Macroeconomics May Exam
5.0 / 5 based on 3 ratings
- Created by: chalky-nerd
- Created on: 26-03-21 18:25
What is GDP?
Gross domestic product, total value of goods and services produced in a country within a year
1 of 129
What is the difference between total GDP and GDP per capita?
Total GDP is overall GDP for the country
GDP per capita is total GDP divided by population
GDP per capita is total GDP divided by population
2 of 129
What are the problems with using GDP to compare standard of living?
Inaccuracy of data (black market)
Types of government spending that do not affect living standards (e.g defence)
Types of government spending that do not affect living standards (e.g defence)
3 of 129
What is the multiplier effect?
An increase in aggregate demand because of an increased injection can lead to a further increase in national income
4 of 129
What is the formula for the multiplier?
1/(MPS + MPT +MPM) = 1/(1-MPC)
5 of 129
What is a negative multiplier effect?
A withdrawal from the economy could lead to a further fall in income
6 of 129
What are the effect of the multiplier on the economy?
Economic growth occurs quicker
Impossible for government to know the exact effect of spending
Hysteresis - time lag
Impossible for government to know the exact effect of spending
Hysteresis - time lag
7 of 129
What is the role of the World Bank?
To bring about long term development and a reduction in poverty
8 of 129
What is the World Bank made up of?
- International Bank for Recontruction and Development IBRD
- International Development Association IDA
- International Finance Corporation IFC
- Multilateral Investement Guarantee Agency MIGA
- International Centre for Settle of Investment Disputes ICSID
- International Development Association IDA
- International Finance Corporation IFC
- Multilateral Investement Guarantee Agency MIGA
- International Centre for Settle of Investment Disputes ICSID
9 of 129
What do the IBRD and IDA do?
Provide financing, policy advice and technical assistance
IDA helps poorest countries
IBRD helps middle income countries
IDA helps poorest countries
IBRD helps middle income countries
10 of 129
What do the IFC, MIGA and ICSID do?
Help strengthen the private sector in developing countries
Providing finance, technical assistance, political risk insurance and settlement of disputes
Providing finance, technical assistance, political risk insurance and settlement of disputes
11 of 129
What is the role of the International Monetary Fund?
To ensure that exchange rate systems work well, to bring about economic stability and raise living standards
12 of 129
What do the IMF do?
Provide loans to countries with international exchange rate crises
Makes these countries make macroeconomic reforms - less M & more X, less G
Provide advice to help countries develop their economic institutions
Makes these countries make macroeconomic reforms - less M & more X, less G
Provide advice to help countries develop their economic institutions
13 of 129
What are NGOs?
Non-profit organisations that are run independently from the government
14 of 129
What do NGOs do?
Provide direct assistance to countries - project work, e.g education, wells, healthcare
Act as pressure groups to lobby governments to adopt more pro-development strategies
Act as pressure groups to lobby governments to adopt more pro-development strategies
15 of 129
What are the problems with NGOs?
They can never solve the problem alone - the government has to take action
Some see NGOs to have an anti-capitalist agenda
Some see NGOs to have an anti-capitalist agenda
16 of 129
What is an exchange rate?
Purchasing power of a currency in terms of what it can buy of other currencies
17 of 129
What is a floating exchange rate system?
Value of the currency is determined purely by market demand and supply of the currency
18 of 129
What is a managed exchange rate system?
Value of the currency is determined by demand and supply but the Central Bank will try to prevent large changes in the exchange rate on a day to day basis
19 of 129
How does the Central Bank try and prevent the exchange rate changing massively?
By buying and selling currency
By changing interest rates
By changing interest rates
20 of 129
What is a fixed exchange rate system?
When a government sets their currency against another and that exchange rate does not change
The government can decide to change the value whenever they like
The government can decide to change the value whenever they like
21 of 129
What is an appreciation and depreciation of a currency?
When a currency increases/decreases in value due to changes in supply and demand
22 of 129
What is a revaluation and devaluation of a currency?
When a currency increases/decreases in value due to changes implemented by the government / central bank
23 of 129
What are the factors affecting floating exchange rates?
