SQA National 5 Economics: Global Economic Activity - trade, multinationals, exchange rates and the UK in the world

What the Global Economic Activity area demands

This area places the UK in the wider world economy. It explains why countries trade, how multinationals operate across borders, how exchange rates set the prices of traded goods, and how the UK relates to the EU, to developing and emerging economies, and to the giving of aid. The examiners reward precise definitions, clear cause-and-effect reasoning (especially on exchange rates), and balanced answers that weigh advantages against disadvantages. Each topic has a matching dot-point page; this overview ties them together.

Global trade

The area opens with global trade. Imports are goods and services bought from abroad (money out); exports are goods and services sold abroad (money in). Countries trade because no country can produce everything and trade lets each specialise. The UK's main partners include the EU, the USA and China. Governments can use trade barriers - tariffs (taxes on imports), quotas (quantity limits) and embargoes (bans) - to protect home industries, though protection raises prices and risks retaliation.

Multinationals

Multinationals are firms based in one country that produce or sell in two or more. They choose where to locate for cheaper or skilled labour, access to markets or trading blocs, access to raw materials, and lower taxes or grants. For a host country they bring jobs, investment and tax, but profits may leave, local firms face competition, and the firm may relocate. Multinationals are a key feature of globalisation.

Exchange rates

An exchange rate is the price of one currency in terms of another. Appreciation is a rise in the pound (it buys more); depreciation is a fall. A stronger pound makes imports cheaper and exports dearer; a weaker pound makes exports cheaper and imports dearer (the SPICED rule). These changes affect individuals, importers, exporters and inflation.

The UK in the global economy

The European Union (EU) is a single market of European countries with free, tariff-free trade; the eurozone is the EU members that use the euro (the UK left the EU in 2020 and never used the euro). Developing economies are poor with low growth; emerging economies such as China, India and Brazil are growing fast and industrialising. Aid - bilateral, multilateral and tied, emergency or development - helps poorer countries but can create dependency.

How this area is examined

A typical SQA profile for Global Economic Activity:

• Definitions. Imports and exports, multinationals, exchange rates, the EU and eurozone, and types of aid must be defined precisely.
• Cause and effect. Especially the effect of an exchange-rate change on import and export prices, and the effect of trade barriers.
• Balanced evaluation. Advantages and disadvantages of multinationals, protection and aid.
• Simple calculations. Converting prices between currencies using an exchange rate.

Check your knowledge

A mix of recall and application questions covering the area. Attempt them, then check against the solutions.

1. Define an import. (1 mark)
2. Name two trade barriers. (2 marks)
3. State what happens to UK exports when the pound appreciates. (1 mark)
4. What is the eurozone? (1 mark)
5. Name two types of aid. (2 marks)