.
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advantange/ disadvantage of a floating exchange rate
avd- will help to eliminate a growing current account deficit, reducing export prices and raising import prices./ disadv- it can fluctuate, making it difficult for firms to plan ahead.
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exchange rate may change as a result of ?
a change in the current account balance, direct portfolio investment, speculation and goverment actions.
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2 ways a country's currency will rise?
increase in the current account surplus/ increase in investment in the country.
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3 ways a goverment and its agencies seek to influence the value of its currency?
buying and selling the currency/ introducing measures to increase exports and reduce imports/ central bank raising the rate of interest in a bid to raise the value of the currency.
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what measures can a goverment take to reduce current account deficit?
by reducing the value of its currency, to encourage domestic and foreign citizens to purchase products within the country/ employ expenditure reducing measures
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international competitiveness?
if it provides goods and services desired by consumers at a price acceptable to them. ways to measure competitiveness is share of world trader, level of expenditure on research and development, quantity, quality of education, training, infrastructure
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3 benefits of free trade ?
allows country to concentrate on what they arebest at producing, allowing efficient allocation of resources, sell freely to a global market, advantage of economies of scale, lower price for consumer, choice of product.
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free trade?
happens when there is no restrictions in the product bought by firms and consumers from aborad or imposition of taxes.
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protection of the country's industries from competition posed by other countries.
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methods a country may employ to protect their business
tariff, quota, embaargo, exchange control, quality standards, expensive paperworks.
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VERS /tariff/ quota/ embargo/ subsidies /
vers- voluntary export restraint(restricting the number of units of products sold by a country)/ tariff- tax on imported product/ embargo- complete ban on the import of product/
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reasons for protectionism?
protect infant industries/ protect declining industries/ protect strategic indutries/ raise employment and improve trade position/ protect industries from low wage competition/ from unfair foreign competition.
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a country's current account shows?
the income earned by acountryand the expenditure made by dealing with other countries.
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factors that influence the choice of trading partners of a country?
country producing good quality products at low prices, similar tastes and practices
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consequence of a currnt account surplus?
will increase economy's aggregate demand, leading to a rise in real gdp, higher emplyment,more money to the economy, will result in raising the exchange rate as well
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why is current account deficit arising from international competitiveness serious than one lasting a short time?
because it will not self-correct, if the production cost was high due to productivity or poor quality producr , there won't be a high world demand and deficit will continue, till goverment introduces supply side policy to improve trade performance.
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Other cards in this set

Card 2


Subsections of a Country's current account?


Trade in goods, trade in services, Income, Current transfer

Card 3


A current surplus arises when ?


Preview of the front of card 3

Card 4


Cause of financial account deficit?


Preview of the front of card 4

Card 5


Consequence of financial account deficit?


Preview of the front of card 5
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