Global Interdependence

Question 1

What are the key elements in the definition of Globalisation?

Answer 1

Growth in trade, international investment, and the rapid movement of information and people

Question 2

Why do open economies grow faster?

Answer 2

Globalisation has allowed the developing world new access to markets, technologies and investment

Question 3

Describe the main linkages between economies

Answer 3

People (tourism, workers, immigrants), trade in goods and services, financial capital

Question 4

Why has world trade grown so fast?

Answer 4

Due to advances in transport and communication and the successes of world organisations such as the World Trade Organisation

Question 5

Describe some of Australia’s globally significant industries

Answer 5

Manufactured goods (iron ore, coal, chemicals, transport equipment, automotive products) and services (transport, travel, commercial services)

Question 6

Why is merchandise trade much larger than trade in services?

Answer 6

Goods are generally easier to trade than services. Many services are non-tradable such as exporting a restaurant meal

Question 7

Explain why there is a positive relationship between trade and economic growth

Answer 7

There is a strong positive correlation between trade and GDP per capita. Trade plays a crucial role in driving economic growth, development and job creation around the world

Question 8

What is the largest category of world trade?

Answer 8

Manufactures

Question 9

Describe the main types of services that are traded

Answer 9

Transport, travel, and commercial services

Question 10

Manufactured goods account for _% while services account for _%

Answer 10

Manufactured goods = 76%

Services = 24%

Question 11

Which three countries are the world’s leading exporters?

Answer 11

United States, United Kingdom, Germany are the worlds largest exporters of commercial services. China, United States and Germany dominate world trade.

Question 12

Explain why China has become the world’s largest exporter

Answer 12

China had a large number of dominant industries that created products and materials for export. They joined the WTO in 2002 and quickly overtook the US

Question 13

Explain how a currency depreciation will affect a country’s trade

Answer 13

If the AUD depreciates, Australian exports become cheaper to overseas buyers, while imports increase in price to Australian buyers. Therefore, exports increase while imports decrease.

Question 14

How does world economic growth impact on Australia’s trade?

Answer 14

Australia’s exports are dependent on foreign demand. Increased world economic growth will increase demand for Australia’s exports.

Question 15

How will an increase in productivity affect Australia’s trade?

Answer 15

Productivity increases cost efficiency through increasing output per worker. The cost efficiency of domestic firms relative to foreign firms will determine their success in the global market.

Question 16

Why is productivity important for a country’s competitiveness?

Answer 16

An increase in productivity will increase competitiveness. Real unit labour cost will fall is productivity rises or wage costs fall, increasing competitiveness

Question 17

Define international competitiveness

Answer 17

The ability of a country to compete successfully against other countries in international trade

Question 18

Explain the key factors that affect a country’s international competitiveness

Answer 18

Economic performance, government efficiency, business efficiency, infrastructure.

Question 19

What is the TWI?

Answer 19

The TWI measures the change in the value of a currency relative to its major trading partners

Question 20

Describe the trend in Australia’s competitiveness since 2017

Answer 20

Real TWI has decreased and the Real Unit Labour Cost has slightly decreased, increasing competitiveness

Question 21

What impact does an appreciation have on a country’s international competitiveness?

Answer 21

An appreciation in a country’s currency (increase in TWI), will cause export prices to rise, decreasing competitiveness

Question 22

Describe the purpose of the ‘Big Mac’ index

Answer 22

The Big Mac index compares the prices for a Big Mac sold in McDonald’s stores in different countries of the world. The index is useful in determining whether an exchange rate is under or overvalued.

Question 23

What does the purchasing power parity mean?

Answer 23

The PPP is the theory that states that goods should sell for the same prices around the world

Question 24

Explain why the prices of Big Macs are not the same worldwide

Answer 24

Due to differences in the costs of producing a Big Mac across countries. Prices reflect the costs of key inputs such as raw materials and wages. Real wages are determined by labour productivity.

Question 25

Define globalisation

Answer 25

The opening of international borders to the flows of trade, investment, immigration, information and technology.

Question 26

What is the ‘engine of globalisation’?

Answer 26

Trade

Question 27

How is trade openness measured?

Answer 27

The ratio of a country’s trade to GDP

Question 28

Describe the five different indicators of globalisation

Answer 28

Flows of trade = Total trade (% of GDP), tariff rate,
Investment = FDI net inflows,
Technology and Information = Fixed broadband subscribers, Mobile phones per 100people,
Immigration = international tourist arrivals

Question 29

Describe three main causes of globalisation

Answer 29

The liberalisation of markets to the flow of goods, services and investment, Regional trading groups and Multinational corporations

Question 30

Outline three arguments against globalisation

Answer 30

Increases environmental damage, can enable the rapid spread of a pandemic, higher unemployment among lower-skilled workers

Question 31

Outline three arguments for globalisation

Answer 31

Access to a wider variety of goods and services, reduces global poverty, lowers prices

Question 32

Discuss the impact of the COVID pandemic on globalisation

Answer 32

The pandemic was a reminder of how we all live in an increasingly interconnected world. The world was plunged into its deepest economic contraction since the Great Depression. To control the spread, many countries imposed strict lockdowns, many businesses closed and many lost their jobs. International and domestic borders were closed.