Topic 1 - THE GLOBAL ECONOMY Flashcards
Define the global economy
The economy which is based on all the world’s countries
What is GWP
sum of total outputs of goods and services of all economies OVER A PERIOD OF TIME!!!!!! GWP is adjusted for purchasing power parity (takes into account exchange rates and price variations)
Define globalisation
Process of increased economic integration between different countries
What are the indications of increased economic integration
- International trade flows
- Financial flows
- International investment (long-term)
- Technology, transport and communication
- International division of labour and migration
What is the international business cycle
Fluctuation in world economic growth due to changes in aggregate demand and supply (upswing, boom, downswing, trough)
Outline factors that strengthen the international business cycle
- Trade flows
- Investment flows
- TNC’s
- Financial flows
- Technology
- Global interest rates
- International organisations
Outline factors the weaken the international business cycle
- Domestic interest rates
- Government fiscal policy
- Domestic economic policy (restrictions)
- Exchange rates
- Structural factors
- Regional factors
What is an opportunity cost
cost of satisfying one want over an alternative want
Outline the basis of free trade
Most fundamental assumptions of economists is that free trade is good and will achieve fastest rates of economic growth to an economy. There has been progression towards free trade shown in Australia’s progressive protectionism reforms throughout different governments since the 1980’s as well as recently Australia’s participation in AUSFTA, NAFTA, AANFTA and finishing up free trade agreements with China in 2014.
Advantages of free trade
- Allows specialisation which drives efficiency and more efficient allocation of resources in an economy
- Leads to economies of scale
- Encourages international competiveness
- Higher living standards as prices are lower and greater option in the economy
Disadvantages of free trade
- Increased in short-term structural unemployment as businesses may find it hard to compete internationally
- New industries may find it hard to establish themselves
- Dumping
Outline the role of the 5 different International organisations
- WTO: Promote free trade, Negotiate any trade disputes
- IMF: Maintain international financial stability
- World bank: Assistance to developing countries to further economic development through low/no interest loans
- UN: Provides economic development assistance
- OECD: Provide economic advice and actively provide economic help to membering countries
Explain the role of the g8
Largest industrialised nations, operated as the economic council of the world’s wealthiest nations. Agenda often includes general political issues and current priorities such as CLIMATE CHANGE, GLOBAL POVERTY and SECURITY BETWEEN NATIONS
What is a trading bloc
Occurs when a number of countries join together in a formal preferential trading agreement to the exclusion of other countries
Name Australia’s multilateral trade agreement
-World trade organisation (WTO)
Name current regional trade agreements
- EU (European Union)
- NAFTA (North American Free trade agreement)
- ASEAN (Association of South East Asian Nations)
- AFTA (ASEAN Free trade area) - APEC (Asia-pacific economic cooperation)
- GAFTA (Greater Arab Free Trade Area) 1957
Name current bilateral trade agreements
- AUSFTA (Australia United States free trade agreement)
- ANZCERTA (Australian New Zealand closer economics relations agreement)
- SAFTA (Singapore Australia free trade agreement)
What is protection
Any policy which gives domestic producers advantage over foreign producers. Despite economic arguments for free trade, governments have historically protected countries from international competition.
Reasons for protection:
- Infant industries argument: short-term to allow industries to reach economies of scale before competing in international markets
- Prevention of dumping: creates temporary harm to domestic industries when international businesses dump excess stock to dispose of surplus or establish market foothold, shown currently with Saudi Arabia dumping of oil prices to reduce market share of competitors such as Russia, and the US (who have recently found new oil depositaries)
- Protection of domestic employment: Allows minimal demand for foreign goods so demand for domestic goods are higher allowing more domestic consumption and higher demand for domestic employment. Positive in short-term but negative in long-term
Outline different protection policies:
-Tarrifs, Subsidies, Quotas
Explain Local content rules
Stipulates that products must contain a certain percentage of locally produced/assembled parts
Explain export incentives
Gives domestic producers in form of grants, loans or technical advice to help business’ expand into global markets
Define economic growth
Increase in a countries productive capacity over a period time. Usually measured in percentage change in GDP
Define economic development
A broad measure of welfare in a nation that includes indications of health, education, and environmental quality as well as material standards of living
What is GNI
GNI is sum of value added by all RESIDENT producers in an economy plus receipts of primary income from foreign sources
What does HDI measure
HDI measures 3 aspects of ED of:
- life expectancy at birth
- levels of educational attainment
- GDP per capita
What do differences in HDI and GDP show
If two countries have same HDI, the country with lower GDP has a better distribution of income than the country with higher GDP.
This is shown in Cuba and Myanmar both having HDI 30 places above their GDP (good distribution of income) compared to South Africa which has a HDI level of 70 places below GDP rank (bad distribution of income)
Explain differences in distribution of income and wealth in different countries
Despite benefits of globalisation, rewards may not be shared between advanced, emerging and developing countries. High-income countries and newly industrialized countries (China) have generally benefited from globalization. Transition economies (planned to market economies) fared worse experiencing a drop in their growth rates
What are some income and quality of life indicators?
- Inflation
- Domestic savings and MPS
- Life expectancy
- HDI
- GINI Index and Lorenz curve
- Physicians per 100,000 people
What are causes of inequality between nations
Global factors:
- Global trade systems
- Global Financial architecture
- Global aid and assistance
- Global technology flows
Domestic factors:
- Economic resources
- Institutional factors
What are the effects of globalisation?
1) Increased economic growth: Advanced/emerging economies experience rapid growth due to increase in trade and investment. Some economies may be pushed down
2) Trade, Investment and TNC’s: Substantial increase in trade flows, FDI and TNC’s gaining a much more influential role in the economy
3) Environmental sustainability: Negative effect of environment as production increases rapidly
4) International business cycle: Closer economic integration makes countries more exposed to downturns in the international business cycle show in the global effects of the GFC in 2008
