Question spotting for F585 Economics The Global Economy OCR A level June 2011

How would u answer the Q if it was
'Is the Eurozone an optimal currency area'

With regards to the Trade Liberalisation theme, It can be summarised like this:

WTO talks about how the financial crisis has contracted world trade as major economies aggregate demand has fallen. The WTO argue that whilst developed countries try and use fiscal policies to recover, this is only a short term solution, and that to sustain long term growth countries need to focus on world trade. During a financial crisis, countries tend to become very protectionist in order to preserve their own economies. However this protectionism adversely affects world trade.

Protectionist methods include Tarriffs, Domestic Subsidies, Non-Tarriff Measures and Anti-Dumping Actions.

Advantages of protectionism are that it can protect senile and infant industries, preserve domestic jobs, prevent dumping, and protect from cheap labour.

However the disadvantages of protectionism is that you lose the benefit of specialisation and economies of scale, which leads to lower prices. Consumers also have reduced choice, it can lead to a lack of innovation and also it can lead to retaliation.

The WTO argue trade barriers should be reduced and that world trade should be liberalised and made free. This would increase the level of trade on an international scale.

The benefits of increased world trade are access to larger markets, increased allocative, productive and dynamic efficiency due to competiton. Also access to new technology, and the trading of ideas which can lead to further information. Finally increased trade can raise living standards, as evidence has shown that countries which are more open to trade grow faster over the long run that those who remain closed. And increased trade means countries can grow beyond their domestic maximum capacity, therefore increasing their income per head.

There are of course drawbacks to increased trade which need to be considered. These include the danger to infant and senile industries which may not be able to compete on an international level. Also increased specialisation can lead to countries relying too much on specific industries, which can cause problems if demand suddenly drops. Also, trade can lead to dumping. Another drawback is that as countries open up more to trade, their economies performance becomes more reliant on foreign performance, so they are more vulnerable to external shocks.

However, the advantages of increased world trade outweigh the disadvantages. International Trade liberalisation is vital for the long term recovery of world economies.

This is the point where I get stuck, because I do not have any evaluative points, and I know the 20 mark question requires a lot of evaluation. Please provide some evaluation points to finish this essay.

Well this is my last exam and my most important!

I'm hoping/guessing there will be questions on:
- Competitiveness and policies to promote
- Is the eurozone an optimal currency area
- 20 marker on trade liberalisation, probably the effects of this on developing countries

I could be completely wrong though!

GOOD LUCK to all I'm revising from now until the exam!

Agree

except I think it might be comment on the whether a MU needs to be a OCA

Anybody got any notes about OCA? I can't find any of mine *panics*

what does that stand for?

Optimal Currency Area

I reckon the two ten markers will be on fiscal stimulus, and then the PIIGS and competitiveness.

20 Markers almost guarenteed to be to do with trade liberalisation, trade, protectionism or globalisation

Evaluative point for the effect of trade liberalisation on developing countries?

They'll end up depending far too much on exports of primary commodities, therefore they'll end up in a development trap due to Prebisch-Singer hypothesis?