Theme 4: A global perspective

What is globalisation?

The ever-increasing integration of the world's local, regional and national economies into a single international market.

What is globalisation the free movement of?

its the free movement of labour, capital, free interchange of technology and intellectual capital.

Who is exploited within globalisation?

Low skilled labourers, countries with low competitiveness in terms of quality and price.

How does globalisation positively impact consumers?

It increases the availability of options and may lead to lower prices due to increased competition.

What concern do consumers have regarding globalisation?

Many consumers worry about the loss of culture.

How does globalisation affect production costs for firms?

It typically lowers production costs by allowing firms to expand operations overseas and source cheaper labor.

What is one benefit of globalisation for producers?

It allows for the free interchange of technology and intellectual capital, making operations more efficient.

What negative impact can globalisation have on less wealthy countries?

It can be detrimental to their national economy due to increased competition.

How can globalisation boost government revenue?

It can increase tax revenue as more people are employed and MNCs pay taxes.

What is a potential downside of MNCs for governments?

MNCs may engage in tax avoidance and have the power to bribe or lobby governments, leading to corruption.

How does globalisation affect low-skilled workers?

Low-skilled workers are often exploited through lower wages.

What opportunities does globalisation provide for high-skilled workers?

It leads to increased job opportunities due to the free movement of labor.

What environmental issues are associated with economic growth from globalisation?

It can lead to pollution and overexploitation of resources.

What is absolute advantage?

The ability of a party to produce a greater quantity of a good using the same amount of resources compared to competitors.

What does the theory of comparative advantage state?

Countries find specialization mutually advantageous if their opportunity costs of production differ.

What should a country specialize in according to comparative advantage?

A country should specialize in goods with a lower opportunity cost.

What are the advantages of specialization and trade?

Greater consumer choice, increased competition, innovation, and lower costs.

What are some disadvantages of specialization and trade?

Overdependence, structural unemployment, environmental degradation, and loss of sovereignty.

What is meant by the pattern of trade?

The composition and volume of a country's imports and exports over time.

What can cause changes in the pattern of trade?

Changes in comparative advantages, emerging economies, relative exchange rates, and trade barriers.

How do relative exchange rates affect trade?

They influence the relative prices of goods, affecting export and import levels.

What is the formula for terms of trade?

(Price index of exports / Price index of imports) x 100.

What factors can affect terms of trade?

Exchange rates, inflation rates, and factors affecting supply and demand of imports and exports.

How can terms of trade affect macroeconomic objectives?

They can influence economic growth, inflation, unemployment, and balance of payments.

What is inflation?

A fall in demand that pulls inflation down, leading to a decrease in cost-pushed inflation.

What type of unemployment rises during economic downturns?

Cyclical unemployment.

What happens to the current account during stable balance of payments?

The current account will get worse.

Define a trading bloc.

A group of countries that have signed a regional trade agreement to reduce or eliminate tariffs, quotas, and other protectionist barriers.

What is a Preferential Trading Area?

A trading bloc where tariffs and trade barriers are reduced on some, but not all goods between member countries.

Give an example of a Preferential Trading Area.

Commonwealth Preference System established in 1932 among 48 Commonwealth countries.

What is a Free Trade Area?

An agreement where two or more countries reduce or eliminate trade barriers on all goods coming from other members.

Name an example of a Free Trade Area.

ASEAN Free Trade Agreement or NAFTA (North American Free Trade Area).

What defines a Customs Union?

Removal of tariff barriers between members and acceptance of common external trade barriers against non-members.

Provide an example of a Customs Union.

Eurasian Economic Union (EAEU) including Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan.

What is a Common Market?

A market where member states trade freely in all economic resources, imposing common external trade barriers on imports.

Give an example of a Common Market.

European Union Common Market (EU).

What is a Monetary Union?

An agreement between two or more countries to use a single currency and monitor exchange rates through a central bank.

Name an example of a Monetary Union.

European Union Common Market (EU) or West African Economic and Monetary Union.

What is an Economic Union?

A more integrated union requiring harmonization of tax, monetary, and fiscal policies among member countries.

Provide an example of an Economic Union.

The USSR or the EU.

What is a Political Union?

A union requiring members to accept a common stance on economic and political policies against non-members.

Give an example of a Political Union.

The United States or the European Union.

Define Trade Creation.

When trading blocs replace high-cost domestic products with low-cost, more efficient imports.

Define Trade Diversion.

When trade is diverted from a more efficient non-member to a less efficient member.

What is protectionism?

The process of protecting domestic producers from foreign competition through trade barriers.

What are tariffs?

Taxes placed on imported goods to make them more expensive, thus encouraging domestic purchases.

What are quotas?

Limits placed on the level of imports allowed into a country.

What are subsidies?

Payments to domestic producers that lower their costs to compete against foreign goods.

What is dumping?

When a country sells surplus goods at very low prices, harming domestic producers in importing countries.

What impact does protectionism have on consumers?

Higher prices, less incentive for efficiency, and reduced choice.

What is the impact of tariffs on government revenue?

Increase in tariff revenue and potential political popularity.

What is a flexible exchange rate system?

A system where the value of currency is determined by market demand and supply without government intervention.

What does a floating exchange rate system depend on?

Trade flows and capital flows affect the exchange rate.

What is a fixed exchange rate system?