Changes in demand and supply
Demand - exports, FDI into UK, hot money, holidays abroad
Supply - imports, FDI from UK, holidays in the UK
Demand - exports, FDI into UK, hot money, holidays abroad
Supply - imports, FDI from UK, holidays in the UK
24 of 129
How can the government intevene to change the value of their currency?
Change interest rates
Buy/sell gold and foreign currency reserves
Buy/sell gold and foreign currency reserves
25 of 129
How does changing interest rates change the value of a currency?
Interest rates are the reward for saving the currency
A change in interest rates will cause an inflow of hot money or a withdrawal of hot money
Changes supply and demand
Changes the value of the currency
A change in interest rates will cause an inflow of hot money or a withdrawal of hot money
Changes supply and demand
Changes the value of the currency
26 of 129
How does buying/selling gold and foreign currency reserves change the value of a currency?
Increasing supply - Buying gold and foreign currency with pounds
Increasing demand - Selling gold and foreign currency for pounds
Increasing demand - Selling gold and foreign currency for pounds
27 of 129
Why would a government deliberately intervene in foreign exchange markets?
Competitive devaluation - driving down the value of their currency to increase competitiveness
28 of 129
What are the problems with competitive devaluation?
Inflationary pressures (AD increase), causing decrease in competitiveness
Other countries may retaliate and reduce their currency
Other countries may retaliate and reduce their currency
29 of 129
What is the Marshall-Lerner condition?
Sum of elasticities of imports and exports must be greater than 1 to have a significant impact on the current account
30 of 129
What is the J-curve?
Shows a time lag (hysteresis) before the current account changes
When value of currency falls, CA worsens before it improves (J curve)
When value of currency rises, CA improves before worsens (inverse J curve)
When value of currency falls, CA worsens before it improves (J curve)
When value of currency rises, CA improves before worsens (inverse J curve)
31 of 129
How do exchange rates affect inflation?
Fall in value of currency causes means imports more expensive
Domestic firms' COP increases
Prices increase to maintain profit margin
Inflation
Domestic firms' COP increases
Prices increase to maintain profit margin
Inflation
32 of 129
How do exchange rates affect FDI?
Fall in value of currency causes cheaper investment
FDI increases
FDI increases
33 of 129
How do exchange rates affect economic growth and unemployment?
Fall in value of currency increases exports and decreases imports
CA improves, AD shifts right
Increase employment and growth (SR)
CA improves, AD shifts right
Increase employment and growth (SR)
34 of 129
What is unemployment?
Measurement of those of working age who are without work, able to work and seeking work and have actively sought work in the last 4 weeks and are available to start work in the next 2 weeks
35 of 129
Who is economically inactive?
Those of working age not seeking employment, as well as those seeking employment but are not available to start work within 2 weeks (students, carers etc), those who are retired, those who do not want or need a job
36 of 129
What are the measurements of unemployment?
Claimant count
Labour force survey
Labour force survey
37 of 129
What is the claimant count?
Number of people reciecing job seekers' allowance
38 of 129
What is the Labour Force Survey?
Sample of people living in households in the UK
Asks people if they meet the criteria of being employed, unemployed, or inactive
Asks people if they meet the criteria of being employed, unemployed, or inactive
39 of 129
What are the problems with the Claimant Count and Labour Force Survey?
Not all unemployed people are elegible for JSA
LFS is only a sample so is an estimate
LFS usually higher than CC
LFS is only a sample so is an estimate
LFS usually higher than CC
40 of 129
What is underemployement?
Measurement of those who are overqualified for their current job, or those who would rather a full time job than their current part time job or zero hour contract
41 of 129
What is the participation rate?
Percentage of the population of working age
who are economically active
who are economically active
42 of 129
What is the inactivity rate?
Percentage of the population
of working age who are inactive
of working age who are inactive
43 of 129
What are the types of unemployment?
Frictional
Structural
Seasonal
Cyclical/Demand deficient
Real wage inflexibility
Structural
Seasonal
Cyclical/Demand deficient
Real wage inflexibility
44 of 129
What is frictional unemployment?
