Economics · Topic Cheatsheet
Unit 4 · The Global Economy
16 key results accumulated across 3 chapters.
Absolute advantage
Ch 1
Produce more output per unit of input than another country.
Comparative advantage
Ch 1
Produce at lower opportunity cost — the basis for mutually beneficial trade.
Gains from trade
Ch 1
Specialise where comparative advantage is greatest, then trade.
Protection tools
Ch 1
Tariffs (tax + revenue), quotas (limit, no revenue), subsidies, NTBs.
Exchange rate
Ch 2
Price of a currency. Demand↑ ⇒ appreciation; appreciation ⇒ exports dearer, imports cheaper.
Systems
Ch 2
Floating, fixed (peg), managed float.
Rate drivers
Ch 2
Trade flows, interest-rate differentials (hot money), FDI, speculation, relative inflation.
Balance of payments
Ch 2
Current account
Ch 2
Trade in goods/services + primary & secondary income.
Deficit financing
Ch 2
CA deficit ⇒ financial-account surplus (net capital inflow).
Growth vs development
Ch 3
Growth = ↑ real output; development = broader living standards (health, education, equity).
HDI
Ch 3
Composite of income (GNI/capita PPP), health (life expectancy), education.
Sustainable development
Ch 3
Meet present needs without compromising future generations.
Poverty trap
Ch 3
Low income ⇒ low saving ⇒ low investment ⇒ low income (vicious cycle).
Barriers
Ch 3
Debt, primary-export dependence, weak institutions/property rights, conflict, poor human capital.
Strategies
Ch 3
Trade (export-led vs ISI), FDI, aid, debt relief, microfinance, human capital & institutions.