Topic 1 Flashcards
The Global Economy
1
Q
Gross World Product (GWP)
A
total amount of goods and services produced worldwide each year
2
Q
Purchasing Power Parity (PPP)
A
an adjustment for national variations in prices and currency exchange rates
is used to make more accurate comparisons- ex. if price of goods and services is low relative to US prices then GNI will underestimate true incomes of people in developing countries
3
Q
Globalisation
A
the ***rapid movement of four things around the global economy: goods and services money ideas people
4
Q
Measurements of globalisation (MCFIT)
A
migration and international division of labour communication technology transport financial flows investment flows trade flows
5
Q
Foreign Direct Investment FDI
A
investing in a new business or buying 10%+ of an existing one
6
Q
International business cycle
A
fluctuations in the level of economic activity in the global economy over time
7
Q
Regional business cycle
A
fluctuations in the level of economic activity in a geographical regions of a global economy over time
8
Q
Free trade
A
when governments do not impose any artificial barriers on imports on exports
9
Q
Protection
A
any artificial barriers to trade
10
Q
Tariffs
+Effects
A
government imposed tax on imports.
has effect of raising the price of imported goods, making the domestic producer more competitive
11
Q
Quotas
+Effects
A
controls the volumes of goods that is allowed to be imported over a given period of time.
imported quotes guarantees domestic producers a share of the market
12
Q
Subsidies
+Effects
A
involves financial assistance to domestic producers, which enables them to reduce their selling price and compete more easily with imported goods
13
Q
Local content rules
A
specify that goods must contain a minimum percentage of locally made parts
14
Q
Export incentives
A
Any technical or financial assistance to encourage domestic firms to increase exports
assistance such as grants, tax
deductions, loans or technical advice
15
Q
Absolute Advantage
A
ability to produce the most goods with your given resources
16
Q
Comparative Advantage
A
produce goods and services with lowest opportunity cost
17
Q
Specialisation
A
dedicating resources to a specific industry (one with comparative advantage) **Ricardian theory
18
Q
Trade Liberalisation
A
advantages Macro: material standard of living variety cost Micro: Efficiency in resource allocation
disadvantages Dumping Unemployment Discouraging infant industry Narrow economic base cant diversify inequality negative externalities
19
Q
Free Trade Area
A
countries abolish protection barriers against countries
20
Q
Customs Union
A
features of free trade area + common barriers against foreign nations
21
Q
Common Market
A
has some features of customs union + free movement of capital and labour
22
Q
Monetary Union
A
same features of common market + common currency and central bank
23
Q
Multilateral Trade Agreement
A
free trade between more than 2 countries
24
Q
Trading Bloc
A
to exclusion of other nations
25
Regional Trade Agreement
multilateral in same area
26
Trade Diversion
trade agreement causes less efficient economies for that good or service to import = support of less efficient goods
27
Trade Creation
free trade agreements increases the total amount of trade
28
World Trade Organisation (WTO)
objectives:
facilitate free trade agreements --> by having rounds
resolve trade disputes --> by fielding complaints
limitation:
hard to negotiate due to large amount of members
preferences developing nations
ex. uruguay round, doha round
29
International Monetary Fund (IMF)
objectives:
global financial stability --> liquidity loans to assist countries experiencing balance difficulties
international monetary cooperation (expansion of int. trade, exchange rate stability, multilateral payments system) resources to members experiencing economic crisis --> $ from quota drawing (special drawing rights)
monitoring international financial system
limitation:
loans require conditions (austery measures)
ex. global financial crisis, asian financial crisis
30
World Bank (WB)
objectives:
assist in economic development --> providing loans/ technical advice to developing nations
reducing rate of extreme poverty to > 3% of 2030's world population
reducing inequality by raising income levels for lowest 40% of income earners
limitation:
need money- funded by contributions from member countries + from its own borrowings in global financial markets
loans to developing nations --> developing nations in debt
ex. global financial crisis, indonesia
31
Reasons for protection
infant industries
prevention of dumping
protection of short term domestic employment
defence- military self sufficiency
32
Effects of protectionism
macro: decrease in growth and living standards
misallocation of resources --> allocate inefficency
inflation (tariffs + quotas)
decrease in export revenue
reduce trade between nations
harder to for economies specialise
micro:
rent seeking behaviour --> lobby gov for protection = inefficient
decrease in competition = decrease in innovation and decrease in productivity growth
Global impact:
agriculture
worse for developing countries
33
Transnational corporations
enterprises that manage production or deliver services in more then one country
global enterprises that dominate global product and factor markets. They have production facilities in at least two countries and are owned residents of at least two countries.
