1 - The Global Economy

Question 0

Causes of growth in trade flows?

Answer 0

• reduced government protection
• emergence of WTO
• trade blocs and agreements
• transportation
• telecommunication
• reduction in man made and natural barriers

Question 1

What is globalisation?

Answer 1

Integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity

Question 2

Effects of globalisation on trade flows?

Answer 2

• economic and social conditions have changed composition;
  Agricultural trade less important; minerals & services increased
• resource boom
• between 1995 and 2009, advanced economies gradually declined in total share of world trade (83% to 69%)
• East Asian and pacific region countries such as China experienced rapid increase in global trade (7% to 14%)
• trade blocs encouraging trade

Question 3

Globalisation has lead to a removal of which 5 barriers?

Answer 3

• trade flows
• financial flows
• investment flows
• technology
• labour flows

Question 4

Causes of growth in financial flows?

Answer 4

• deregulation of financial markets > reductions in limits on bank lending and international capital movements or flexible exchange rates
• technological improvements allowed electronic transaction settlement and computerised record keeping
• foreign exchange markets to facilitate global finance flows

Question 5

Main benefit of greater global financial flows?

Answer 5

Enables countries to obtain funds used to achieve higher levels of domestic investment > economic growth

Question 6

Negative impact of speculators?

Answer 6

Speculators act with herd mentality (lack of individual decision making) > establish upward or downward trends in asset prices causing volatility (eg. blamed for crises East Asia 1997, GFC 2009)

Question 7

Portfolio investment

Answer 7

Bonds, derivatives, shares worth <10% of company

Question 8

Foreign direct investment?

Answer 8

Movement of funds for establishing new company, or buying substantial shares (>10%) in a company

Question 9

How has direction of FDI flows changed?

Answer 9

Traditionally favoured developed nations (greater industrial capacity & larger consumer markets) in 1990s and most 2000s –> now favouring developing economies due to capital to grow

Question 10

Transnational corporations?

Answer 10

Global companies dominating global and factor markets with facilities in 2 or more countries

Question 11

Advantages of TNCs?

Answer 11

Boots trade, Eco growth and make countries more dependent on each other due to bringing foreign investment, new technologies, skills and knowledge

Question 12

Why do gov. Encourage TNCs to set up?

Answer 12

Bring capital and job opportunities

Question 13

What has led to the growth of TNCs?

Answer 13

Financial deregulation, capital flows, removal of trade barriers, government encouragement, advances in tech, decreased transport costs

Question 14

What type of economies are TNCs attracted to?

Answer 14

Emerging economies

Question 15

What has technological improvements led to?

Answer 15

• reduced cost of communication and trading
• technological developments such as freight tech (containerisation, high speed broadband, financial markets)
• Internet
• greater communication > reduced business costs

Question 16

Floating exchange rate?

Answer 16

Exchange rate relies on market forces and no government intervention

Question 17

Managed flexible peg

Answer 17

When RBA ‘pegs’ the value of the $AU dollar to another currency at 9am daily, throughout the day

Question 18

Fixed exchange rate?

Answer 18

Government/RBA officially sets exchange rate. Gov. Intervention in FOREX markets daily.

Question 19

Subsidies?

Answer 19

Payments from gov. To businesses to encourage production of a good/service and influence allocation of resources. Helps domestic businesses to compete with overseas produced goods and services

Question 20

Quota

Answer 20

Restrictions on amounts or values of goods that may be imported

Question 21

Tariff

Answer 21

Government imposed taxes on imports which has the effect of raising price of imported goods, making domestic producers more competitive

Question 22

Local content rules

Answer 22

Specify that goods must contain a minimum percentage of locally made parts - in return imports may not attract tariff

Question 23

Export incentives

Answer 23

Assistance to domestic producers such as grants, loans and technical advice which encourages firms to expand their market share and penetrate global markets

Question 24

What is the infant industry argument?

Answer 24

New industries start out on small scale with costs which are relatively higher than of established competitors, and thus they need help to compete in global economy. They need to be shielded from competitors in short run to enable them to build capacity, establish markets and achieve economies of scale

Question 25

Dumping?

Answer 25

Practice of exporting goods to a country will a price lower than selling price in country of origin.

Question 26

Justify use of dumping as protection

Answer 26

Dumping causes loss to domestic producers as they are faced with very low prices. Causes loss to productive capacity and higher unemployment

Question 27

Argument of domestic employment as protection

Answer 27

If local producers are protected from competition with cheaper foreign imports, demand for domestic goods will be greater > create domestic employment

Question 28

Argument for self suffiency and defence as use of protection?

Answer 28

Major powers such as US may want to retain own industries to stay confident in times of war. Also, self-sufficiency of food supplies.

Question 29

3 features of developing economies?

Answer 29

Low living standards, education levels and generally have agricultural based economies with poor infrastructure and economic and political institutions

Question 30

Features of advanced economies

Answer 30

High income, industrialised, economic development, close economic ties

Question 31

Emerging economies? Features?

Answer 31

Process of industrialisation and sustained high levels of economic growth

Question 32

Economic development?

Answer 32

Broad measure of welfare in a nation including indicators of health, education and environmental quality as well as material living standards

Question 33

Economic growth

Answer 33

Increased output of economy over period of time. Represents increase in production/economic capacity

Question 34

Trade weighted index?

Answer 34

Measure of the value of AUD against our top ten trading partners. It indicates how AUD is moving against all currencies in general .

Question 35

Advantage of floating exchange rate system?

Answer 35

No need for government to hold to large reserves of foreign currency for purpose of FOREX market intervention, expose economy to international competitive market, more realistic market prices

Question 36

ASEAN and role?

Answer 36

Association of South East Asian Nations - covers emerging economies in South East Asia and aims for economic development, social and cultural growth, peace and stability as well as boosting trade

Question 37

AANZFTA

Answer 37

ASEAN-Australia-New Zealand Free Trade Area agreement - effect in 2010; covers 20% of AU trade in goods and services and creates free trade area of over 600 million with combined GDP of US3.2tril. Includes extensive tariff reduction and elimination commitment (96% of all AU exports) and promotion of services and investors through legal protections for investment in ASEAN territories

Question 38

APEC and role?

Answer 38

Asia Pacific Economic Cooperation forum - 1989 - 21 members - founded for discussing trade policy issues and methods for closer trade and investment links but now has shafted away from trade liberalisation and is a forum for discussing issues such as climate change and terrorism. 1994 - members agreed to Bogor Declaration, target of free trade by 2020, if met - AU trade flows increase by 6% and world trade flows by 3%

Question 39

CERTA and what?

Answer 39

Closer Economic Relations Trade Agreement - 1983 - With NZ - allowed for elimination trade restrictions and increased standardisation of laws, business practices and commercial structures. Contributed to average annual increase in trade between both nations of around 8%

Question 40

ChAFTA? What?

Answer 40

China Australia Free Trade Agreement - 17 Nov 2014 - will add billions to economy and create jobs and higher living standards with individuals having unprecedented access to world’s second largest economy. More than 85% of goods tariff free, 93% in 2018 and 95% on full implementation. Cheaper goods and components > downward pressure on cost of living and cost of businesses. Ensures future competitiveness of exports