The international economy

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  • Created by: Ellie
  • Created on: 13-06-15 14:57
Define globalisation and how can it be measured?
It is the process of growing economic integration of the worlds economies it is the percentage of world output that is traded
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What are the main factors of globalisation?
Free movement of goods and services, Free movement of labour, Free movement of economic capital, Free movement of financial capital, Cultural factors
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What are the causes of globalisation?
Improved transport, Containerisation ( efficiently packing goods), Improved technology, Growth of multinational companies, Growth of Uk trading block ( reduced barriers to entry e.g. EU), Reduced tariff barriers, Firms exploiting gains from economies
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What are the causes of globalisation?
of scale, growth of global media, global trade cycle, financial system is increasingly global, improved mobility of capital, improved mobility of labour
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What are the advantages of globalisation?
Increased global wealth, faster economic development, economies of scale, greater competition and choice
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What are the disadvantages of globalisation?
Greater inequality, Environmental impacts, Reduced competition and choice ( choice only increases if the number of firms increases), Greater vulnerability to exogenous shocks
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How does globalisation impact the UK?
Contributes to low inflation, due to cheaper goods and has increased supply side growth. Its allowed interest rates to stay low, increased debt levels, it can cause job losses for domestic workers, structural unemployment as foreign competition
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How does globalisation impact the UK?
drives out domestic producers
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How does globalisation impact developing countries?
Inequality will widen as some countries are more able to exploit opportunities than others, geographical concentration, divergence of income levels, those with a reputation of a strong government have a comparative advantage, newly industrialised
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How does globalisation impact developing countries?
countries are emerging such as Brazil Russia and China, Repatriation of profits, creates jobs and funds local infrastructure, monopsony power is exploited to pay workers less
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What is Repatriation of profits?
when multinational companies set up in foreign countries and the the profits goes back to the shareholders not into the country where the company is
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What is the current account/ balance of payments deficit?
When imported goods and services exceeds exported goods and services
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What are the advantages of a balance of payments deficit?
it could lead to inward investment creating jobs and higher growth , with a floating exchange rate it causes devaluation which will help reduce the deficit, It might just indicate a strong economy that is growing quickly, it is favourable to consumer
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What are the costs of a balance of payments deficit?
Borrowing is only a short term fix meaning the government have to increase interest rates, borrowing costs, mortgages, reduce spending and investment, reducing confidence and decreasing AD, theres a risk money will devaluate and there will be a
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What are the costs of a balance of payments deficit?
confidence crisis, foreign investors have more claim over your assets causing a loss on long term income, becoming uncompetitive, decline in living standards
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What are the conditions for a current account deficit to be harmful?
The deficit has to be a high percentage of GDP, if its financed through foreign investment it can be harmful in the long run, the type of country as its more harmful to developing countries
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Explain a current account surplus
This is when the value of imports is less than the value of exports
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What are the consequences of a current account surplus?
Lack of consumption, One countries surplus is anthers deficit, value of currency rises effecting the long term exchange rate, keeps inflation low and increases the value of the pound so the country is more uncompetitive
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When does a current account surplus boost domestic employment?
If it is due to an improvement in competitiveness leading to more exports, If domestic demand is still relatively strong for domestic goods
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When does a current account surplus lead to a decrease in domestic employment?
If it is caused by a recession or if there is a global recession
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What is a quota?
A limit to the quantity of goods coming into a country
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What is an embargo?
When there are no imports allowed
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What are the advantages of quotas?
Boosts local investment, protects local companies, creates job opportunities due to growth of domestic firms, increased consumer surplus
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What are the disadvantages of quotas?
Production (they often cause poor product quality as employers struggle to make products in a short time), Imports (countries will avoid quotas by bribing individuals resulting in corruption), Hiring ( you can have a quota on imported labour)
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What is a tariff?
A tax imposed on imports
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What are the costs of a tariff?
Economic well being (countries have to specialise in production of goods they can't efficiently produce), Retaliation, Price rises
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What are the benefits of a tariff?
Protects industries (can protect new industries from global competition), Saving jobs ( by saving industries jobs are saved), Foreign policy goals ( officials can use tariffs to meet foreign policy objectives)
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What are the similarities between a quota and a tariff?
They both restrict foreign trade, if the good is one only a foreign country can produce both policies are useless
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What are the differences between a tariff and a quota?