A system where the government sets the value of currency against another and maintains it through market interventions.

What is the difference between depreciation and devaluation of currency?

Depreciation is a decrease in currency value due to market demand and supply, while devaluation is a deliberate decrease by the government.

What causes the value of a currency to fall?

A fall in demand for the currency or an increase in supply.

What factors affect the demand for a currency?

Political reasons, demand for domestic exports and tourism, investment in the domestic country, and the state of the economy of a foreign currency.

What factors affect the supply of a currency?

The state of the domestic economy, demand for foreign exports and tourism, and investment in foreign countries.

When does a currency appreciate?

When demand for the currency increases or supply decreases.

What is the Marshall-Lerner Condition?

The condition that the price elasticity of demand for exports plus the price elasticity of demand for imports must be greater than 1 for the current account to improve when the currency depreciates.

What is the J-curve effect in economics?

It describes how a fall in the exchange rate may initially worsen the current account position before it improves.

What is managed floating or dirty floating?

A system where the government intervenes in the currency market to influence the value of the currency.

What is international competitiveness?

It refers to a country's ability to sell goods and services in international markets, influenced by factors like relative labor costs and product quality.

What is absolute poverty?

When a household lacks sufficient income to meet basic needs for a standard of living.

What is relative poverty?

A level of household income significantly lower than the median income within a country.

What is the World Bank's poverty line as of 2022?

$2.15 per day.

What are some causes of absolute poverty?

Rapidly rising population, lack of infrastructure, primary product dependency, shortage of capital, and corruption.

What are some causes of relative poverty?

Wage inequality, job insecurity, economic inactivity, old age, and regressive taxes.

What is income inequality?

The disparity in income earned by individuals or groups within an economy.

What is wealth inequality?

The disparity in the distribution of assets among individuals or groups.

What is the Gini coefficient?

A measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality).

What does the Gini coefficient equation represent?

A/A+B, where A is the area between the line of equality and the Lorenz curve, and B is the area between the Lorenz curve and the x-axis.

What is the role of interest rates in currency value?

Higher interest rates can increase demand for a currency as they attract foreign investment.

What is hot money inflow?

Capital that moves between economies seeking better returns and short-term profits.

How can a country improve its international competitiveness?

By decreasing prices, improving quality, innovating, and increasing efficiency.

What is the impact of inflation on international competitiveness?

A decrease in inflation can enhance competitiveness by making exports cheaper.

What is the significance of relative unit labor costs?

It measures the cost of employing workers for each unit of goods produced.

What is the effect of depreciation on the current account?

In the long term, depreciation can improve the current account if the Marshall-Lerner condition is met.

What do we measure on the y and x axis in the context of inequality?

The y-axis typically measures income or wealth, while the x-axis measures the population or income distribution.

What does the line of equality represent?

The line of equality represents absolute equality in income distribution.

What does the Lorenz curve show?

The Lorenz curve shows the current distribution of income within a population.

How does the distance from the Lorenz curve to the line of equality relate to inequality?

The greater the distance from the Lorenz curve to the line of equality, the higher the level of inequality.

What is wage inequality?

Wage inequality refers to disparities between different income groups based on the value of their wages.

How does wage inequality affect purchasing power?

Lower income groups have less purchasing power, limiting their ability to consume goods and services.

What are regressive taxes?

Regressive taxes are tax systems that disproportionately affect lower income individuals, such as VAT.

How can VAT contribute to inequality?

VAT takes a larger percentage of income from lower earners, reducing their purchasing power.

What is the impact of inheritance on inequality?

Inheritance can perpetuate wealth inequality by transferring assets to individuals without regard to their economic contributions.

What role do low benefit payments play in inequality?

Low benefit payments can exacerbate poverty and inequality by providing insufficient support for those in need.

How does globalization affect income inequality?

Globalization can increase inequality by allowing lower-skilled workers to be exploited and underpaid in competitive markets.

What is the effect of technological advancements on low-skilled workers?

Technological advancements can replace low-skilled workers, leading to job loss and increased poverty.

What is the UK government's relative poverty line?

The relative poverty line is set at less than 60% of median household disposable income.

What causes absolute poverty related to population growth?

Rapidly rising population increases demand for resources, leading to lower availability and reduced living standards.

How does lack of infrastructure contribute to poverty?

Poor infrastructure leads to inadequate healthcare and education, hindering workforce productivity and mobility.

What is primary product dependency?

Primary product dependency occurs when economies rely heavily on primary goods, making them vulnerable to price fluctuations.

What is the role of capital and entrepreneurship in economic growth?

Capital and entrepreneurship are crucial for growth, but their scarcity can hinder production increases.

How do social factors affect development in developing countries?

Backward social structures, such as caste systems and inheritance laws, can impede faster economic development.

What is the impact of corruption on aid and development?

Corruption can divert aid for personal gain, leading to increased debt and stunted development.

What is the significance of the Gini coefficient?

The Gini coefficient measures income inequality, ranging from 0 (absolute equality) to 1 (absolute inequality).

What does the equation for the Gini coefficient represent?

The Gini coefficient is calculated as A / (A + B), where A is the area between the line of equality and the Lorenz curve.

What is the relationship between job insecurity and relative poverty?

Job insecurity and part-time work can lead to financial instability, contributing to relative poverty.