When people are between jobs
Short term
Short term
45 of 129
What is structural unemployment?
Long term decline in demand in an industry leading to reduction in employment
Due to increasing international competition or better technology
Occupational immobility causes people to be retrained for new jobs
Due to increasing international competition or better technology
Occupational immobility causes people to be retrained for new jobs
46 of 129
What are the types of structural unemployment?
Regional unemployment - Certain areas suffer
Sectoral unemployment - Primary, secondary or tertiary sector suffer
Technological unemployment - Labour replaced by technology
Sectoral unemployment - Primary, secondary or tertiary sector suffer
Technological unemployment - Labour replaced by technology
47 of 129
What is seasonal unemployment?
Industries which are strongly seasonal in demand, experience cycles of unemployment
For example tourism
For example tourism
48 of 129
What is cyclical/demand deficient unemployment?
Unemployment due to a general lack of demand of goods and services within the country
Occurs during recessions
Occurs during recessions
49 of 129
What is real wage inflexibility?
Unemployment due to real wages being above their market clearing level leading to an excess supply of labour
50 of 129
How does migration affect unemployment?
Increased migration leads to increased jobs
Immigrants' spending creates jobs and total employment increases
Migration leads to lower wages as supply of labour increases
More competition for jobs
Immigrants' spending creates jobs and total employment increases
Migration leads to lower wages as supply of labour increases
More competition for jobs
51 of 129
How do skills affect unemployment?
Economies progress over time, so higher skills are needed
Structural unemployment caused by lack of skills
Causes long term unemployment
Structural unemployment caused by lack of skills
Causes long term unemployment
52 of 129
What are the impacts of unemployment on workers?
Loss of income - fall in living standards
Loss of skills - occupational immobility
Loss of skills - occupational immobility
53 of 129
What are the impacts of unemployment on firms?
Decrease in demand for goods (dependent on YED) - fall in profit
Demand for jobs is high so can offer lower wages
Demand for jobs is high so can offer lower wages
54 of 129
What are the impacts of unemployment on consumers?
Consumers suffer from less choice
Unemployed consumers have less discretionary income
Unemployed consumers have less discretionary income
55 of 129
What are the impacts of unemployment on the government?
Fall in tax revenue + higher spending on welfare payments - budget deficit in short run, national debt in long run
56 of 129
What are the impacts of unemployment on society?
Loss of potential national output -LRAS shifts left, PPF shifts inward
57 of 129
What is the trade cycle/economic cycle?
Periodic by irregular up and down movements in economic activity, measured by fluctuations in real GDP
58 of 129
What are the four main phases of the trade cycle?
Boom
Downturn
Recession, slump
Recovery
Downturn
Recession, slump
Recovery
59 of 129
Why does the trade cycle exist?
Due to demand and supply side shocks
Demand side shocks - collapse of housing bubble, political issues
Supply side shocks - trade union action, change in oil prices
Demand side shocks - collapse of housing bubble, political issues
Supply side shocks - trade union action, change in oil prices
60 of 129
What are the characteristics of a boom?
National income is high
Positive output gap
Consumption and investment high
Wages and tax revenue high
Inflationary pressure
Positive output gap
Consumption and investment high
Wages and tax revenue high
Inflationary pressure
61 of 129
What are the characteristics of a recession?
High unemployment
Low consumption, investment, imports
Low inflationary pressure
Low consumption, investment, imports
Low inflationary pressure
62 of 129
What does the government define as a recession?
Where real GDP falls in at least two successive quarters
63 of 129
What happens during a downturn?
Output and income fall
Consumption, investment, imports fall
Tax revenue fall
Welfare payments increase, unemployment increases
Consumption, investment, imports fall
Tax revenue fall
Welfare payments increase, unemployment increases
64 of 129
What happens during a recovery?
Output and income rise
Unemployment falls
Consumption, investment, imports rise
Inflationary pressures rise
Unemployment falls
Consumption, investment, imports rise
Inflationary pressures rise
65 of 129
What are supply side policies?
Government policies aimed at increasing the productive potential of the economy, shifting LRAS to the right
66 of 129
What are market based supply side policies?
