Key Points for essay questions

Ch 25 - Economic Growth

Ch 26 - Inflation

Ch 27 - Unemployment

Ch 28 - Balance of payments on the current account

Ch 29 - Protection of the environment

Ch 30 - Redistribution of income

Ch 31 - Fiscal policy

Ch 32 - Monetary policy

Ch 33 - Supply side policies and government controls

Ch 34 - Relationships between objectives and policies

Ch 35 - Globalisation

Ch 36 - Multinational companies and foreign direct investment

MNC Features:

1. huge assets

2. up-to-date, highly advanced and efficient technology

3. highly qualified and experienced professional executives and managers

4. powerful marketing capability and advertisement

5. influence economically and politically, powerful and even influence government decision

6. efficient, can exploit large economies of scale

FDI Features:

1. economies of scale

2. access to natural resources

3. lower transport and communication cost

4. access to customers in different regions

Advantages of FDIs/MNCs:

1. job creation

2. investment in infrastructure

3. developing skills

4. developing capital

5. contributing to taxes

Disadvantages of FDIs/MNCs:

1. tax avoidance

2. environmental damage

3. moving profits abroad

Ch 37 - International trade

Features of international trade:

1. obtaining goods that cannot be produced domestically

2. obtaining goods that can be bought more cheaply from overseas

3. selling off unwanted commodities

4. improve consumer choice

Advantages of free trade:

1. lower price

2. more choices for consumers

3. lower input prices

4. Wider market for businesses

Disadvantages of free trade:

1. over specialisation

2. unemployment

3. environmental damage

4. other drawbacks

Ch 38 - Protectionism

Reasons for:

1. preventing dumping

2. protecting jobs

3. protecting infant industries

4. gain tariff revenue

5. prevent entry of harmful or unwanted goods

6. reduce current tariffs

7. retaliation

Methods for:

1. tariffs

2. quotas

3. subsidies

Ch 39 - Trading blocs

Features of trading blocs:

1. preferential trading areas (PTAs)

2. free trade areas (FTAs)

3. custom unions

4. common markets

5. economic unions

Advantages of trading blocs:

1. goods cheaper

2. more consumer choice

3. after economic growth

4. exploit economies of scale

5. extra competition to help improve the quality of goods

6. encourage innovation

7. closer cooperation between members

8. reduce cross-border conflict, promote peace and achieve social and economic gains

Disadvantages of trading blocs:

1. too powerful if merged

2. rely too heavily on the bloc, more vulnerable to making changes in price and demand patterns

3. miss out on working opportunities

4. consumers pay more for goods and services in some industries

Impact of trading blocs on non-member states:

1. face common trade barriers

2. forced to find a new market

Ch 40 - The World Trade Organisation and world trade patterns

Ch 41 - Exchange rates and their determination

Definition:

• a price of a currency in terms of another currency

Factors affecting the demand and supply for a currency

1. interest rate

2. currency speculators

3. the demand for exports

4. the demand for imports

5. FDI

Ch 42 - Impact of changing exchange rates

Definitions:

• appreciation: when the value of a currency rises because of market forces - the exchange rate rises as a result

• depreciation: when the value of a currency falls because of market forces - the exchange rate falls as a result

• revaluation: an increase in exchange rate due to government intervention

• devaluation: a decrease in exchange rate due to government intervention

Impact of exchange rate appreciation and depreciation:

1. impact on imports

2. impact on exports

3. impact on current account

Exchanging rates and government policy

1. government don’t have complete control of the interest rate in the country

2. reducing interest rates may conflict with other policies

3. only work If demand for exports and imports is responsive to price changes (elastic)