IB HL Economics – Paper 2 defintions: International Trade and Development Economics

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Resource allocation
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is concerned with how resources (land, labor, capital and entrepeneurship) are distributed in an economy.
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Free trade
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free trade exists where there is trade (exporting and importing) between different countries, without government intervention/regulation.
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World Trade Organisation
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an international body that encourages the reduction of trade barriers between its member nations
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Protectionism
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government intervention in order to restrict trade between countries
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Quota
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import barriers that set limits on the quantity (or value) of imports that may be imported into a country
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Types of protectionist measures
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-tariff -quota -subsidy -administrative barrier -environmental -health or safety regulations -government procurement policies -voluntary export restraints
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Administrative barries
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Include: Bureaucratic barriers (customs check for health & safety and packaging requirements) Product standards (for health, safety, environmental and quality) Qualifications (to legally give work – profession)
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Dumping
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the selling of a good in another country at a price below its cost of production.
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Anti-dumping
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is government legislation [= the imposition of tariff] against the selling of imported goods at a price below their production costs
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Inward-oriented policies
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policies designed to encourage the domestic production of goods, rather than importing them (strategy encouraging protectionism)
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Import substitution
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a strategy/policy/measure to deliberately reduce imports (for example through protectionism to encourage/create a domestic industry)
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Trade cycle
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a cycle/pattern in economic activity over a period of time. (A diagram showing slump, recovery, boom and recession would be sufficient for full marks – so it’s basically the business cycle!!!)
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Exchange rate
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the value (price) of one currency expressed in terms of another
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Floating exchange rate
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is where the exchange rate (i.e. price of one currency in terms of another) changes according to the market forces of demand and supply.
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Fixed exchange rate
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an exchange rate that is held to a narrow band of possible prices through government intervention
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Managed exchange rates (managed float)
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a system where the exchange rate is determined by market forces, but the government/Central Bank intervenes from time to time in order to keep it within a certain \”band\” (= range).
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(Official) foreign (currency) reserves
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reserves of foreign currencies (non domestic currency that is saved/deposited for future use) held by the central bank or the government of a country
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Currency appreciation
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when the value of the currency is increasing, expressed in terms of another currency (in a floating exchange rate system)
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Currency depreciation
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when the value of the currency is decreasing, expressed in terms of another currency (in a floating exchange rate system)
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Current account
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a measure of a country’s trade in goods and services with the rest of the world
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Components of the current account of the balance of payments (know all 4)
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-balance of trade in goods -balance of trade in services -(investment or factor) income (interest, dividends, profit) -(current or net) transfers
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Current account balance
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the difference between the revenues earned from exports of goods and services and the expenditure on the imports of goods and services
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Current account surplus
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is where revenues from the exports of goods and services plus net income flows are greater than the spending on the imports of goods and services.
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Current account deficit
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is where the value of total imports of goods and services plus net income flows are greater than the value of total exports of goods and services
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Trading bloc
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an agreement between governments of two or more nations where regional barriers to trade (tariffs, quotas and bureaucratic barriers) are reduced or eliminated between the participating states
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Preferential trade agreement
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a type of economic integration that removes (or reduces) trade barriers for certain products to countries that are in the agreement
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Free trade area
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is an agreement whereby there is free trade among member countries, but each member can maintain its own trade barriers in trade with non-member countries
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Customs union
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the attempt of having tariff-free trade between two or more countries, which also settle on common tariff rates on imports from non-member nations
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Common market
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is like a customs union, but in addition, the 4 factors of production are able to flow freely between member nations
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Economic/monetary union
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a common market with a common currency (which is regulated by a common central bank)
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Economic development
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is a broader concept than economic growth involving welfare improvements to the standard of living including health, education and shelter, or any other appropriate indicators
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Economic Growth
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is the growth of real output in an economy over time and it is measured by an increase in real GDP.
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Developing countries (what they are characterised by)
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Countries which generally have: • low per capita income • high rates of poverty • low standard of living • low HDI ranking/value
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The World Bank
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an organisation whose main aims are to provide aid and advice to developing countries
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Multinational Corporations (MNCs)
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companies that have productive units in more than one country.
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Poverty cycle/trap
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a cycle that involves low incomes which lead to low savings and low investment which ensure low incomes in the future (as this means low capital and low productivity)
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Infrastructure
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involves essential facilities and services such as roads, airports, sewage treatment, railways, telecommunications and other utilities typically provided by the government.
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Foreign direct investment
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a long-term investment (the establishment of production units) by multinational companies in a foreign country.
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Investment
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is expenditure by firms on capital equipment and is an injection into the economy.
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Official aid (or official development assistance)
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aid that is provided to a country by another government (it may be multilateral or bilateral)
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Development aid
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the name for long-term and short-term loans, grants, technical assistance, etc. given to a country for the purpose of increasing the living standards of that country
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Types of development aid (know at least 3)
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-grants -concessional long-term loans -project aid -programme aid -debt cancellation -technical assistance -humanitarian aid -multilateral aid -bilateral aid
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Bilateral aid
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aid that is given directly from one country to another
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Multilateral aid
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money that is given by countries to international (or multilateral) institutions which are distributed to countries
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Transfer payments (2 different definitions)
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a payment received (from the government) for which no good or service is exchanged (for the purpose of redistributing income) OR a form of aid where money is transferred from one country to another
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Corruption
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the abuse of public office for private gain
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Sustainable development
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the development needed to meet the needs of the present generation without compromising the ability of future generations to meet their own needs.
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Indebtedness
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the amount of money that a country owes to other countries and/or international institutions.
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Micro-credit
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a loan which allows poor people to set up a small scale business (and contributes to the empowerment of women)
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Official aid
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is provided to a country by another government or governmental organisation such as UN or EU.
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Tied aid
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is granted on the condition that it is used to buy goods or services from the donor country.
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Gini Coefficient
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a measure of inequality in the distribution of income.
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Informal markets
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refer to markets in which economic activity is not officially measured/ recorded.
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NGOs
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non-government organisations that exist to: promote sustainable economic development and/or humanitarian ideals.
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Absolute poverty
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the condition experienced by people in a country whose incomes are too low (below a certain level/the poverty line) to be able to afford even the most basic necessities for a healthy and safe existence (earning less than 1.25$ per day – moderate poverty is below 2%)
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Relative poverty
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the condition experience by people in a country whose incomes are considerably lower than the higher income group in the same country
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Capital widening
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extension of capital goods to a larger segment of workers
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Capital deepening
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the increase of capital per worker (each worker has more capital)

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