The International Economy

Ch16- globalisation

Ch18- Trade

Ch19- EU 

Define Globalisation
The ever-increasing integration of the world's local, regional and national economies into a single international market.
1 of 160
What do the main characteristics of globalisation include? (Free movement of... 3 things)
1)goods/services- greater proportion of world's output being traded 2) labour- people increasingly free to move around world for leisure and work purposes 3) Capital- large companies likely to have production facilities outside their country of origi
2 of 160
What is a 4th characteristic?
The interchange of technology and intellectual capital.
3 of 160
The % of world output that is traded has increased significantly in the past few decades due to: (6 things- 2 on each of the following 3 cards)
1)Trade more liberated- Reduction of trade barriers and protectionism thanks to WTO 2)Decline of communism-Former communist countries were largely closed economies, but now the former Soviet states participate in the global economy
4 of 160
next 2...
3)Technological advances- Devices that make business communication easier + internet making it easier to purchase goods/services worldwide. 4)Cheaper transportation- Containerisation has cut costs hugely-less theft, easier distribution, more per ship
5 of 160
Last 2...
Removal of capital controls- Companies can put their capital anywhere. Increased role of MNC’s - Seek lowest cost/nearest to market locations →Fragmentation of production
6 of 160
What is an MNC?
A multinational corporation- organizations that own or control production or services facilities in one or more countries other than the home country
7 of 160
Give 10 advantages of globalisation (first 4 on this card) for the world economy
1)Increased global wealth 2)More consumer choice 3)Increased competition →Increases efficiency and keeps prices down 4)Harmonises countries 5)Specialisation according to comparative advantage --> higher output and faster growth for world economy
8 of 160
6, 7 and 8 on this card
6)Increased FDI leads to employment opportunities in country invested in 7)Increased use of new technology as new countries open themselves to new ideas 8)Trickle down of wealth to poorer people- improves prosperity for all
9 of 160
9 and 10 on this card
9) Economies of scale achieved when selling abroad (larger market) 10)More of a chance to experience different cultures
10 of 160
Give 9 disadvantages of globalisation for the world economy (first 4 on this card)
1)Increase inequality → Creates winners + losers 2)Greater interdependence →Countries more susceptible to economic shocks 3)Exploitation of child labour, who work at low wages in appalling conditions 4)Workers in developed world lose out on jobs
11 of 160
5, 6, and 7...
5) Businesses go bankrupt because they cannot compete 6) Environmental consequences →Using up scarce resources on transport 7) Brain Drain’- Dr’s in Africa go to Eastern Europe, and Eastern Europeans go to UK
12 of 160
8 and 9
8) WTO = rich man's club e.g. America get away with cotton subsidies- developing countries become less competitive even though they're more efficient 9) ➢ Loss of cultural diversity as everyone wears the same clothes, drives the same cars etc.
13 of 160
Give 2 advantages of globalisation on UK economy specifically (remember in essay can add in general points from world economy e.g. more consumer choice/economies of scale/trickle down effect)
1) Increased FDI e.g. from Malaysia into Battersea Power Station 2)Reduced inflation- due to increased efficiency due to competition, more access to raw materials + cheap labour (reduced bargaining power) -->reduced business costs
14 of 160
What are the benefits of a) increased FDI and b) low inflation
a) creates jobs, leads to multiplier effect, increases supply-side economic growth b)can set low interest rates, stimulating investment and allowing businesses to grow
15 of 160
Give 6 disadvantages of globalisation for UK economy specifically (2 on this card)
1) Greater interdependence on other countries- 30% of GDP was exports and imports in 2012- we are a trading nation- global economy is very significant 2)Worsened current account- import cheap goods + find it hard to export our services
16 of 160
What else contributes to the worsened current account?
Low interest rates due to low inflation causing debt and consumer boom- worsens current account
