HSC economics Topic One Notes

Global economy

The sum of economic interactions between individual countries, where changes in one economy impact others.

Gross World Product (GWP)

The value of goods and services produced in the global economy over a period, typically one year, equal to the sum of all individual economies’ GDP.

Globalisation

The increased integration of individual economies based on labour, investment, finance, trade, and technology.

Foreign Direct Investment (FDI)

Movement of funds between economies to purchase or acquire significant shares (≥10%) in an existing company.

Greenfields investment

When a company establishes operations in a foreign country from the ground up.

Transnational Corporations (TNCs)

Corporations that coordinate investment and production across multiple countries, linking economies into global value chains.

Portfolio Investment

Investment of less than 10% of total stake, focused on financial returns and speculative.

International division of labour

Specialization where countries focus on different types of work based on comparative advantage and skill levels.

Brain Drain effect

When skilled workers emigrate from developing economies to advanced economies, depriving source countries of human capital.

Worker’s remittances

Payments sent home by migrants working abroad, often a significant share of GDP in developing countries.

Regional Business Cycle

Changes in output in a region of economies over time.

International Business Cycle

Changes in world output or GWP over time.

Free trade

Movement of goods and services between countries without artificial barriers.

Comparative advantage

When a country can produce a good at a lower opportunity cost than another country; a key driver of specialization and international trade.

Absolute advantage

When a country can produce more goods with the same resources as another country; related to overall productivity but does not determine trade patterns.

World Trade Organisation (WTO)

An intergovernmental organization established in 1995 to promote multilateral free trade agreements and resolve trade disputes.

International Monetary Fund (IMF)

Established in 1944, provides financial assistance in the form of conditional loans to nations experiencing currency collapses or balance of payments crises.

World Bank

Established in 1944, provides conditional loans to support infrastructure and long-term economic development projects.

Organisation for Economic Co-operation and Development (OECD)

Established in 1961, promotes policies to improve economic and social well-being among advanced economies.

United Nations (UN)

Established in 1945, facilitates global cooperation in law, security, economic development, and social progress.

G20

Global forum for 19 major economies and the EU, representing 85% of global GDP and 75% of trade.

G7

Forum of 7 advanced economies plus the EU focusing on macroeconomic policy, currency stability, and development aid.

Trading Blocs

Formal agreements between countries to reduce or eliminate trade barriers among member nations.

Bilateral Free Trade Agreements (FTA)

Reductions in protection solely between 2 nations.

Multilateral Free Trade Agreements (FTA)

Reductions in protection between 3 or more nations.