Policies designed to remove anything that prevents the free market system working efficiently which causes lower output and higher prices
67 of 129
What are interventionist supply side policies?
Policies designed to correct market failure
68 of 129
What are some examples of supply side policies?
Increase incentives
Promote competition
Reform the labour market
Improve skills and quality of labour force
Improve infrastructure
Promote competition
Reform the labour market
Improve skills and quality of labour force
Improve infrastructure
69 of 129
How can the government increase incentives?
Reduction in benefits/taxes -> oppurtunity cost of being out of work increased
Reduction in taxes on firms when they employ -> increased incentive to employ
Reduction/removal of minimum wage -> prevent real wage inflexibility unemployment
Reduction in taxes on firms when they employ -> increased incentive to employ
Reduction/removal of minimum wage -> prevent real wage inflexibility unemployment
70 of 129
How can the government promote competition?
Privatisation + deregulation (selling nationalised companies to private sector + reducing barriers to enter markets) -> more firms, more competition
Competition policy -> CMA ensures markets are competitive
Competition policy -> CMA ensures markets are competitive
71 of 129
How can the government reform the labour market?
Increasing retirement age -> increases size of workforce
Weaken trade unions -> prevent high wages limiting AS
Remove minimum wage - prevent real wage inflexibility unemployment
Weaken trade unions -> prevent high wages limiting AS
Remove minimum wage - prevent real wage inflexibility unemployment
72 of 129
How can the government improve the skills and quality of the labour force?
Increased spending on education and training
Introduce regulation to force firms to continuously train staff
Introduce more relaxed rules for skilled migration -> increase skilled migrants
Introduce regulation to force firms to continuously train staff
Introduce more relaxed rules for skilled migration -> increase skilled migrants
73 of 129
How can the government improve infrastructure?
Government expenditure on infrastructure
Increase tax incentives/subsidies on investment
Increase tax incentives/subsidies on investment
74 of 129
What are some evaluation points for supply side policies?
- Long term policies
- Government expenditure causes budget deficit
- Unintended consequences on AD (gov failure)
- Has to be large changes in tax to have an effect, then government revenue falls
- Privatisation + deregulation can cause poorer quality
- Government expenditure causes budget deficit
- Unintended consequences on AD (gov failure)
- Has to be large changes in tax to have an effect, then government revenue falls
- Privatisation + deregulation can cause poorer quality
75 of 129
What are demand side policies?
Policies designed to manipulate consumer demand
76 of 129
What are the types of demand side policies?
Monetary policy - Central Bank alters interest rates or money supply
Fiscal policy - Government use of spending and taxation
Fiscal policy - Government use of spending and taxation
77 of 129
What are the demand side policies within monetary policy?
Increasing/reducing interest rates
Quantitative easing
Quantitative easing
78 of 129
How do interest rates influence aggregate demand?
Rise in interest rates
Cost of borrowing rises, reward for saving rises
Substitution effect - consumers switch spending for saving
Consumption slows + cost of borrowing rise -> reduced confidence (animal spirits)
Investment slows
Increasing interest rates
Cost of borrowing rises, reward for saving rises
Substitution effect - consumers switch spending for saving
Consumption slows + cost of borrowing rise -> reduced confidence (animal spirits)
Investment slows
Increasing interest rates
79 of 129
What are the problems with using interest rates to influence aggregate demand?
Interest rates may be so low that decreasing them does not have an effect - liquidity trap
High interest rates causes investment to slow, shifting LRAS left
Interest rates can take 2 years to have an effect
High interest rates causes investment to slow, shifting LRAS left
Interest rates can take 2 years to have an effect
80 of 129
What is quantitative easing?
Quantitative easing is when the Bank of England buys assets in exhange for money in order to increase the money supply
81 of 129
How does quantitative easing influence aggregate demand?
- Bank is buying assets, rise in demand
Asset prices rise
Positive wealth effect
Consumer confidence increases
Consumption increases
- Money supply increases
Private sector recieve money that they spend on goods/services
Consumption/ investment increases
Asset prices rise
Positive wealth effect
Consumer confidence increases
Consumption increases
- Money supply increases
Private sector recieve money that they spend on goods/services
Consumption/ investment increases
82 of 129
What are the problems with using quantitative easing to influence aggregate demand?
