World Economy Final - Week 1

Front 1

Which of the following is true? Countries of the world differ in terms of their:

a. Geographic Size
b. Population Size
c. Standards of Living
d. All of the above

Back 1

D. ALL OF THE ABOVE

Front 2

Which of the following statements is false?

a. Richer countries tend to be found in North America, Western Europe, and Japan.

b. Countries with large populations tend to be rich.

c. Growth of per capita GNP tends to be quite stable at around 1.5 to 3% per year in industrialised countries.

d. Over the past several decades, growth of per capita GNP tends to be high on average in industrialised countries than in low or middle income countries.

Back 2

B. COUNTRIES WITH LARGE POPULATIONS TEND TO BE RICH

Front 3

Which of these countries performed best at the London 2012 Olympic Games?
a. Great Britain
b. Jamaica
c. USA
d. Kenya
e. Brazil

Back 3

B. JAMAICA (OR C. USA)

USA received the most medals (including gold), but of these countries Jamaica has the least population per medal (230,000 people per medal vs. 15 million per medal in China) and the least GDP per medal (1.7 billion vs. 140 billion per medal in USA). Therefore in an economic sense, Jamaica was the most successful.

Front 4

Over the last 200 years which of these has occurred within the world economy?

a. Life expectancy has improved

b. Countries have converged towards a high income, high life expectancy equilibrium

c. Countries have converged towards a low income, low life expectancy equilibrium

d. Inequality has fallen

e. None of the above

Back 4

A. LIFE EXPECTANCY HAS IMPROVED

All countries have seen an improvement in average life expectancy, however not all countries have also experienced an improvement in GDP per capita (particularly those in Sub-Saharan Africa). We have conditional convergence of economies but not absolute convergence. Overall, inequality has increased; in the 1800s all economies had GDP per capita of $2,000 or less, whilst today some countries have GDP per capita in excess of $40,000 whilst others remain at less than $2,000.

Front 5

Which of the following statements is false?

a. Barriers to trade include government policies such as tariffs and quotas

b. Barriers to trade have been falling with technological improvements in transportation and communication

c. Barriers to trade have risen since World War II as many countries have imposed higher tariffs

d. All of the above

Back 5

C. BARRIERS TO TRADE HAVE RISEN SINCE WWII AS MANY COUNTRIES HAVE IMPOSED HIGHER TARIFFS

Front 6

Which of the following is true?

a. Much of the trade of the EU countries is with other EU countries

b. Industrialised countries tend to trade relatively little and largely with developing countries

c. Developing countries in Africa and South America tend to trade the most and largely with themselves

d. All of the above

Back 6

A. MUCH OF THE TRADE OF THE EU COUNTRIES IS WITH OTHER EU COUNTRIES

Front 7

Which of the following statements is true?

a. Countries tend to trade extensively with their neighbours

b. The US is an important trading partner for many countries

c. The largest amount of international trade occurs between industrialised countries

d. All of the above

Back 7

D. ALL OF THE ABOVE

Front 8

Why do Multinational Corporations (MNCs) engage in Foreign Direct Investment (FDI)?

a. Market seeking
b. Resource seeking
c. Efficiency seeking
d. Strategic asset seeking
e. All of the above

Back 8

E. ALL OF THE ABOVE

-Market seeking – to access customers
-Resource seeking – to access/aquire natural resources
-Efficiency seeking – to minimise costs / improve efficiency
-Strategic asset seeking – to expand/enhance competitive advantage through acquisition or development of intellectual property, brands and/or technologies.

Front 9

What are the World’s five richest countries?

Back 9

It depends on which measure you use.
Measured in total GDP (PPP):
(1) US, (2) China, (3) India (4) Japan and (5) Germany

Measured in GDP per capita (PPP):
(1) Liechtenstein, (2) Qatar, (3) Luxembourg, (4) Bermuda and (5) Singapore

Front 10

Do countries with large populations tend to be rich?

Back 10

Again, it depends on which measure you use.
In terms of total GDP, yes countries with large populations tend to be rich.

However, using GDP per capita (a much better measure of welfare than total GDP) then, with the exception of the US, countries with large populations do not tend to be rich.

Front 11

Which country is the leading trading partner of the US?

Back 11

US Trading Partners (2011)

Exports:
-Majority of US exports are purchased by Canada (13.4% of total US exports).
-Then Mexico (9.4%) and China (4.9%).

Imports:
-Majority of US imports are purchased from China (15.0% of total US imports).
-Then Canada (11.8%) and Mexico (9.9%).

Front 12

Why do countries tend to trade with their neighbors?

Back 12

The most obvious answer is transportation costs, both in money and in time. A firm will buy components from the closer supplier rather than one father away (given the same quality of product) because transportation will likely be faster and less expensive. For example, US automobile manufacturers buy more parts from Canada than from Germany. Also, individuals in countries that share borders are probably more familiar with each other’s business practices and customs, resulting in lower transactions costs.

Front 13

Define globalization.

Back 13

The process through which the world economy is becoming increasingly interconnected.

Front 14

List some reasons why globalization has occurred.

Back 14

-Reduction in transportation costs
-Decline in trade tariffs
-Move towards flexible exchange rates (enabling greater capital mobility)
-Increasing numbers of emerging markets adopting trade orientated policies

Front 15

What are the advantages of globalization?

