HSC Economics Topic 1 Revision

Globalisation

the process of integration between different countries and economies and the increased impact of international influences on all aspects of life

3 major indicators of integration between economies

International trade in G+S

International financial flows

Technology, transport and communication

Gross World Product (GWP)

Sum of total output of G+S by all economies in the world over a period of time

Composition of Trade

Mix of G+S

Direction of Trade

Where trade is going - impact on individual economy

World Trade Organisation (WTO)

An organisation of 160 member countries that implements and advances global trade agreements and resolves trade disputes between nations

Most globalised feature

Finance

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.

Main benefit of financial flows

Enables countries to obtain funds that are used to finance their domestic investment

International Monetary Fund (IMF)

International agency that consists of 188 members and oversees the stability of the global financial system. The major functions IMF are to ensure stability of exchange rates, exchange rate adjustment and convertibility.

Measure of globalisation of investment

Foreign direct investment

Foreign Direct Investment (FDI)

The movement of funds between economies for the purpose of establishing a new company or buying substantial proportion of shares in an exisiting company or buying a substantial proportion of shares in an exisiting company. FDI generally considered to be a long term investment and the investor normally intends to play a role in the management of the business.

3 things TNCs bring

Foreign investment, new technologies and skills

Transnational Corporations (TNCs)

Global companies that dominate global product and factor markets. TNCs have production facilities in at least two countries and are owned by residents of at least two countries.

How do labour markets differ from other markets

Far less internationalised

4 factors affecting working in other countries

Language, cultural factors, incompatible education and professional qualifications

What is 'Offshoring'

Process allowing companies to shift production between countries to reduce costs. E.G. Call centres

Comparative Advantage theory states..

Economies should specialise in the production of the G+S that they can product at the lowest economy cost

International Division of Labour

How the tasks in the production process are allocated to different people in different countries around the world

What causes ups and downs of the business cycle

Aggregate supply and demand

International Business Cycle

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

Gross Domestic Product (GDP)

Total market value of all financial G+S produced in an economy over a period of time

3 things transmission of economic conditions is made more immediate by

Trade flows

TNCs

Financial flows

5 things that influence the business cycle between economies

Interest rates

Government fiscal policies

Exchange rates

Structural factors

Regional factors

2 things that strengthen the international business cycle

Technology

Financial flows

2 things that weaken the international business cycle

Exchange rates

Domestic interest rates

Regional Business Cycle

Fluctuations in the level of economic activity in a geographical region of the global economy over time

3 things trade does

Brought countries together

Created significant wealth

Resulted in restructuring of economies

Free Trade

A situation where there are no artificial barriers to trade imposed by governments for the purpose of shielding domestic producers from foreign competitors

Comparative Advantage

The economic principle that nations should specialise in the areas of production on which they have the lowest opportunity cost and trade with other nations, so as to maximise both nations' standards of living

Comparative efficiency is measured by

The opportunity cost of producing each good within that country

5 advantages of free trade

Countries to obtain G+S cannot produce themselves

Allows countries to specialise in production of G+S where they are most efficient

Encourages efficient allocation of resources

International competitiveness will improve

Leads to higher living standards

2 disadvantages of free trade

Increase in short term unemployment

More difficult for less advanced economies to establish new business

Protection

Government policies that give domestic producers an artificial advantage over foreign competitors, such as tariffs on imported goods

5 reasons for protection

Infant industries

Prevention of Dumping

Protection of Domestic Employment

Defence and Self Sufficiency

Other Arguments in Favour of Protection

3 main protectionists measures

Tariffs

Quotas

Subsidies

Tariffs

Taxes on imported goods imposed for the purpose of protecting Australian indisutries

4 economic effects of a tariff

Stimulates domestic production and employment

Reallocation of resources towards less efficient

Higher price for fewer goods

Raises revenue for government

Quotas

Restrictions on the amounts or values of various kinds of goods that may be imported

3 economic effects of a quota

Stimulates domestic production and employment

Reallocation of resources

Higher price for fewer goods

Subsidies

Cash payments from the government to businesses to encourage production of a G+S and influence the allocation of resources in an economy

4 economic effects of a subsidy

Stimulates domestic production and employment

Reallocation of resources

Lower price and receive more goods

Prefer subsidy to a tariff because abolish more quickly

Local Content Rules

Specify that goods must contain minimum percentage of locally made parts

E.G. Motor vehicle industry

Export Incentives

Give domestic producers assistance i.e. grants, loans or technical advice

Do not protect businesses from foreign competition

3 overall economic effects of protectionism

Reducing trade between nations

Reduce living standards

More difficult for individual economies to specialise

Bilateral trade agreements

Involving two countries

Multilateral trade agreements

Regional basis

Trading Bloc

A number of countries join together in a formal preferential trading agreement to the exclusion of other countries

2 examples of a trading bloc

European Union (EU)

North America Free Trade Agreement (NAFTA)

How many members in APEC

21 members, including Au, Canada, China

Trans-Pacific Partnership aim

To be the most comprehensive regional trade agreement, addressing more complex trade issues (i.e. intellectual property rights)

3 countries in Association of South East Asian Nations (ASEAN)

Indonesia

Thailand

Phillippines

3 countries Australia has bilateral trade agreements with

Singapore

Thailand

US

Role of World Trade Organisation (WTO)

Implement and advance global trade agreements and to resolve trade disputes between economies

WTO major focus

Doha Round of trade liberalisation

How many members does International Monetary Fund have

188 members

International Monetary Fund (IMF) role

To maintain international financial stability, particularly in relation to foreign exchange markets - oversee system of fixed exchange rates

World Bank role in the global economy

Helping poorer countries with their economic development, to fund infrastructure, reduce poverty, and to help countries adjust their economies to the demands of globalisation

3 organisations that provide specific assistance to lower income countries

International Development Association - soft loans

International Finance Corporation - private sector to Banks projects

Multilateral Insurance Guarantee Agency - risk insure to private investors

How many member states does United Nations cover

193 member states

Most important role played by UN in recent years

To achieve the Millennium Development Goals

Organisation for Economic Co-Operation and Development (OECD) role

Conduct and publish research on a wide range of economic policy issues and to coordinate economic cooperation among member nations such as towards the development of common policy agendas

4 members of G8

US

UK

France

Canada

Most distributing feature of global economy is ..

Large differences in living standards

Method for comparing living standards

Gross National Income

World 4 largest economies

US

China

Japan

Germany

Purchasing Power Parity (PPP)

A theory that states that exchange rates should adjust to equalise the price of identical G+S in different economies throughout the world

Economic Development

A broad measure of welfare in a nation that includes indicators of health, education and environmental quality as well as material living standards

Human Development Index (HDI)

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

3 things HDI takes into account

Life expectancy at birth

Educational attainment

Gross National Income per capita

How many countries agreed to 8 Millennium Development Goals

189 countries

Developing Economies

Experience low living standards, low education levels and generally have agriculture based economies with poor infrastructure and economic and political institutions

Example of developing economy

Bangladesh

3 emerging economies

Malaysia

Phillipines

China

Emerging Economies

In the process of industrialisation and experiencing sustained high levels of economic growth

3 causes of global inequalities - domestic factors

Natural resources

Government responses to globalisation

Labour supply and quality

Global Trade System role

Work to reinforce rather than reduce global inequalities

3 causes of global inequalities - global factors

Global trade system

Global technology flows

Global aid and assistance

3 impacts globalisation has on economic development

Lifts economic growth rates

Raises income levels

Provides more resources for education and health care