Risky - could lead to high inflation
No guarantee that higher asset prices lead to higher consumption
Increasing house prices causes geographical immobility to worsen
No guarantee that higher asset prices lead to higher consumption
Increasing house prices causes geographical immobility to worsen
83 of 129
What is the role of the Bank of England?
Keep inflation at 2% +/-1%
Monetary Policy Committee makes decisions on interest rates and quantitative easing
Monetary Policy Committee makes decisions on interest rates and quantitative easing
84 of 129
What are the demand side policies within fiscal policy?
Rise/fall in tax
Rise/fall in government spending
Rise/fall in government spending
85 of 129
How do government budgets affect aggregate demand?
Rise in government spending increases aggregate demand
86 of 129
How do taxes affect aggregate demand?
Rise in income tax causes fall in disposable income
Reduction in consumption
Rise in corporation tax decreases supernormal profits
Reduction in investment
Reduction in consumption
Rise in corporation tax decreases supernormal profits
Reduction in investment
87 of 129
What is the difference between a direct tax and an indirect tax?
A direct tax is paid directly to the government
An indirect tax is where the person charged with paying the money to the government is able to pass on the cost to someone else
An indirect tax is where the person charged with paying the money to the government is able to pass on the cost to someone else
88 of 129
What are the problems with fiscal policy?
Government spending impacts LRAS
Taxes may increase income inequality
Raising taxes is politically unpopular
Impact of fiscal policy depends on multiplier
Taxes may increase income inequality
Raising taxes is politically unpopular
Impact of fiscal policy depends on multiplier
89 of 129
What are some evaluation points to do with fiscal policy?
No effect on long run output
Depends on where economy is operating
Hysteresis, time lag
Increasing AD causes inflationary pressure
Depends on where economy is operating
Hysteresis, time lag
Increasing AD causes inflationary pressure
90 of 129
What is the difference between economic growth and economic development?
Economic growth refers to AD/AS/LRAS
Economic development refers to living standards
Economic development refers to living standards
91 of 129
What is fairtrade?
A trading partnership based on dialogue, transparency and respect, which seeks greater equity in international trade
92 of 129
What are the key principles of fairtrade?
Fair price - gives stability and increases income
Community development
Fair working conditions - Prevents child labour
Protecting the environment
Community development
Fair working conditions - Prevents child labour
Protecting the environment
93 of 129
What are the evaluation points for fairtrade?
Pareto inefficient outcome as non-fairtrade producers are worse off, fall in demand
Reduces the incentive to diversify
Reduces the incentive to diversify
94 of 129
What did a study in Sri Lanka show about fairtrade?
Higher income + satisfaction
Greater understanding of the market
More optimistic view of the future
Able to save for the future - send children to school
Some still felt income was insufficient
Greater understanding of the market
More optimistic view of the future
Able to save for the future - send children to school
Some still felt income was insufficient
95 of 129
What is primary product dependency?
Heavy dependence measured as a share of GDP, total exports or employment from the extraction and selling of primary commodities
96 of 129
How does primary product dependency affect growth and development?
Natural disasters -> wipe out production
Commodities are non-renewable
Low YED -> as incomes rise, demand falls
Prebisch Singer Hypothesis
Dutch disease
Commodities are non-renewable
Low YED -> as incomes rise, demand falls
Prebisch Singer Hypothesis
Dutch disease
97 of 129
What is the Prebisch Singer Hypothesis?
Suggests the long run price of primary goods declines in proportion to manufactured goods
Those who are dependent on primary exports will see a worsening of terms of trade
Those who are dependent on primary exports will see a worsening of terms of trade
98 of 129
What is the Dutch disease?
When a country becomes a significant commodity producer in a short amount of time, causing an increase in demand for the currency, causing an appreciation
Increases relative prices, fall in competitiveness
Increases relative prices, fall in competitiveness
99 of 129
How does the volatility of commodity prices affect growth and development?