34
Global Finance
vs
Global Investment
finance: shorter term, speculative shifts of money
investment: longer term, flows of money to buy or establish businesses as investments
35
United Nations
189 countries
assist developing countries with improving their level of development
hard to pass resolutions in security council
36
OECD
```
35 countries (democratic market economies)
promote sustainable economic growth and development in both member nations and global economy
```
37
G7/G8
G7 (exclude russia bc crimea)
largest democratic market economy
coordinate macroeconomic policy esp. fiscal
limitation: euro-centric bunch of nations
38
G20
recently increased in economic significance
infrastructure, food security and upcoming- cryptocurrency and unemployment
GFC:
stimulus macroeconomic policy
pledge $1 t to crisis affected economies
39
European Union (EU)
```
28 countries
worlds most important trading bloc
about 33% of world trade
Common agricultural program (CAP)- subsidies agriculture= 40% of budget
Joint currency
Single unified market
**can create trade diversion
```
40
Asia-Pacific Economic Cooperation (APEC)
21 countries
about 54% of world GD and 44% of world trade
agreed not to exclude outside nations
41
North American Free Trade Agreement (NAFTA)/ US Mexico Canada Agreement (USMCA)
usa canada mexico
13% if world trade
increase trade between members (allows US to increase exports to other 2)
quotas on motor vehicle parts coming other 2
usa production facilities move to mexico
updates
implemented rule of origin- 75% of components
better
better access to canada's dairy + intellectual property
42
Association of South East Asian Nations (ASEAN)
counterweight to APEC
| free trade area
43
Difference between economic growth and economic development
Economic growth refers to the increases in a country’s real GDP over a specific time period
Economic development is a broad measure of welfare in a nation that includes indicators of health, education and environmental quality as well as material living standards
44
Distribution of income and wealth
How equally spread income and wealth is shared amongst the
members of a nation
Income: Rewards from labour
Wealth: Assets
Inequality because not shared equally
45
Income and quality of life indicators
```
inflation
adult literacy rate
foreign aid
energy consumption
domestic savings
primary education
life expectancy
doctors per 100,000 people
fertility rate
```
46
Reason for differences between nations
this highlights the concept of international convergence
While there is still a large gap between the living
standards of richer and poorer countries, this gap appears to be closing over time
47
Composition of Trade
mix of goods and services
48
Direction of Trade
Where trade is going - impact on individual economy
49
Speculators
Investors who buy or sell financial assets with the aim of making profits from short term price movements. They are often criticised for creating excessive volatility in financial markets.
50
Advantages and disadvantages of multilateral /bilateral agreements
**chart
51
Measure of globalisation of investment
Foreign direct investment
52
3 things TNCs bring
Foreign investment, new technologies and skills
53
2 things that strengthen the international business cycle
Technology
| Financial flows
54
2 things that weaken the international business cycle
Exchange rates
| Domestic interest rates
55
Most distributing feature of global economy is ..
Large differences in living standards
56
Method for comparing living standards
Gross National Income
57
Human Development Index (HDI)
| +measurements
A measure of economic development devised by the United Nations Development Program
Life expectancy at birth
Educational attainment
Gross National Income per capita
58
Gross National Income (GNI)
sum value of all domestic production and receipts of primary income from foreign sources
59
Advanced economies
high levels of economic development,
high income levels
close economic ties with each other that have liberal-democratic political/economic institutions
60
Emerging economies
in process of industrialisation and experiencing sustained high levels of economic growth
61
Causes of global inequalities
global trade system
global financial architecture
global aid and assistance
global technology flows
62
Causes of global inequalities
| domestic factors
```
economic resources:
natural resources
labour supply and quality
access to capital and indebtedness
entrepreneurial culture
```
institutional factors:
political and economic institutions
economic policies
government responses to globalisation
63
Global trade system factors
Wealthy countries protect agriculture as the high income levels make it less competitive
OECD nation consumers and governments pay $250 billion annually for agricultural subsidies
This is $250 billion that could have been received by agricultural exporters in developing nations attempting agrarian reforms
Trade blocs
Doha Round lack of cooperation
64
Global financial architecture
Short term finance favours emerging (high returns)
Long term investment favours developed
Developing have high debt burdens
Returns often worsen inequality as it goes into the hands of the wealthy
65
Global aid and assistance
‘phantom aid’ wasted on administrative costs
Distributed w/ political considerations
Some OECD countries, including Aus, are not meeting their foreign aid target of 0.7% of GDP
66
Global technology flows
Richer countries have the infrastructure to facilitate new technology
Expense makes it harder for poorer nations to use
As they are created in developed economies, they are geared to the needs of high income countries
67
Economic resources
Natural Resources
Oil rich countries have achieved high growth rates – Dutch Disease
Labour supply and quality
Education/productivity/motivation
Access to capital and indebtedness
Difficulty in gaining capital for investment low savings
Entrepreneurial Culture
Little incentive to operate in developing countries
innovation, work ethic
68
Institutional factors
Political institutions
Economic policies of domestic government
Government responses to globalisation
69
The Consumer Price Index (CPI)
a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care
It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them
70
Impacts of Globalisation (7)
1. International convergence
2. Economic growth/development (unequal)
3. Increased trade, investment and TNCs
+FDI fuels eco growth
4. Environmental consequences
developing countries = seek environmental degradation
globalisation increased international awareness of environment issues
5. Financial Markets
Floating exchange rates and deregulating domestic banking sectors
Allows misuse of funds (inefficient allocation of resources)
Primarily benefits wealthy
6. International business cycle
Growth through trade/specialisation/population growth
Means countries are exposed to events in region (e.g. Greece and EU countries)
7. Shared ideas and technology
71
CERTA
8% avg increase in trade
| harmonization of business regulations and laws
72
CHAFTA
99% of aus exports
| soon enjoy duty-free entry
73
Developing economies
low levels of economic development,
| low income levels
