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HSC ECONOMICS > Topic 1 > Flashcards

Topic 1 Flashcards

The Global Economy

1
Q

Gross World Product (GWP)

A

total amount of goods and services produced worldwide each year

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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

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3
Q

Globalisation

A 
the ***rapid movement of four things around the global economy: 
goods and services
money
ideas
people
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4
Q

Measurements of globalisation (MCFIT)

A 
migration and international division of labour
communication technology transport
financial flows
investment flows
trade flows
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5
Q

Foreign Direct Investment FDI

A

investing in a new business or buying 10%+ of an existing one

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6
Q

International business cycle

A

fluctuations in the level of economic activity in the global economy over time

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7
Q

Regional business cycle

A

fluctuations in the level of economic activity in a geographical regions of a global economy over time

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8
Q

Free trade

A

when governments do not impose any artificial barriers on imports on exports

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9
Q

Protection

A

any artificial barriers to trade

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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

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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

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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

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13
Q

Local content rules

A

specify that goods must contain a minimum percentage of locally made parts

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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

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15
Q

Absolute Advantage

A

ability to produce the most goods with your given resources

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16
Q

Comparative Advantage

A

produce goods and services with lowest opportunity cost

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17
Q

Specialisation

A

dedicating resources to a specific industry (one with comparative advantage) **Ricardian theory

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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
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19
Q

Free Trade Area

A

countries abolish protection barriers against countries

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20
Q

Customs Union

A

features of free trade area + common barriers against foreign nations

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21
Q

Common Market

A

has some features of customs union + free movement of capital and labour

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22
Q

Monetary Union

A

same features of common market + common currency and central bank

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23
Q

Multilateral Trade Agreement

A

free trade between more than 2 countries

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24
Q

Trading Bloc

A

to exclusion of other nations

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25
Q

Regional Trade Agreement

A

multilateral in same area

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26
Q

Trade Diversion

A

trade agreement causes less efficient economies for that good or service to import = support of less efficient goods

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27
Q

Trade Creation

A

free trade agreements increases the total amount of trade

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28
Q

World Trade Organisation (WTO)

A

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

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29
Q

International Monetary Fund (IMF)

A

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

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30
Q

World Bank (WB)

A

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
Q

Reasons for protection

A

infant industries
prevention of dumping
protection of short term domestic employment
defence- military self sufficiency

32
Q

Effects of protectionism

A

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
Q

Transnational corporations

A

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
Q

Global Finance
vs
Global Investment

A

finance: shorter term, speculative shifts of money
investment: longer term, flows of money to buy or establish businesses as investments

35
Q

United Nations

A

189 countries
assist developing countries with improving their level of development
hard to pass resolutions in security council

36
Q

OECD

A 
35 countries (democratic market economies)
promote sustainable economic growth and development in both member nations and global economy
37
Q

G7/G8

A

G7 (exclude russia bc crimea)
largest democratic market economy
coordinate macroeconomic policy esp. fiscal
limitation: euro-centric bunch of nations

38
Q

G20

A

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
Q

European Union (EU)

A 
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
Q

Asia-Pacific Economic Cooperation (APEC)

A

21 countries
about 54% of world GD and 44% of world trade
agreed not to exclude outside nations

41
Q

North American Free Trade Agreement (NAFTA)/ US Mexico Canada Agreement (USMCA)

A

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
Q

Association of South East Asian Nations (ASEAN)

A

counterweight to APEC

free trade area

43
Q

Difference between economic growth and economic development

A

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
Q

Distribution of income and wealth

A

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
Q

Income and quality of life indicators

A 
inflation
adult literacy rate
foreign aid
energy consumption
domestic savings
primary education
life expectancy
doctors per 100,000 people
fertility rate
46
Q

Reason for differences between nations

A

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
Q

Composition of Trade

A

mix of goods and services

48
Q

Direction of Trade

A

Where trade is going - impact on individual economy

49
Q

Speculators

A

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
Q

Advantages and disadvantages of multilateral /bilateral agreements

A

**chart

51
Q

Measure of globalisation of investment

A

Foreign direct investment

52
Q

3 things TNCs bring

A

Foreign investment, new technologies and skills

53
Q

2 things that strengthen the international business cycle

A

Technology

Financial flows

54
Q

2 things that weaken the international business cycle

A

Exchange rates

Domestic interest rates

55
Q

Most distributing feature of global economy is ..

A

Large differences in living standards

56
Q

Method for comparing living standards

A

Gross National Income

57
Q

Human Development Index (HDI)

+measurements

A

A measure of economic development devised by the United Nations Development Program

Life expectancy at birth
Educational attainment
Gross National Income per capita

58
Q

Gross National Income (GNI)

A

sum value of all domestic production and receipts of primary income from foreign sources

59
Q

Advanced economies

A

high levels of economic development,
high income levels

close economic ties with each other that have liberal-democratic political/economic institutions

60
Q

Emerging economies

A

in process of industrialisation and experiencing sustained high levels of economic growth

61
Q

Causes of global inequalities

A

global trade system
global financial architecture
global aid and assistance
global technology flows

62
Q

Causes of global inequalities

domestic factors

A 
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
Q

Global trade system factors

A

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
Q

Global financial architecture

A

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
Q

Global aid and assistance

A

‘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
Q

Global technology flows

A

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
Q

Economic resources

A

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
Q

Institutional factors

A

Political institutions
Economic policies of domestic government
Government responses to globalisation

69
Q

The Consumer Price Index (CPI)

A

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
Q

Impacts of Globalisation (7)

A
  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
Q

CERTA

A

8% avg increase in trade

harmonization of business regulations and laws

72
Q

CHAFTA

A

99% of aus exports

soon enjoy duty-free entry

73
Q

Developing economies

A

low levels of economic development,

low income levels

HSC ECONOMICS (5 decks)

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