Primary products have inelastic PED and PES
Small changes in demand/supply causes huge fluctuations in prices
Producers' income fluctuates - national income
Difficult to plan long term investment
Small changes in demand/supply causes huge fluctuations in prices
Producers' income fluctuates - national income
Difficult to plan long term investment
100 of 129
What is a savings gap?
Difference between actual savings and the level of savings neded to achieve a higher growth rate
101 of 129
How does the savings gap affect growth and development?
Developing countries have lower incomes
Higher proportion spent on necessities
Save less
Less money for banks to lend
Reduces investment
Higher proportion spent on necessities
Save less
Less money for banks to lend
Reduces investment
102 of 129
What is the Harrod-Domar Model?
Saving in banks lead to investment (liquidity)
Investment leads to capital accumulation (LRAS)
Capital accumulation leads to output and incomes increasing
Higher incomes mean people can save more
Feeds into the model again -> a cycle
Investment leads to capital accumulation (LRAS)
Capital accumulation leads to output and incomes increasing
Higher incomes mean people can save more
Feeds into the model again -> a cycle
103 of 129
What is the evaluation for the Harrod-Domar model?
Requires financial markets, a banking system
If government increase interest rates to get people to save, could incur government failure - decreases AD, short run growth
If government increase interest rates to get people to save, could incur government failure - decreases AD, short run growth
104 of 129
What is the foreign currency gap?
When exports from a developing country are too low compared to imports to finance investment or overseas goods required for economic growth
105 of 129
What is capital flight?
When large sums of money are taken out of the country due to uncertainty in the economy
106 of 129
How can capital flight affect growth and development?
Less liquidity in banks
Less borrowing and investment
Less borrowing and investment
107 of 129
How do demographic factors affect growth and development?
Developing countries have higher population growth - must be matched by the economy's growth to maintain living standards
Increases number of dependents
Strain on education system
Leads to youth unemployment
Increases number of dependents
Strain on education system
Leads to youth unemployment
108 of 129
How does debt affect growth and development?
Limits investment and government spending
May raise taxes to fund debt repayments - limits growth and development
May raise taxes to fund debt repayments - limits growth and development
109 of 129
How does access to credit and banking affect growth and development?
Developing countries have limited access to credit and banking - lack of financial system
Cannot save for the future
Loan sharks - give high interest rates and leave individuals permanently in debt
Cannot save for the future
Loan sharks - give high interest rates and leave individuals permanently in debt
110 of 129
How does infrastructure affect growth and development?
Low levels of infrastructure increase logistic costs
Hard for firms to trade + set up
Hard for firms to trade + set up
111 of 129
How does education/skills affect growth and development?
Poor education leads to low skilled workers
High illiteracy rates means low productivity
High illiteracy rates means low productivity
112 of 129
How does the absence of property rights affect growth and development?
Individuals cannot use the law to protect their assets
Unwilling to buy machinery, establish companies
Reduced investment
Unwilling to buy machinery, establish companies
Reduced investment
113 of 129
What are the non-economic factors which affect growth and development?
Corruption - Leaders prioritise bribes over the economy
Disease
Natural disasters
Civil war
Disease
Natural disasters
Civil war
114 of 129
What is a regional trading bloc?
Group of countries within a geographical region that protect themselves from imports from non-members
They have an agreement to reduce/eliminate tariffs, quotas and other protectionist barriers among themselves
They have an agreement to reduce/eliminate tariffs, quotas and other protectionist barriers among themselves
115 of 129
What are the types of trading blocs?
Free trade areas
Customs unions
Common markets
Monetary unions
Economic unions
Customs unions
Common markets
Monetary unions
Economic unions
116 of 129
What are the characteristics of a free trade area?
No protectionist barriers within the area
117 of 129
What are the characteristics of a customs union?
No protectionist barriers within the area
All members have a common external tariff against non-members
All members have a common external tariff against non-members
118 of 129
What are the characteristics of a common market?
No protectionist barriers within the area
All members have a common external tariff against non-members
Allows free movement of capital and labour
All members have a common external tariff against non-members
Allows free movement of capital and labour
119 of 129
What are the characteristics of a monetary union?