17 of 160
Next disadvantage...(3rd)
3) Unemployment a)cheap foreign labour employed instead of domestic labour b)decline of industries as foreign competition becomes intense enough to drive out domestic producers from the market leads to structural unemployment
18 of 160
Next disadvantage... (4th)
4) Outsourcing creates a loss of jobs in the UK e.g. Dyson moving from Wiltshire to Far East (loss of 800 jobs) and a potential loss of quality control
19 of 160
Next disadvantage...(5th)
5)UK economy has become imbalanced- too dependent on exporting services + manufacturing has shrunk considerably since 1997 due to lack of investment in UK (organisations too short-term and profit hungry), and due to competition from East Asia
20 of 160
Final disadvantage... (6th)
6)effect on UK wages... a)lack of demand for low-skilled manufacturers- fall in wages. increase in demand for UK professional services - increase in wages although already well-paid --> income has diverged. b)influx of workers lead to fall in wages
21 of 160
What should the UK economy do?
Reorientate trade to developing countries, and reduce debt
22 of 160
Give 5 advantages of globalisation for developing economies
1)Emerge as effective competitors e.g. BRIC group due to access to raw materials 2) FDI helps to fill in 'savings, investment and foreign exchange gaps' in poverty cycle 3)transfer of technology 4)Job creation
23 of 160
5th advantage
5)MNC'S partly fund local infrastructure and education, leading to the multiplier effect
24 of 160
Give 5 disadvantages of globalisation for developing economies
1)Pollution+congestion 2)MNC's pay lower than in the west BUT still more than local job BUT wage differentials created 3)Repatriation of profits + incomes 4)Trade conflict- western dominance is threatened and so protectionist policies are introduced
25 of 160
Give 5th disadvantage
5)Comparative advantage is only temporary →When living standards increase to a point where a cheaper location is then available, MNC’s will leave + structural unemployment will result
26 of 160
Explain how China avoided this
by increasing entrepreneurial activity e.g. in clothing by creating brands, rather than hoping MNC’s would stay indefinitely.
27 of 160
Why do firms offshore?
To exploit cheaper factors of production in other countries
28 of 160
What is the Foxconn Affair?
When on one occasion in china, working conditions of an MNC became so bad that 18 teenagers committed suicide, spurring demand for improved conditions and significant pay rises
29 of 160
Why did China's comparative advantage diminish? (3 reasons)
1) A considerable rise in Chinese wages 2) Government being forced to raise value of the Yuan in a controlled manner 3) Transport costs from the Far East also rose after the Economic crisis
30 of 160
Why did UK firms begin reshoring from China?
They found the supply quality from some Chinese companies became a problem, and the comparative advantage of using factors of production from China diminished
31 of 160
Why do some firms consider it better to move their production back to Europe?
the supply chain is short, linkage greater and therefore greater flexibility.
32 of 160
What proportion have brought back their production from overseas in the past year? Give example.
1 in 6- e.g. John Lewis... aims to increase sales of UK made goods in its shops by 15% in the next 2 years.
33 of 160
What firm is still reshoring? In the hope of what? How many UK jobs were lost?
Dyson (from wiltshire to far east) in hope of more cost effective production. 800 jobs lost in UK.
34 of 160
What is FDI?
Long-term investment by private multinational companies in countries overseas. Usually occurs through MNCs building new plants or expanding existing facilities in foreign countries
35 of 160
Give 5 reasons MNCs invest in developing countries
f1)cheaper factors of production- reducing costs 2)regulations less severe, so companies easier to set up 3)tax concessions offered to attract FDI 4)growing markets-more consumers whose incomes are rising 5)avoids protectionist policies
36 of 160
Give 10 advantages of FDI by MNCs.. (first 4)
1)helps to fill gaps in poverty cycle- economic growth 2)increased training + education- quality of labour force + productivity increases 3)increased employment and wages- local multiplier effects 4)investment in R&D as well as infrastructure
37 of 160
