SQA Higher Economics Global Economic Activity: a complete overview of trade, multinationals, the balance of payments, exchange rates and the global economy

What Global Economic Activity actually demands

Global Economic Activity is the international area of Higher Economics: it widens the focus from the UK to the world economy. After microeconomics and the UK macroeconomy, here you study trade between nations, the firms and institutions that operate across borders, and how a country relates to the rest of the world through its balance of payments and exchange rate. The question paper rewards three things: explaining the gains from trade, tracing a currency or trade movement through to the wider economy, and evaluating with the costs as well as the benefits (of protectionism, multinationals and globalisation).

This guide walks through the whole area, then sets out the patterns the SQA repeats. Each topic has a matching dot-point page with worked questions; this overview ties them together.

Understanding global trade

Countries trade because they differ in resources and efficiency. The theory of comparative advantage says each should specialise in what it produces at the lowest opportunity cost and trade for the rest, raising world output and letting each consume beyond its own production possibilities. Free trade and globalisation bring lower prices and choice; protectionism (tariffs, quotas, subsidies) shields producers and jobs but raises prices and risks retaliation.

Multinationals and globalisation

A multinational company owns or controls production in more than one country. Firms locate abroad to lower costs, reach new markets, get inside trade blocs, and take up government incentives. For a host country the benefits (jobs, investment, technology, taxes, exports) must be weighed against the costs (profit outflows, insecure jobs, pressure on regulation, harm to local firms), so this is a "discuss and judge" topic.

The balance of payments

The balance of payments records a country's dealings with the world; the current account covers trade in goods and services plus income. A surplus means credits exceed debits; a deficit means debits exceed credits, so the country must finance the gap. Deficits stem from uncompetitive exports, a high exchange rate or strong import demand, and can be corrected by reducing demand, lowering the currency, raising competitiveness or protection, each with a drawback.

Exchange rates

A floating exchange rate is set by the demand for and supply of a currency. Appreciation (a rise) makes exports dearer and imports cheaper; depreciation (a fall) does the reverse, captured by SPICED. A depreciation tends to improve the trade balance and boost output but raises inflation through dearer imports, while an appreciation does the opposite.

The impact of the global economy

The global economy affects countries unevenly. Developing economies face barriers (lack of capital, debt, commodity dependence, weak institutions); emerging economies grow fast. Globalisation can spread growth and technology but widen inequality. Three global institutions try to manage the world economy: the WTO (trade rules), the IMF (financial stability and crisis lending) and the World Bank (long-term development).

How Global Economic Activity is examined

A typical SQA profile for this area:

• Gains from trade. Explain comparative advantage and why both countries gain.
• Trace the movement. Follow a currency move or tariff through trade, output and inflation.
• Two-sided evaluation. Weigh the costs and benefits of protectionism, multinationals and globalisation.
• Distinguish the institutions. Keep the WTO, IMF and World Bank roles separate.

Check your knowledge

A mix of recall and explanation questions covering Global Economic Activity. Attempt them, then check against the solutions.

1. Define comparative advantage. (2 marks)
2. Name two methods of protectionism. (2 marks)
3. State one reason a multinational might locate in another country. (1 mark)
4. What is a current account deficit? (2 marks)
5. Using SPICED, state what a weak currency does to exports and imports. (2 marks)
6. Distinguish between the roles of the IMF and the World Bank. (2 marks)