One changes price the other changes quantity, The quota is more effective in changing quantities but tariffs enable the market to determine appropriate supply levels, The tariff shifts some efficiency gained and can encourage efficiency in the
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What are the differences between a tariff and a quota?
domestic market
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Explain the European union
There are 28 members 19 of which use the euro, it is a customs union with free trade between members and common external tariffs
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What are the advantages of a single European market?
EU members can specialise, it creates European wide competition leading to greater efficiency and lower production costs causing, economies of scale, lower prices, more choice, greater incentives, productivity is raised, inflationary pressures are
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What are the advantages of a single European market?
reduced, unemployment may fall, GDP is encouraged
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What are the disadvantages of a single European market?
Local and domestic unemployment as firms move overseas or are competed out of business, Freedom of movement of labour creates more competition in labour markets, increased immigration putting pressure on public services, EU membership costs (over £6
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What are the disadvantages of a single European market?
billion a year), Lots of money spent on the CAP which people think raises food prices and benefits agricultural producers more than is fair, There is increased pressure to bail out other countries, trade with in the EU replaces trade outside the EU
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What is trade creation?
When joining a customs union reduces the price of imported goods
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What is trade diversion?
When joining a customs union increases the price of imported goods
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What are the conditions members of the EU must meet?
they must be viable institutions that support democracy and human rights and the law, have a market capable of competing, accept EU law and have willingness to move towards a monetary union
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What are the implications of an enlarged EU for existing members?
It can enhance the advantages of a sem, New members often have a lower GDP per capita than existing members limiting exports they can buy from the EU, new entrants are likely to be net beneficiaries from EU budget, Workers from new members are more
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What are the implications of an enlarged EU for existing members?
likely to emigrate increasing immigration
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Explain the Common agricultural policy
It accounts for about 60% of the total EU budget and operates a minimum price for agricultural goods. The aim is to ameliorate the impact of volatile agricultural prices and supply.
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What are the aims of the common agricultural policy?
to increase productivity, farmers incomes, to stabilise markets, to assure the availability of supplies, to ensure reasonable prices for consumers
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What are the principle of the CAP?
Market unity, Common preference, Financial solidarity, Decoupling, Variable price guaruntee
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What are the costs of the CAP?
food surpluses, excess supply, high prices, inefficiency
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What are the benefits of the CAP?
Food Security, Food quality, Rural communities are improved, environment
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What is the European monetary union?
This involves all members having the euro ad their currency
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What are the requirements for a country to join the monetary union?
The country must have: Stable prices, Stable exchange rate, Sound government finances and interest rate convergence
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What are the advantages of the UK adopting the Euro?
The elimination of transaction costs, the removal of exchange rate uncertainty, greater price transparency
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What are the disadvantages of the UK adopting the Euro?
Menu costs, Inflation, loss of economic sovereignity
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What are the factors that effect where the UK should adopt the Euro?
The exchange rate, the importance of policy sovereignty, the suitability of eurowide policies to the UK economy
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What are the convergence criteria for the Uk to join the monetary union?
Cyclical convergence, flexibility, inward investment, impact on the financial sector, impact on growth and employment
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What are PIIGS?
Portugal, Ireland, Italy, Greece and Spain these are the 5 most troubled countries in the Euro
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If PIIGS left the Eurozone how would this effect the UK?
Lower demand for exports in PIIGS, Fall in value of debt repayments, large losses in the UK financial sector if banks are holding bonds, possibility of increased immigration, negative impacts on stock markets, lower business and consumer confidence,
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What does the impact of PIIGS leaving the Euro depend on?
Which country leaves the Euro, how many countries leave the Euro, impact on confidence and stock markets, impact on exchange rates and how it effects the monetary union
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What are the consequences of lowering the exchange rates?
Raise in AD, Increase national output, create jobs ,amplified through the multiplier effect, improvements in balance of payments
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What are the consequences of increasing the exchange rates?
reduces excessive AD, keeps inflation down, the export sector may suffer and jobs could be lost
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What are the benefits of trade?
access to wider variety of goods, access to cheaper or better quality goods, more chance for business expansion, economies of scale, more chance for R & D, could break countries out of poverty, dynamic efficiency gains, access to new technology, i
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What are the benefits of trade?
increased living standards and more contestable markets
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What are the costs of trade?
can negatively effect business, can cause demand to fall, structural unemployment can occur due to cheaper labour supplies abroad, hard for people to fine new work increase sing discouraged workers and the amount of benefits claimed
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