(next 4) (5-8)
5)wider choice and lower prices for local consumers (standard of living increases) 6)local gov. may receive large tax rev. from MNC, which could be spent on merit goods 7)Transfer of technology 8)source of foreign currency- inflow on capital account
38 of 160
Last 2 (9-10)
9)better working conditions 10) more opportunities for females
39 of 160
Give 10 disadvantages of FDI by MNCs (first 3)
1)may have no impact on employment as may bring in own labour 2)'basic jobs' of production mean education+training not necessary 3)MNC's have too much power due to size- sometimes avoid taxes meaning gov. rev. doesn't increase
40 of 160
4)MNCs power may mean they have a large influence over local government (tax rev. may not be spent on merit goods) 5)may employ capital intensive production methods (making the most of abundance of raw materials)- employment positions not generated
41 of 160
6)may hurt domestic firms- no economies of scale so cannot compete 7)Possible crowding out effect for local domestic investment 8)creates wage differentials 9)profits and income may be repatriated 10)could be inflationary
42 of 160
Why has the UK been experiencing inward FDI?
David Cameron has been on trade missions trying to increase FDI in Britain in order to boost growth and employment
43 of 160
Give an example. How many jobs is it predicted to create?
Investment from Malaysia to transform Battersea power station --> 15000 jobs
44 of 160
What is absolute advantage?
When a country can make goods more cheaply than any other country
45 of 160
What is comparative advantage?
The ability to produce a good at a lower opportunity cost compared to another country. If opp costs differ- may be gains from trade if countries specialise in production of gods and services in which they have comparative advantage
46 of 160
You should be able to use a simple numerical example to demonstrate how specialisation is more efficient than self-sufficiency
Refer to notes if cannot
47 of 160
What assumptions does the theory of comparative advantage make? (4 assumptions- 3 on this card)
1)Factors of production are perfectly mobile- resources can be easily transferred 2)constant returns to scale- doubling input leads to doubling output 3)zero transport costs- if we consider these, a comparative advantage may be eliminated
48 of 160
last assumption
4)homogenous products- there is no difference in quality between two country's goods
49 of 160
Give 5 factors affecting comparative advantage... (2 listed on this card)
1)Quantity + quality of factors of production e.g. countries with larger more skilled workforce will have a c/a in manufacturing 2)investment in R&D- may give a nation cost advantages through development of superior production techniques
50 of 160
(next 2)
3)Movements in exchange rate- a country may not be able to exploit lower costs of production if prices of its good in int. markets are distorted by exchange rate 4)Long-term rates of inflation -will lose competitiveness in international markets
51 of 160
Final factor affecting...
5)Import controls - can be used to create an artificial comparative advantage for country's domestic producers- protecting domestic firms against more efficient foreign producers
52 of 160
What is the WTO?
The World Trade with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible
53 of 160
History of the WTO...
dismantled tariffs and quotas after WW2- for 25yrs after war there was rapid economic growth and increased prosperity in advanced industrial nation--> good argument to promote free trade and reduce protectionist measures
54 of 160
When did many countries seek to protect their home industries and employment?
In deep recession in 1980s, and there was a danger of this following the 2008 crash
55 of 160
Why did other protectionist policies emerge?
Due to agreements on tariffs and quotas already made
56 of 160
Why is the WTO sometimes referred to as a 'rich-mans club'
→EU get away with farming subsidies →America get away with cotton subsidies →Developing countries become less competitive even though they’re more efficient
57 of 160
Give 6 arguments for protectionism... should be able to explain each
1) the infant industry argument 2) maintaining domestic employment 3)Prevents dumping 4)avoids 'unfair' competition 5)Increased government revenue 6)Protects against over-specialisation (if cannot elaborate on these, go over notes)
