Topic 1: The Global Economy 2.0 Flashcards
What is the global economy?
The economy of each individual country considered as one large economy
What is Gross World Product (GWP) and how is it measured?
GWP is the gross national output of every country in the global economy.
It can be measured in two ways:
1. Converting the GDP of each country into a common currency and adding them up
2. Adjusting each GDP to reflect different prices of goods and services (Purchasing Power Parity - PPP)
What was GWP in 2018 and 2019?
2018 - US$84.84 trillion
2019 - US$88.08 trillion
What are global interest rates like at the moment?
They are very low.
What is globalisation?
The increased integration between countries, namely over the past 40 years.
How has globalisation affected people?
Global growth has tripled and standard of living has increased since the end of WW2
What are risks for global growth and what does that mean for Australia?
Political uncertainty in the US and the UK, emerging markets (financial sector risk) and rise in protection.
Slowing in global growth could strongly negatively impact Australia as it is a small economy.
How has globalisation affected trade in goods and services?
Trade has doubled relative to income over the past 40 years and global trade growth is around twice the rate of global economic growth.
International exports increased from 12% of GWP in 1960 to 29% in 2017.
What are Foreign Direct Investments (FDIs)?
Investment flows when a foreign-based company sets up a subsidiary overseas or purchases more than 10% of shares in a foreign company.
FDIs are long-term investments
What are Portfolio Investments?
When a foreign-based company buys less than 10% of the shares in a foreign country or purchases bonds issued overseas.
They are short-term investments that can cause instability in poorer countries that rely on them.
Why have global financial flows increased faster than global trade flows?
- Due to financial deregulation of the 1970s and 1980s
2. Money is easier to move than goods and services
How are financial flows measured?
The foreign exchange market and derivatives.
What are some advantages of increased financial flows?
Countries receive higher levels of investment, which means more economic growth.
Investors receive higher return and diversification than domestic investment.
What are some disadvantages of increased financial flows?
Can create volatility in financial markets which can lead to financial crises.