No protectionist barriers within the area
All members have a common external tariff against non-members
Allows free movement of capital and labour
Members share the same currency and share a closely coordinated monetary policy
All members have a common external tariff against non-members
Allows free movement of capital and labour
Members share the same currency and share a closely coordinated monetary policy
120 of 129
What are the conditions for monetary unions' success in the Eurozone?
European Central Bank distributes notes, sets interest rates and manages the foreign currency reserves
Governments agreed to not exceed a fiscal deficit of 3% and a national debt of more than 60%
Fiscal transfers to countries who are struggling
Governments agreed to not exceed a fiscal deficit of 3% and a national debt of more than 60%
Fiscal transfers to countries who are struggling
121 of 129
What are the characteristics of an economic union?
Members share the same social, fiscal and monetary policy
122 of 129
What are the benefits of regional trade agreements?
Trade creation
No barriers to trade within the bloc - cheaper to trade
Economies of scale - exploit comparative advantage
Higher competition - prices fall, consumer surplus rises
No barriers to trade within the bloc - cheaper to trade
Economies of scale - exploit comparative advantage
Higher competition - prices fall, consumer surplus rises
123 of 129
What are the costs of regional trade agreements?
Trade diversion
Inefficient firms can be driven out of the market, reducing competition
Can increase regional inequalities as capital and labour move to richer areas in the bloc
Retaliation and trade disputes between blocs
Inefficient firms can be driven out of the market, reducing competition
Can increase regional inequalities as capital and labour move to richer areas in the bloc
Retaliation and trade disputes between blocs
124 of 129
What is trade creation?
A country joins a trade bloc, removing tariffs within the bloc
Consumption shifts from a high cost, less efficient, domestic producer to lower cost, more efficient, producer in the bloc
Welfare improving
Consumption shifts from a high cost, less efficient, domestic producer to lower cost, more efficient, producer in the bloc
Welfare improving
125 of 129
What is trade diversion?
A country joins a trade bloc, imposing tariffs on countries outside the bloc
Consumption shifts from lower cost, more efficient, producer to a higher cost, less efficient producer in the bloc
Reduces welfare
Consumption shifts from lower cost, more efficient, producer to a higher cost, less efficient producer in the bloc
Reduces welfare
126 of 129
What is the role of the World Trade Organisation?
Promotion of trade liberalisation - to facilitate the reduction/removal of protectionism
To ensure countries adhere to the trade agreements they have signed
To ensure countries adhere to the trade agreements they have signed
127 of 129
What are the functions of the WTO?
Set rules for international trade
Act as a forum for trade negotiations
Act as an arbiter for trade disputes
Provide training for developing countries
Act as a forum for trade negotiations
Act as an arbiter for trade disputes
Provide training for developing countries
128 of 129
What are the possible conflicts with the WTO?
Trading blocs contradict WTO's principles - protectionism against non members, common external tariff
129 of 129
Other cards in this set
Card 2
Front
What is the difference between total GDP and GDP per capita?
Back
Total GDP is overall GDP for the country
GDP per capita is total GDP divided by population
GDP per capita is total GDP divided by population
Card 3
Front
What are the problems with using GDP to compare standard of living?
Back
Card 4
Front
What is the multiplier effect?
Back
Card 5
Front
What is the formula for the multiplier?
Back
Related discussions on The Student Room
- OCR A Level Economics Paper 2 Macroeconomics (H460/02) - 22nd May 2023 »
- What is your advice? »
- AP Exams for Cambridge »
- AQA 25 marker structure »
- Maths for Oxford PPE »
- alevel economics exam/essay technique advice plss! »
- Any tips on revising for A-Levels in Y12 »
- Master Economics: LSE vs Cambridge vs UCL vs CEMFI vs BGSE »
- 3rd year 2nd semester »
- Is A Level content sufficient for AP Exams? »
Similar Economics resources:
5.0 / 5 based on 1 rating
3.0 / 5 based on 1 rating
0.0 / 5
4.0 / 5 based on 1 rating
2.5 / 5 based on 4 ratings
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
Comments
No comments have yet been made