58 of 160
Give 7 arguments against protectionism/for free-trade...should be able to explain each
1) welfare losses 2)retaliation 3)monopolies 4)redistributes income in favour of protected 5)economies of scale experienced through specialisation from ft 6)greater choice/availability from ft 7)technological diffusion from ft
59 of 160
Any restrictions on trade lead to...
...higher prices for consumers, less choice and a lower standard of living (due to not exploiting comparative advantage), as well as a lack of competition in industry leading to declining efficiency
60 of 160
Protectionist policies should only be implemented for very good reasons
61 of 160
Name 4 methods of protectionism
1) Tariffs 2) Quotas 3) Exchange control 4)Subsidies
62 of 160
What are tariffs?
Taxes placed on the price on an imported good. Generally ad-valorem taxes levied as a percentage of the price of the import. (should be able to draw diagram- if can't- refer to notes)
63 of 160
How does the enforcement of UK tariffs effect: a)domestic consumers b)domestic producers c)domestic employment d)gov. revenue e)distribution of income f)trading partner's producers g)resource allocation
a)worse off- more expensive imports b)better off- goods more competitive c)increase d)increases e)changes in favour of UK producers f)worse-off g)less efficient
64 of 160
What will make a tariff less effective?
Inelastic demand
65 of 160
What is a quota?
A physical limit placed on the level of imports- normally expressed as a percentage of the market for the product
66 of 160
Why does it have a certain effect?
it does not depend upon the reaction of consumers to the policy
67 of 160
How does it work?
It limits imports to cause a market shortage, which will raise the market price (should be able to draw diagram- if cannot- refer to notes)
68 of 160
What is an exchange control?
A government control over the exchange of domestic currency into foreign currency.
69 of 160
How does this work?
In order to purchase imports it is necessary to purchase the currency to pay for them. If this is not possible, then the imports cannot be bought. Note: Can also be used to control the amount that tourists can exchange for spending abroad.
70 of 160
What is a subsidy?
Government payments to firms to encourage domestic production.
71 of 160
How does it work?
The subsidy lowers the costs of production and makes firms artificially competitive in international markets.
72 of 160
What is an exchange rate?
The price of one currency in terms of another
73 of 160
What is a fixed exchange rate?
When exchange rates are based around a target rate, but the currency can move between permitted bands of fluctuation either side of the target.
74 of 160
How can the authorities maintain the target rate?
By adjusting interest rates or using foreign currency reserves
75 of 160
When were we last in a fixed exchange rate system? Give another example.
In 1992- the ERM (european exchange rate mechanism). 1944-1972 = Bretton Woods System
76 of 160
What is a floating exchange rate?
An exchange rate determined by the forces of demand and supply in the free-market
77 of 160
What is a manage floating exchange rate? what is this also known as?
Government intervention to smooth out fluctuations- sometimes called 'dirty floating' as can be used for government's own interests
78 of 160
What happens when there is an increase in demand for a currency?
It causes the value of that currency to rise (i.e. its exchange rate to rise)
79 of 160
What are the factors affecting demand for £'s?
demand for exports (must buy £'s to purchase), Inward investment (must buy £'s to pay for factors of production), Speculation, Government intervention, interest rates (profitable to save £'s if high)
80 of 160
What happens when there is an increase in supply of a currency? (i.e. it is sold)
Causes exchange rate to fall
81 of 160
What are the factors effecting supply of £'s?
Demand for imports, outward investment, interest rates (more profitable to save elsewhere if low), speculation, government intervention
82 of 160
Why is it that factors affecting the current account also affect the exchange rate?
Because demand for imports and exports are changing
83 of 160
Hence...what other factors will affect the exchange rate?
...economic growth (fall in exchange rate due to sucking in imports) and international competitiveness (decline will cause fall as current account worsens) will also affect the exchange rate
