Extract One

Question 1

Globalisation Definition

Answer 1

The process in which national economies have become increasingly integrated and interdependent.

Question 2

Factors promoting Globalisation

Answer 2

• Reduction in protectionism
• Reduction in international capital movement restrictions
• Fall in real transport costs
• Developments in IT and communication

Question 3

Reduction in protectionism

Answer 3

Removal of tariff’s, quotas ect that remove trade to allow trade/globalisation, more integration.

Question 4

Reduction in international capital movement restrictions

Answer 4

Foreign direct investment to flow from developed countries to developing countries, more freely, where emerging economies have benefitted from FDI/MNC.

Question 5

Fall in real transport costs

Answer 5

Incredibly easy for firms to transport their goods, with the increasing economies of scale of shipping/air cargo, getting larger.

Question 6

Developments in IT and communication

Answer 6

Global supply chains can be managed in an effective way, across the world.

Question 7

Costs of Glabalisation

Answer 7

• Income inequality
• Structural unemployment
• Greater effect of external shocks
• Environmental costs

Question 8

Income inequality

Answer 8

Certain governments through corruption, higher growth rates may not transpire to higher incomes to all, macro objective of fair distribution of income not met, parts stay in poverty.

Question 9

Structural Unemployment

Answer 9

The greater competition may lead to decline in infant industries, may not have economies of scale or capital to compete internationally. Macro objective of low unemployment increase poverty/dependancy.

Question 10

Environmental Costs

Answer 10

High costs, high FDI an increasing focus on growth creating negative externalities with air pollution, resource depletion and degradation, not sustainable for future generations.

Question 11

External Shocks

Answer 11

More reliant/dependant on each other, reducing incomes/prosperity levels, unemployment increase benefits, harm the balance of payments.

Question 12

Benefits of Globalisation

Answer 12

• Improved allocation of resources
• Higher GDP growth
• Technology transfer
• Reduced trade restriction
• Lower costs

Question 13

Higher Growth

Answer 13

Allows countries to exploit their comparative advantage, where specialisation maximises export revenue. AD (component)/demand increases unemployment reduce.

Question 14

Improved allocation of resources

Answer 14

Countries export their specialised comparative advantage and import the things they cannot produce efficiently, resources are diverted to best producers, solving economic problem.

Question 15

Reduced trade restriction

Answer 15

Reduces protectionism increases market size and consumer welfare increases from greater access to g/s and allocative efficiency.

Question 16

Lower costs

Answer 16

Can source raw materials from around the world and find cheapest prices. Experience lower costs translating into prices allowing them to increase market share and profits, promoting long term investment and dynamic efficiency.

Question 17

Technology transfer

Answer 17

Greater access to new tech, can spread faster than closed economies. Tech advancements faster improving efficiency and profits for firms. Prices reduce and consumers benefits from new products consumer, welfare maximised.

Question 18

FDI Definition

Answer 18

Spending by MNC’s in physical capital in overseas operations.

Question 19

Two types of FDI

Answer 19

• Building new factories/capital in countries, improve capacity and LRAS increases and AD.
• Purchasing firms in other countries, profits diverted. Only AD increases initially.

Question 20

Quota Definition

Answer 20

Imposing a physical limit on the quantity of a good/service that can be imported.

Question 21

Trade Barrier Definition

Answer 21

Restriction of trade between nations

Question 22

Protectionism Definition

Answer 22

The protection of domestic industries from foreign competition.

Question 23

Tariff Definition

Answer 23

A tax levied on imports.

Question 24

Tariff Diagram - Removal

Answer 24

Reduction in supply shifting downwards, 
EXTENSION IN DOMESTIC DEMAND Q3 - Q4
CONTRACTION IN DOMESTIC SUPPLY Q2 - Q1
Volume of imports increased between box 2,4
Trade Creation

Question 25

Comparative Advantage

Answer 25

States a country should produce/specialise in the goods/services it can produce at the lowest opportunity cost.

Question 26

Absolute Advantage

Answer 26

Occurs when a country can produce at a lower unit cost than another nation.

Question 27

Economic Efficiency

Answer 27

Where every resource is allocated ensuring that waste and inefficiency is minimised.

Question 28

How can trade % GDP exceed 100

Answer 28

Industries produce more money from exports than the entire domestic economy. Money from exports allows them to purchase imports into excess of their domestic economy could otherwise support.