gains from trade
improved allocative and productive efficiency (static), improved product quality from innovation (dynamic)
1 of 95
advantages of trading blocs
increased FDI, economies of scale, trade creation
2 of 95
disadvantages of trading blocs
inherent bias, interdependence, trade diversion
3 of 95
terms of trade
amount imports an economy can purchase per unit of exports
4 of 95
comparative advantage
lower opportunity cost, more productively efficient
5 of 95
assumptions behind comparative advantage
no import controls, factor mobility between industries
6 of 95
gains from globalisation
dilutes monopolies, dynamic gains from sharing ideas, improved business standards
7 of 95
drivers of globalisation
containerisation, technology, less protectionism, lower tax
8 of 95
disadvantages of globalisation
inequality, macroeconomic fragility, structural unemployment
9 of 95
why is world trade slowing down?
rise in NTB's, weak economic growth in developed countries
10 of 95
arguments for protectionism
job protection, improve BOP, protect fledgling industries
11 of 95
consequences of protectionism
retaliation, fall in consumer surplus, regressive effect on inc. inequality
12 of 95
causes of current account deficit
low levels of investment, higher inflation than trading partners, strong currency
13 of 95
consequences of current account deficit
loss of AD, weak GDP growth, capital flight
14 of 95
expenditure switching policies
changes relative price of imp. and exp. -e.g. exchange rate depreciation
15 of 95
expenditure reducing
lower real incomes which cuts demand for imp. -e.g. higher tax and interest rates
16 of 95
free-floating currency?
p= freedom to set monetary policy for objectives, n= volatility bad for investment, j-curve theory
17 of 95
fixed exchange rate?
p= investor confidence, controls inflation, n= needs sufficient reserves, reduced freedom
18 of 95
absolute poverty
when a household does not have sufficient income to sustain an acceptable standard of living
19 of 95
extreme poverty
less than $1.90 a day
20 of 95
relative poverty
income that is lower than the national median
21 of 95
causes of poverty
savings gap, corruption, debt, absence of property rights
22 of 95
consequences of poverty
misallocation of scarce resources, social/political unrest, low life expectancy
23 of 95
kuznets inequality curve
inequality rises during industrialisation, slows during tertiary development/ welfare provision/ tax
24 of 95
characteristics of developing nations
low export diversification, poor infrastructure, high tariffs, legal uncertainty
25 of 95
limitations of HDI
GNI doesn't take into account income distribution, no cultural identity or political freedom
26 of 95
harrod-domar model
higher savings (MPS) enables greater investment in capital stock and capital deepening
27 of 95
problems with primary commodity dependence
no value added, volatility
28 of 95
problems with human capital weaknesses
constrains labour productivity and technological development
29 of 95
brain-drain as a barrier to development
loss of entrepreneurship, skills shortages, fall in AD
30 of 95
prebisch-singer hypothesis
long-run= prices of primary goods decline in proportion to manufactured
31 of 95
policies to attract FDI
low corporate tax, critical infrastructure, allowed remittances
32 of 95
advantages of FDI
capital deepening, diversification, increased export capacity
33 of 95
risks of FDI
poor ethical standards, risk of capital flight
34 of 95
aims of Microfinance
overcome savings gap, poverty reduction, protect against income volatility, gender empowerment
35 of 95
criticisms of Microfinance
human capital investment more important, cannot compensate for infrastructure
36 of 95
safety net, reduces funeral burden, small-scale saving
37 of 95
evaluation of microcredit
high interest, forcible collection of debt, low success rate
38 of 95
benefits of tourism
labour intensive, foreign exchange earnings, accelerator on infrastructure investment
39 of 95
evaluation of tourism
exploitation, outflow of profits, negative externalities
40 of 95
benefits of fairtrade
reduces monopsony power, price stability, improve production standards
41 of 95
criticisms of fairtrade
cuts demand for non-covered farmers, doesn't address fundamental issues of poverty
42 of 95
external debt relief
measured by % of GNI, key issue= interest
43 of 95
evaluation of ODA
corruption, dependency culture, distorts free market
44 of 95
smart aid
experimentation & focus on bottom-up projects to increase effectiveness of every dollar given
45 of 95
examples of development without aid?
China & Vietnam
46 of 95
UN target for aid
0.7% of GNI
47 of 95
financial markets
where buyers and sellers can trade financial assets
48 of 95
narrow money
measure of the value of coins and notes in circulation and other equivalents that are easily converted to cash
49 of 95
broad money
measure of the total amount of money in the national economy
50 of 95
factors affecting money supply
quantitative easing, reserve requirement (% of deposits that must be kept in the bank), policy interest rate
51 of 95
retail banks
current/saving accounts, mortgages, insurance
52 of 95
commercial banks
deposit taking and lending, focused on business
53 of 95
investment banks