84 of 160
What is a trade weighted exchange rate index?
Measures the exchange rate movements on the basis of weightings, determined by the value of trade undertaken with different trading partners
85 of 160
Give 3 advantages of a floating exchange rate
1)Automatic adjustment mechanism for the current account- gov. can concentrate on other objectives 2)Government doesn't need to hold such high reserves 3)reduces speculative destabilising effects as happened when we were in ERM in 1992
86 of 160
Explain the automatic adjustment mechanism of exchange rates and current account
If current account worsens, exchange rate falls (because demand for £'s falls and supply for £'s increases). When exchange rate falls, current account improves because exports are cheaper and imports are more expensive
87 of 160
Give 6 disadvantages of a floating exchange rate (first 3 on this card)
1)No guarantee of automatic adjustment- depends entirely on the M-L condition 2) Country could find themselves in a 'viscous cycle' - if don't know what this is refer to notes 3)Can be inflationary
88 of 160
Next 3...
4)No discipline on countries to have sensible economic policies 5)Leads to a degree of uncertainty- affects trade + investment 6)foreign currency reserves are still needed (most gov. like to intervene to smooth out fluctuations)
89 of 160
Draw diagram for gov. countrolling exchange rate / free-market forces determining
If can't draw- refer to notes (dark blue foldert)
90 of 160
Give 4 advantages of a fixed exchange rate.
1)Certainty- leads to more trade and investment 2)discpline- must have sensible policies and must control inflation 3)Can be deflationary 4)low fixed exchange rate can help boost competitiveness + raise AD... high one will help to combat inflation
91 of 160
Give 6 disadvantages of a fixed exchange rate
1)Can be under/over valued 2)Can be deflationary (sometimes bad) 3)trade diversion (look this up if don't know it) 4)loss of control over interest rates 5)no automatic adjustment 6)difficult to maintain
92 of 160
Give 10 consequences with evaluation for an economy of a rise in exchange rate of their currency.. (1+2 on this card)
1)Reduced int. comp. as exports more expensive - current acc. worsens --> EVAL= ML condition + J-curve. 2)Decrease in AD- increase in unemployment in export industries + those competing with imports- fall in growth-->EVAL= p.e.d's + where on LRAS
93 of 160
Give the next 2 (3-4)
3)more discipline for firms to be competitive- efficiency improved- quality of goods improved. EVAL= firms cutting costs may cause unemployment 4)Reduced inflation-cheaper raw materials+falling AD. EVAL=depends where on LRAS
94 of 160
next 2 (5-6)
5)Increased living standards-can afford more imports EVAL=more unemployment may counteract- if MPI high, as national inc falls, demand for imports will decrease. 6)Tourist industry hit EVAL= effect depends on how large prop. of GDP this accounted for
95 of 160
next 1 (7)
7)Less FDI- more expensive to buy £'s and pay workers EVAL=have a particularly high ability to attract FDI due to skilled, flexible labour force as well as low tax rates for top rate of income as well as corporation tax.
96 of 160
Next 3 (8-10)
8)Overseas debt falls in value EVAL= overseas profits returning will also fall in value 9)Speculation may cause rates to rise even further 10)migrant transfers will earn more abroad and send money home- more repatriation to foreign countries
97 of 160
What else do all these effects depend on? (3 things)
Fixed/floating exchange rate, by how much the £ has risen and for how long, what was the cause of the rise? (e.g. if export led growth, current acc+employment would actually improve)
98 of 160
What is the UK experience of a change in the exchange rate and its effect on our exports?
Little importance compared to other influences such as state of world economy and quality of our goods
99 of 160
Give 4 examples of when the value of the pound has fallen considerably in the past 100 yrs
1)1931- abandoned gold standard 2)1967-devalued £ by 14% 3)1992- left the ERM 4)2007-2008 saw a 25% decline in sterling
100 of 160
Give 2 arguments for a weak pound CURRENTLY (+ eval if possible)
1)helps boost export growth, hence aiding the rebalancing of our economy. 2)helps british manufacturers and other exporters win more overseas business EVAL= UK don't produce a large range of price-sensitive goods, so this point is irrelevant
