Theme 4

Factors contributing to Globalisation?
Imporvements in; transport, communication tech, liberalisation + growth of TNC's
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Impacts of Globalisations on economies?
Rising living standards(specialisation pushes prices down), greater consumer choice, growing interdependence of nations, de-industrialisation + worker exploitation
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Difference between Absolute and Comparative Advantage?
Absolute; when a country can produce more of both goods(or all)or use less resources per unit, Comparative; when a country has a lower opportunity cost in producing a specific good in comparison to others
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Advantages Vs. Dis Adv for Specialisation
Lower prices/Increased choice, EOS + Economic Growth // possible Trade Deficit, unbalanced Development + infant industries (LEDC's) unable to compete
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What causes Trade Creation + Diversion?
Emerging economies + new Trade blocs
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What is Terms of Trade?
Terms of trade = (Index of export prices / Index of import prices) x100
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Factors affecting TOT?
Inflation rates, Productivity and Exchange Rates (+ raw materials e.g cost of production)
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Topics relevant to TOT?
Living standards, competitiveness + Current account(BOP)
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Types of Trade blocs
Free trade areas, Custom Union, Monetary Union(same currency) + Common Market(free movement of FoP)
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Which IGO promotes free trade?
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Reasons for Protectionism?
Protect Infant industries, maintain Employment, aid Current Account, retaliation/Anti-Dumping + reduce Comp.
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Types of Protectionism?
Tariffs, Quotas, Subsidies + Standard checks
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3 key components of BOP?
Current(money in vs. out), Capital(net change in ownership of transferable contracts)**smallest** and Financial account(net change in ownership of financial assets)
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Causes of Current Account deficit?
low Productivity, SPICED, high rate of Inflation, rapid Economic Growth resulting in increased Imports + poor quality and design
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How to fix deficit? What are the Methods?
Expenditure reducing(e.g. decrease AD;fiscal) + Expenditure switching(protectionism) + Supply-side policies
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Factos affecting (floating) ER?
IR, Inflation, balance in trade(demand for exports), FDI + QE
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Topics affected by ER?
Current Account(Marshall-Lerner); Short Run vs Long Run(J curve effect), Competitiveness; Growth/Employment, Inflation + FDI flows
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What determines Competitiveness?
Price/Quality of good; Unit Labour costs(Productivity), Wage/non-Wage costs, ER, Inflation + Regulation
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Absolute vs. Relative Poverty?
Absolute; when daily existence is threatened by lack of basic needs($1.25) // Relative; poor compared to others in society(60% below median income)
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Causes of change in Poverty?
Growth/Development, FDI, greater Trade, Tax; benefits policies + changing asset prices
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Difference between Wealth and Income Inequality?
Wealth; differences in peoples stock of assets // Income; differences in people’s income flows
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Ways of measuring Inequality?
Lorenz Curve; Gini coefficient
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Causes of Inequality?
Education, Wage rates, Social benefits, Tax system + ownership of assets
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What is the mainn development indicator? Good/Bad?
HDI; takes into consideration education, health and real GNI (good as if combines growth with quality of live measures // bad since it doesn't consider Inequality + Poverty)
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Other development indicators?
IHDI(inequality adjusted) + MPI
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(Economic) Factors influencing growth/development?
Primary product dependancy (Prebisch-Singer hypothesis; worsening TOT as manufactured goods rise in price proportionally), Levels of savings/investment, Foreign Currency Gap, Capital Flight, Demographics, Access to credit, Infrastructure + Education
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(Non-Economic) Factors influencing growth/development?
Corruption/Poor governance, Wars and Geography
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'Market-based' strategies for growth?
Trade liberalisation, FDI promotion, Removal of Subsidies, Privatisation + Micro-Finance
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'Interventionist' strategies for growth?
Supply side policies(human capital and infrastructure development), Protectionism + Buffer Stock Schemes
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'Other' strategies for growth?
Tourism development, Fair-trade schemes; WTO(removing protectionism), Aid + Debt relief(unable to borrow in future however)
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Key roles of Financial Markets?
To facilitate saving, lend to businesses and individuals, provide a means by which goods/services/stocks/shares can be traded easily + provide future markets for trade to reduce risk/uncertainty
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Market Failure - Financial markets?
Asymmetric Information(bankers know more than regulators), Externalities(LIBOR affected other countries), Moral Hazard(Gov. bail out) + Market Rigging
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Key roles of a Central Bank
Monetary Policy, The Govs./ Bankers 'Bank' + Regulator of Banks(e.g. level of reserves required)
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3 types of Public expenditure?
Capital(long term investments e.g. hospitals), Current(day-to-day) and Transfer payments(benefits etc.)
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Factors affecting size of Public expenditure?
Changing incomes/demographics(age)/expectations + Financial crisis(external shocks)
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What is meant by 'Crowding out'?
Resource; when expansion of public sector means shortage of resources for private sector // Financial; heavy Gov. borrowing drives interest up and reduced private investment
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3 types of Taxes?
Progressive(increases as income rises e.g. Income Tax), Proportional(same percentage of any income e.g. Capital gains Tax) + Regressive(as income rises, tax percentage falls e.g. Alcohol)
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Factors affected by changing Tax rates?
Incentive to work, Tax rev.(Laffer Curve), Income distribution, AD(leakage), Inflation, FDI + Current Account
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Difference between 'Automatic Stabilisers' and 'Discretionary' Fiscal policy
Gov. Spending and Tax revs. change due to economic cycle VS. Changing Tax and Spending to meet objectives
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Difference between Fiscal deficit + National debt?
Fiscal deficit; spending exceeds rev. + National debt = total of past borrowing
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Factors affecting size of Fiscal deficit?
State of economy, Housing market(stamp duty rev.) + Gov. Objectives
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Factors influencing size of National debt?
Size of fiscal deficit/Gov. Policies
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What do Fiscal deficits and National debt impact on?
Interest rates, level of inflation(AD; circular flow of income), FDI + Credit rating
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5 types of 'macro' policies that impact globally+nationally?
Fiscal policy, Monetary policy, ER policy, Supply-Side policies and Direct controls
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Possible 'External Shocks' affecting global economy?
Climate change, Changing oil price + (2008) Financial crisis
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TNC's and Transfer pricing
Corporate tax rates varies considerably from country to country, thus potential for global companies to reduce their global tax charge by manipulating the prices charged on intra-group transactions(low profits in high tax place; vice versa for haven)
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Measures to control TNC's?
Required to use local factors of P, Required to set up joint venture; transfer tech. to domestic firms + OECD; int. Tax laws + 'arms length' principal (must charge market price)
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Problems facing policy makers?
Inaccurate information, Risks/Uncertainties + Inability to control External shocks
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Other cards in this set

Card 2


Impacts of Globalisations on economies?


Rising living standards(specialisation pushes prices down), greater consumer choice, growing interdependence of nations, de-industrialisation + worker exploitation

Card 3


Difference between Absolute and Comparative Advantage?


Preview of the front of card 3

Card 4


Advantages Vs. Dis Adv for Specialisation


Preview of the front of card 4

Card 5


What causes Trade Creation + Diversion?


Preview of the front of card 5
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