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Ireland is ranked the third most globalised nation behind Singapore and Hong Kong - Leaving Cert Business - Question A - 2010
Question A
Ireland is ranked the third most globalised nation behind Singapore and Hong Kong. (A) (i) Explain what is meant by the term 'Open Economy'. (ii) Illustrate you... show full transcript
Worked Solution & Example Answer:Ireland is ranked the third most globalised nation behind Singapore and Hong Kong - Leaving Cert Business - Question A - 2010
Step 1
Explain what is meant by the term 'Open Economy'.
Answer
An 'Open Economy' refers to an economic system where businesses and individuals engage in trade with other countries, allowing for the exchange of goods and services, as well as the borrowing and lending of capital. In an open economy, imports and exports play a significant role in a nation's economic activities.
For instance, Ireland is classified as a small open economy due to its high level of international trade and interdependence with other economies. A measure of openness is the ratio of a nation's trade (the combination of imports and exports) to its Gross Domestic Product (GDP). This means that a considerable portion of national income is generated from international trade.
Step 2
Illustrate your understanding of the terms, 'Balance of Trade' and 'Balance of Payments'.
Answer
The 'Balance of Trade' represents the difference between the value of a country's visible exports and visible imports. Visible exports are goods sold to other countries, while visible imports are goods purchased from abroad. For example, if Ireland exports more goods than it imports, it has a trade surplus; conversely, a trade deficit occurs when imports exceed exports.
Mathematically, it can be represented as:
'Balance of Payments' is a broader term that includes all economic transactions between residents of a country and the rest of the world during a specific period. This encompasses both the balance of trade and other financial transactions, such as foreign investments and remittances.
In formula terms, it can be represented as:
This means that both visible and invisible aspects of trade contribute to a country's overall economic position.
Step 3
Analyse how the changing trends in the international economy have impacted on Irish businesses.
Answer
The changing trends in the international economy have significantly influenced Irish businesses in various ways:
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Currency fluctuations: Changes in the value of the euro against other currencies impact Irish exporters. In a recent scenario where the euro's value dropped, it helped Irish goods become more competitive abroad.
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Global Recession: The international financial crisis has affected business confidence and reduced consumer spending. Many Irish firms faced challenges in accessing credit, which affected their operations.
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International Banking Crisis: Faced with increased uncertainty, businesses are adopting tighter financial regulations, making funding increasingly difficult for Irish companies.
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Emerging markets: As new markets such as those in Asia have opened, Irish businesses have had the opportunity to expand internationally, benefiting from globalization.
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Technological advances: The rise of e-commerce has compelled traditional businesses to adapt to online models, making it necessary to invest in technology and innovation to stay competitive.
In conclusion, while challenges have emerged, opportunities within the evolving international landscape have allowed businesses in Ireland to adapt and grow if they can strategically navigate these trends.