101 of 160
Give 5 arguments AGAINST a weak pound CURRENTLY (first 3 on this card)
1)reduces our purchasing power and value of assets around the world 2)exports mainly services, which depend on skill, quality and innovation to sell- not price 3)would add to UK inflation and squeeze consumer spending
102 of 160
4th + 5th argument
4)rise in cost of living focused on food and energy prices, which would hit the poorest disproportionately 5)economies embracing strong currency are some of the most successful exporting economies e.g. Germany
103 of 160
What goods and services are we specialised in in the UK? + hence what is important
Goods = aerospace- quality+ innovation more important than prices. Services= financial, media and design (similar argument on importance)
104 of 160
What should I do if i don't understand these points on strong vs weak pound?
See summary table in blue folder
105 of 160
What is the European Commission
Represents the interests of the EU as a whole. Puts forward new policy proposals and carries out existing Eu laws and policies.
106 of 160
What is the Council of Ministers?
The institution that decides on all major laws and policy changes, and represents the individual nation's interests. Examines the policy proposals of the European Comission
107 of 160
What does the European Court of Justice do?
Interprets European treaties + laws
108 of 160
What is the European Parliament?
Consists of 626 members elected by people in each member state- responsible for discussing and making recommendations
109 of 160
What is the European Central Bank's main task?
To maintain the euro's purchasing power and thus price stability in the euro area below but close to 2%. It is independent of political manipulation from EU institutions and member states + has its own budget separate from EU budget
110 of 160
What is the european union?
A customs union with free-trade between members and common external tariffs imposed on imports from outside the EU
111 of 160
When did the EU become a customs union?
In 1957
112 of 160
Give 8 advantages of joining the EU (first 2 on this card)
1)Lower Prices Reforms are taking place- prices reduced to world levels. 2)Free Movement of Labour UK residents are able to travel abroad, without restriction. Immigrants might do undesirable jobs. →unemployment falls
113 of 160
Next 3 (3-5)
3)Trade Creation Due to the reduction of trade barriers. 4)Investment- The UK benefits from an increase in inward FDI →encourages GDP growth 5)Lower Transaction Costs- the removal of tariffs + regulations between countries reduces firm’s c.o.p
114 of 160
Next 1(6)
6) Increased Competition The SEM creates European-wide competition, which should drive down costs of production… -greater efficiency in EU firms -greater incentive for firms to innovate and invest →keeps prices low + stable
115 of 160
Next 2 (7+8)
7) Access to EU funds Extra funds and grants can be given to some countries in order to improve economic welfare. 8)Economies of Scale Size of potential market huge, allowing economies of scale to be exploited increasing intra-community trade.
116 of 160
Give 9 disadvantages of joining the EU (first 4 on this card)
1) Expensive- £6bill per year 2)Increased immigration- puts strain on housing/water/healthcare/education resources 3)Trade diversion 4)Creates Winners+Losers-financial contribution of membership may be spent on area which doesn't directly benefit us
117 of 160
next 2 (5-6)
5)Reduced labour market flexibility- EU social policies include increased labour costs and reduced flexibility as well as firms moving overseas- creates unemployment 6)Loss of Control- member loses its independence
118 of 160
next 2 (7-8)
7)Less efficient than worldwide free-trade.. comparative advantages not being completely exploited. 8)CAP = inefficient- worth 50% of EU budget costing UK greatly and most of money ends up going to French farmers
119 of 160
next 1
9)Could retain free-trade benefit despite not being part of EU- e.g. switzerland not apart of Eu but still participates in 4 freedoms of SEM (in 2010, switzerland exported 4x more per head to Eu as we did)
120 of 160
What is the SEM and what are its 4 freedoms?
The single european market- free movement of: capital, labour, goods and services.
121 of 160