Back 15

Advantages:
-Beneficial effects on long term growth
– countries with high trade tariffs tend to have lower GDP per capita
– trade liberalisation tends to boost GDP growth (and does not systematically affect inequality)

-Comparative advantage – all countries can benefit from trade, even if they are less productive in every industry than other nations. (Through specialisation in what they are least bad at)

-Broader access to a range of foreign products for consumers and companies.

-Increased liquidity of capital allowing investors in developed nations to invest in developing nations (and vice versa).

-Improved access to financial markets and external borrowing.

-FDI (and hence MNCs) may also ease the transfer of technological and business know how to poorer countries.

Front 16

What are the disadvantages of globalization?

Back 16

Disadvantages:
-Countries are affected by the economic health of other countries.

-Potential loss of national sovereignty and cultural diversity

-International Trade:
 -The more open an economy the more vulnerable it will be to changes in the level of economic activity in the rest of the world.
 -This is a particular problem when a nation is heavily dependent on trade with one other nation (e.g. Canada on the US) or one other region (e.g. Switzerland on the EU).

-International Finance:
-Changes in interest rates in one country will affect financial flows to and from other countries, and hence their exchange rates, interest rates and national income.
 -The larger the financial flows, the more will interest rate changes in one country affect the economies of other countries.

Front 17

Is it a good or a bad thing? Why?

Back 17

Overall, in an economic sense, globalisation is positive as it has a positive effect on economic growth. But international institutions, such as the World Bank, IMF and WTO, are essential to co-ordinate national policies and to ensure that globalisation works efficiently.

Front 18

Differences between Rich and Poor Countries: Look at the table (from Sloman et al. (2012) p. 804) and answer the following questions.

a. What percentage of the world’s population lives in a High-Income Country?

Back 18

Just 16.5% of the world’s population lives in a high-income country.

(1116.6 /6775.2) x 100 = 16.5 %

Front 19

Differences between Rich and Poor Countries: Look at the table (from Sloman et al. (2012) p. 804) and answer the following questions.

b, How much greater (in percentage terms) is the GNY per capita of the high-income countries compared to the low-income countries?

Back 19

The per capita income in the high- income countries is 74.6 times (or 7,459%) greater than the per capita income of the low-income countries.
(37989.9 ÷ 509.3) x 100 = 7,459%

Front 20

Differences between Rich and Poor Countries: Look at the table (from Sloman et al. (2012) p. 804) and answer the following questions.

c. Which group of countries has had the largest growth of export and services (i) between 1980 and 2003?

Back 20

(i) between 1980 and 2003
-The upper-middle income countries group (countries with a GNY per capita in 2009 of $3,946-$12,195);
-During the period 1980 – 2003 most countries became more open to international trade and hence experienced positive growth in exports of goods and services.
-Openness measures the importance in international trade to an economy, and is calculated as the ratio of exports to GDP. As such, a value of 10 implies exports account for 10% of a country’s GDP. (Values of over 100 are possible because exports are measured in terms of the total value of goods whilst output is measured in terms of value added.)
-The average openness value in 2003 was 29.1.
-On average, the middle income countries have shown the biggest increase in openness and hence the biggest growth in exports.
-In particular, China (6 to 35), Malaysia (58 to 108) and Hungary (39 to 65).

Front 21

Differences between Rich and Poor Countries: Look at the table (from Sloman et al. (2012) p. 804) and answer the following questions.

c. Which group of countries has had the largest growth of export and services (i) between 1980 and 2003?

[CONTINUED]

Back 21

-Interestingly, the US, Japan and the UK remained relatively closed during this period, with openness indexes of 7, 12 and 17 respectively.
-Recall, that the share of Asian exports in total world trade has increased from 12% in 1965 to 29% in 2004. Asia is now the 2nd largest source of exports, after the EU.

Front 22

Differences between Rich and Poor Countries: Look at the table (from Sloman et al. (2012) p. 804) and answer the following questions.

c. Which group of countries has had the largest growth of export and services (ii) between 2000 and 2009? Can you think of any reasons why?

Back 22

(i) between 2000 and 2009
-The lower-middle income countries group (countries with a GNY per capita in 2009 of $996 - $3945);
-The upper-middle income countries have already experienced growth through trade (and financial) liberalisation, the lower-middle income countries are now following suit by opening their door to trade in the hope that they will reap similar benefits (higher economic growth).

Front 23

Differences between Rich and Poor Countries: Look at the table (from Sloman et al. (2012) p. 804) and answer the following questions.

d. Which group of countries appear to be the least developed? Why?

Back 23

It is possible to make a case for both the Low income economies group and the Sub-Saharan Africa group.

Low income economies:
-Lowest GNY per capita of all the groups (and this, or GDP per capita, is usually the benchmark for determining the welfare of an economy)
-Highest child mortality rates
-Smallest urban population
-Lowest health and education expenditure (as a % of GDP)
-Lowest provision of domestic credit

Sub-Saharan Africa:
-Lowest growth of private consumption, although this has improved since 1980-2003 when it was shrinking (negative growth)
-Very low life expectancy (52 years), which is the lowest of all the groups.
-Smallest growth of exports (1980-2003)
-Smallest urban population
-Highest illiteracy rates
-Highest child mortality rates
-Highest prevalence of HIV