Notesale: Turn your study into money

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Unit three IB definitions (SL)
Administrative barriers
Any bureaucratic requirement that impedes imports
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Balance of Trade in Goods (visibles)
Export of goods minus import of goods
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Barrier to trade
Anything that prevents free trade
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g
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Capital Account
Component of the balance of payments
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Common market
A customs union with common policies on product regulation and free movement of
goods, services, capital and labour
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Trade in goods (visibles)
B
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Income
D
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Current Account deficit
Occurs when the revenue from exports and income flows is less than the spending on
imports and income flows in a given time period
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Dumping
One country selling a good into another country at below the unit cost of production
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Financial Account
A measure of the net change in foreign ownership of domestic assets and domestic
ownership of foreign assets
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Fixed exchange rate
When the price of a currency is fixed to another currency
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Floating exchange rate
When the value of a currency is determined by demand and supply without interference
from the government
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Alternatively, long term investment undertaken in one
country by companies from another country
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Free Trade Area
An agreement made between countries, where the countries work towards free trade
amongst themselves, but are able to set their own protectionist policies with countries
outside the Free Trade Area (no CET)
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International competitiveness
The ability of a country’s goods and services to compete in the home and foreign
markets
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Determined by:
* price factors:
- education and training (affects productivity)
- exchange rate
- inflation relative to trading partners
- State of the CA (if deficit then i/r may be high to attract hot money)
- i/r
- use of capital equipment (affects productivity)
- willingness to accept low wage
* non price factors
- R/D
- education
- branding
These affect the quality and perceived non substitutability of British goods and services
International reserves
Foreign currency reserves held by governments
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Liberalisation (trade)
Reduction of protectionist barriers
Managed exchange rate
An exchange rate is determined by market forces, but the government intervenes from
time to time to keep the currency within limits or to pursue other macroeconomic
objectives
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A Common Market with a common currency and a common central bank
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Portfolio Investment
The purchase of financial instruments such as shares and bonds in order to gain a
financial return in the form of dividends or interest
Protectionism
Policies by a country to reduce imports from other countries and/or increase exports
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Purchasing Power Parity theory of exchange rates
Exchange rates adjust to offset the differences between countries inflation rates
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Quota
Import barrier that set limits on the quantity (or value) of imports
Real exchange rate
The nominal exchange rate adjusted for differences in inflation between countries
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Reserve Assets
Foreign currency and gold held by a country
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Restrictions on free trade
Restrictions imposed by a government in order to influence the flow of goods and
services to and from the country
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Subsidy (as a method of protectionism)
An amount of money paid to a firm by the government in order to lower their cost of
production and encourage output
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A range of measures intended to have a direct impact on
aggregate supply (the potential output capacity of the economy)
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Increases price of import and therefore decreases their demand
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Trade Protectionism
Trade protection is policies by a country to reduce imports from other countries and/or
increase exports
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Trading bloc
A group of countries that agree to decrease or drop protectionist measures against each
other
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Effects of a Trading Bloc include: Trade
creation, trade diversion, CET, economies of scale, competition, less distortion of
comparative advantage between member states
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It does this by:
 holding rounds of talks between members to encourage reduction in protectionism
 mediate trade disputes between members (useful as it helps prevent trade wars)
 however, the WTO has no binding sanctions (fines etc)

Achieving 3-4 marks in 4 mark questions
The majority of 4 mark questions will require a diagram
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There is clear knowledge/understanding
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There is synthesis/evaluation, supported by appropriate theory and evidence
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HL papers will contain a greater proportion
of questions that test higher order skills
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•Level 1 skills are tested by asking candidates to recall and show some
understanding of this knowledge
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•Level 2 skills require candidates to explain economic concepts and apply
economic theory to knowledge or situations which
have been identified, grouped or listed
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This can be done by organising data and commenting
on any patterns in terms of importance, such as identifying trends
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In addition
questions may be asked on the advantages and disadvantages, costs and
benefits of certain actions, such as the application of different economic
policies
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These are tested by questions which
require candidates to come to some conclusions
and to make judgments
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This will often
require the student to synthesise their arguments or the arguments of others,
showing the key elements
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Expenditure reducing policies
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Expenditure switching policies
Switching spending from foreign goods to domestic goods achieved by: Protectionism
& Depreciation
Improvement in terms of trade
Where the index of the average prices of exports rises relative to the index of average
import prices
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In the short run imports are inelastic (as customers are tied up with existing
contracts) and exports are inelastic (as it takes time for overseas customers to switch to
your cheaper goods)
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Marginal propensity to import
Measures the change in import expenditure that occurs when disposable income changes
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Linked to, but not the same as income
elasticity of imports
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Appreciation/Revaluation will have a positive effect on the Current Account if the sum
of the Price Elasticity of Demand for Imports and Exports is less than 1
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Terms of trade
A measure of a country’s average export prices relative to its average import prices
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Terms of trade are said to deteriorate when a country’s export prices
fall relative to its import prices)
Theory of comparative advantage
Countries will find it mutually advantageous to trade if the opportunity cost of
production of goods differs

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