When Britain joined EU in 1973, western europe accounted for 40% of world gdp. what is that figure today?
25%, predicted to be 18% in 2020
122 of 160
Why is this?
Growth never really took off again after the oil crisis in the 1970s
123 of 160
Give 2 real-world examples of our trade figures and hence why we should leave EU...
1)Our trade with EU was in surplus before we joined, has been in deficit in all but one subsequent years 2)In 2010, Britain ran a deficit of £52.4 billion with the EU, but a surplus of £15.7 billion with the rest of the world.
124 of 160
Give 3 real-world reasons why we should stay in EU
1)If we left, would cut us off from a market of 500m people generating £10 trillion. 2)would be less likely to get 'noticed' if were restricted to a £1.5trillion economy 3)must work with our european partners to open markets in countries such as Chin
125 of 160
What is trade creation?
Occurs when an increase in trade results from the elimination of trade barriers when a country joins a customs union... country moves from buying goods at a high cost country outside of union (which could be itself), to a lower cost country within
126 of 160
draw trade creation diagram showing government revenue as well as welfare gain
If cannot- refer to notes in blue foldert
127 of 160
What is trade diversion?
In joining the union a country moves from a low cost producer outside the union to a high cost producer inside the union (because there is now a tariff on the low cost producer making its goods more expensive)
128 of 160
Draw trade diversion diagram- highlight welfare losses
If can't- refer to notes in blue folder
129 of 160
Which outweighs the other? What type of effects are trade diversion and trade creation? Which type of effects are more important?
Benefits of trade creation outweigh losses from trade diversion. Short-term...long-term dynamic benefits are more important
130 of 160
What is trade diversion often at the expense of?
Developing countries
131 of 160
What do trading blocs undermine the work of?
132 of 160
Give 7 reasons + evaluation why the UK should join the euro. (2 on this card)
1)elimination of transaction costs EVAL= small prop. of GDP 2)certainty of exchange rate -encourages greater trade and cross-border investment EVAL=trade has grown despite uncertainty e.g. growing in trade with China
133 of 160
(3 and 4)
3)Price transparency- calculations no longer needed to compare prices in diff. countries EVAL= internet has helped with this anyway 4)Lower inflation- due to a strong central central bank with inflation target EVAL=we have MPC
134 of 160
Evaluate the evaluation of lower inflation...
BUT discipline from having a single currency means government can't expand demand indefinitely- keeps inflation low
135 of 160
5)Fiscal Discipline- deficit below 3% of GDP + debt below 60% of GDP EVAL= widely ignored by greece 6)induced FDI due to certainty involved EVAL=substantial in UK anyway 7)fears of losing out on business to frankfurt EVAL=this didn't happen
136 of 160
What criteria must a country meet in order to join the single currency? (3)
1)inflation must be less than 1.5% above the average of the 3 countries with lowest inflation rate. 2)The national currency must have been stable relative to other EU currencies for a period of two years 3)Fiscal discipline (as stated priorly)
137 of 160
Why should the UK not join the euro? (3 reasons) (1st on this card)
1)No independent MP- rates set by ECB for whole eurozone which may not be beneficial for UK (too concerned w. inflation- particularly a problem in UK due to housing market making us v. sensitive to changes in interest rates)
138 of 160
Give example of how changes made by ECB would be damaging for UK...
In 2011, ECB raised interest rates due to inflation fears whilst UK slipped back into recession- would have been v. damaging
139 of 160
(2nd and 3rd reason)
2)Irreversible decision- very hard and costly to reverse 3)No devaluation to make goods more competitive BUT our goods aren't competitive on price anyway
140 of 160
What criteria do countries have to meet in order to join EU? (3)
1) Political→ viable institutions which support democracy, human rights and the rule of law 2)Economic → a market economy capable of competing within the SEM 3)Legal → acceptance of EU law (which take s precedence over domestic law)
141 of 160
What are the benefits for countries joining the EU? (3) - 2 on this card