specialised services for companies/large investors= underwriting securities issues, advice on mergers and corporate restructuring, trading on capital markets
54 of 95
money market
short term loan finance for businesses and households, inter-bank lending, treasury bills (short-term loan for fiscal deficit)
55 of 95
capital market
securities (shares and bonds) are issued to raise medium-long term financing, long-term government bonds
56 of 95
currency market
trading currencies, no single market, speculative activity high
57 of 95
spot exchange rate
buying currency at the current exchange rate to be delivered immediately
58 of 95
forward exchange rate
buy currency at current exchange rate to be delivered in the future (importers, speculators)
59 of 95
objectives of commercial banks
profit- higher interest received compared to rate of return paid out
60 of 95
private banks
wealth management for high net worth individuals e.g Adam & Company
61 of 95
building societies
owned by members e.g. Nationwide
62 of 95
credit unions
small & local non-profit lending, owned by members, sub-prime loans e.g. London Mutual
63 of 95
challenger banks
banks attempting to establish themselves, challenges oligopoly through attractive prices/buy-to-let mortgage/online apps
64 of 95
barriers to entry in commercial banking
cost of establishment, customer loyalty, big banks seen as lower risk for investors
65 of 95
bank capital
value of the banks assets minus its liabilities
66 of 95
government bonds
fixed interest securities- known as a coupon
67 of 95
% of overall value which is received in interest
68 of 95
financial policy committee
identify threats to stability, instruct banks to change capital buffers (5% kept in reserves)
69 of 95
prudential regulation authority
focus on solvency (assets>debts) e.g. insurance providers, buy-to-let lenders, credit unions
70 of 95
financial conduct authority
consumer protection, protects integrity, promotes competition
71 of 95
causes of financial market failure
moral hazard, asymmetric information, speculation, externalities
72 of 95
incomplete markets
not enough supply to meet need and wants- 1.5million adults in UK do not have a bank account
73 of 95
instability in financial markets
low confidence, less trust in banks, inequality (low interest hits real income of savers)
74 of 95
systemic risk
possibility that a decision at micro-level could trigger severe instability in the economy (GFC)
75 of 95
ease and cost with which assets can be converted to cash and used immediately
76 of 95
capital ratio
funds in reserves vs. riskier assets it holds
77 of 95
leverage ratio
capital divided by exposures- indicator of ability to absorb losses
78 of 95
peer to peer lending
individual savers lend to borrowers
79 of 95
difference between government current and capital spending
current= providing public services (NHS salaries) , capital= public infrastructure (flood defence)
80 of 95
economic importance of govt. spending
component of AD, regional impact, provides merit goods, helps achieve greater equity
81 of 95
evaluation of lower corporation tax
depends on size, time lags between change and increased flow of investment, jobs losses through capital-labour subsitution
82 of 95
tax competition
when a government uses reforms to the tax system as a supply-side policy to create jobs + increase investment
83 of 95
arguments for low tax economies
encourages FDI, incentivises entrepreneurs, may increase total tax revenue (Laffer curve)
84 of 95
laffer curve
shows that an optimal tax rate is needed to maximise tax revenues- if tax is too high this could lead to greater evasion
85 of 95
evaluation of Laffer curve
supporters are often pushing for lower tax on high income earners, tax rates not only factor affecting work incentives
86 of 95
arguments against low tax economies
equity worsens, doesn't always lead to increased revenue, essential in funding public services
87 of 95
arguments for austerity
future taxes will be lower, high opportunity cost of debt interest, encourages private sector growth
88 of 95
arguments against austerity
infrastructure investment will increase LRAS, may worsen inequality
89 of 95
crowding out
growth of government spending may cause a transfer of scarce resource from private sector to less productive public sector
90 of 95
why is a fiscal stimulus less effective in expanding AD?
increase in public demand crowds out private demand, leaving output unchanged and higher prices
91 of 95
evaluation of crowding out
well targeted increase in spending can absorb under-utilised capacity, provide strong multiplier effect + generate extra tax revenue
92 of 95
fiscal multiplier
effect of a change in spending or tax revenue on GDP
93 of 95
when is the value of the multiplier high?
negative output gap, low MPS
94 of 95
what determines the size of the fiscal multiplier?
financial stress, availability of credit, openness of economy
95 of 95

Other cards in this set

Card 2


advantages of trading blocs


increased FDI, economies of scale, trade creation

Card 3


disadvantages of trading blocs


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Card 4


terms of trade


Preview of the front of card 4

Card 5


comparative advantage


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