Eco grind IA1

Recall the concept of an open economy

an economy in which a significant percentage of its goods and services are traded internationally

advantages of international trade

Standard of living improved

International relations improved
Efficiency enhanced
Risk with and reliance on local markets reduced
Specialisation enhanced
Competition facilitated
Job creation

Cons of international trade

trade protection and retaliation (tariff, subsidy, quota, embargo)

environmental impact

exposure to foreign market fluctuations/crisis

Dutch disease

what is a floating exchange system

when currency value is determined by market forces, with no direct government or central bank intervention

clean float

occurs when a currency’s value is determined purely by market forces without government or central bank intervention

dirty/managed float

when a government or central bank occasionally intervenes in the currency market to influence its value, even though it is generally market driven

fixed exchange system

the currencys value is set and maintained by the government or bank and is usually backed by foreign currency reserves. the exchange rate is stable

pegged exchange rate

a hybrid system where a currency is linked to another but can adjust within a set range.

advantages of globalisation

·       Improved price and availability of goods to which improves wellbeing and living standards.

·       Increase in domestic employment as a result of the promotion of efficient industry and trade.

·       Faster spread of technology and improvements in productive efficiency.

·       Increased migration and financial flows

·       Economies of scale and specialisation.

(PETME)

disadvantages of globalisation

·       Overdependence on exports and imports.

·       Exposure to external shocks that can impact domestically.

·       Widening income/wealth gap between countries.

·       Increase in structural unemployment as a result of inefficient industries not being internationally competitive.

·       Exploitation of resources (labour and natural)..