1)Access to larger markets for their goods (aspiring countries tend to be low wage economies hence goods would have a price advantage) 2)increase of inward FDI- creates jobs + economic growth
142 of 160
3rd point
3)creates legal and financial structures in new countries of EU standard- creating a framework in which firms and workers have an incentive to invest, work and create wealth. --> economy will grow in long-term
143 of 160
Give 3 examples of countries that joined EU as poor, and achieved a higher rate of growth quickly after
Ireland, Portugal and Spain
144 of 160
Benefits to UK of enlargement (4)
1)investment opportunities created 2)rapidly growing markets for UK exports 3)reduced inflation due to cheaper raw materials + new sources of labour 4)Increased comp. from new member countries increases dynamic efficiency
145 of 160
Give 5 concerns over enlargement for the UK (3 on this card)
1)New members have a lower GDP per capita than average of existing members- limits the potential for exports 2)In SR- firms suffer losses of orders/go out of business due to foreign comp. 3)new entrants likely to be net beneficiaries from EU budget
146 of 160
4)Financial capital invested in other countries could’ve been invested in UK 5)⊗ Increased immigration to UK increases pressure on housing and public services, as well as forcing down wages of existing UK workers (decreasing standard of living)
147 of 160
Give 5 benefits of immigration (4 on this card)
1)Filling skills gaps in domestic labour markets 2)Higher productivity levels + stronger work ethic 3)Official economic migrants will pay taxes, boosting Gov. revenue 4)Increased supply of labour keeps wages lower, reducing cost push inflation
148 of 160
5th benefit
Could be argued that immigrants create jobs by demanding goods and services within the UK
149 of 160
Give 3 disadvantages of immigration
1)increased labour supply forces down wages 2)Critics assume immigrants take domestic jobs 3)pressure on housing and public services
150 of 160
Give an example of a country currently negotiating in an attempt to join EU
151 of 160
Give 4 reasons why it would be good for EU if Turkey joined...
1)Adds 70mill people to market 2)links EU to Asia geographically 3)Benefits of immigration 4)attractive centre for investment
152 of 160
Why are the EU considering admitting Turkey? (based on criteria)
1) the economy has recovered despite negative growth - achieved 11% growth in 1st quarter of 2010 2)modest budget deficit (4-5% of GDP)
153 of 160
Give 5 disadvantages of Turkey becoming part of the EU for the UK
1)The drawbacks of immigration 2)GDP per capita lower than average 3)likely to be a net gainer- we would have to contribute 4)unwilling to accept all regulations- likely to be a burden like Greece 5)unlikely to gain FDI from turkey
154 of 160
Why has the negotiations been put off until october?
At Germany's insistance
155 of 160
When is the next member of the EU being admitted and what country is it?
Croatia- 1st July 2014
156 of 160
Why will decision making within the EU not suffer from new additions such as Cyprus?
Debates tend to be between old+old NOT new+old
157 of 160
Why is public opinion mainly against Croatia joining?
Due to large scale immigration BUt there'll be long periods before free-movement of labour can be enjoyed AND the general view that EU already too large to function
158 of 160
What is Russia promoting?
Its own Eurasian Customs Union- offering cash + cheap energy
159 of 160
Why is this good?
Those not accepted into EU could drift towards this instead- better than having bitterness
160 of 160

Other cards in this set

Card 2


What do the main characteristics of globalisation include? (Free movement of... 3 things)


1)goods/services- greater proportion of world's output being traded 2) labour- people increasingly free to move around world for leisure and work purposes 3) Capital- large companies likely to have production facilities outside their country of origi

Card 3


What is a 4th characteristic?


Preview of the front of card 3

Card 4


The % of world output that is traded has increased significantly in the past few decades due to: (6 things- 2 on each of the following 3 cards)


Preview of the front of card 4

Card 5


next 2...


Preview of the front of card 5
View more cards


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Globalisation and trade resources »