Economics IQ1

Global Economy

The network of all national economies linked through trade, investment, financial flows and technology.

Globalisation

The increased integration and interdependence of national economies through trade, investment, finance, technology and labour mobility.

Why has the global economy become more integrated?

Advances in technology, trade liberalisation, financial deregulation, multinational corporations and improved transport have increased economic integration.

What are the five main drivers of globalisation?

Trade flows, financial flows, investment flows, technology transfer and labour movements.

Trade Flows

The movement of goods and services between countries through exports and imports.

Financial Flows

The movement of money between countries, including loans, foreign aid and investment.

Investment Flows

The movement of capital between countries through foreign direct investment and portfolio investment.

Technology Flows

The international transfer of knowledge, innovation and production methods.

Labour Flows

The movement of workers between countries, either temporarily or permanently.

Foreign Direct Investment (FDI)

Investment where a foreign firm establishes or acquires productive assets in another country and has significant management control.

Portfolio Investment

The purchase of shares, bonds or other financial assets in another country without controlling the business.

Multinational Corporation (MNC)

A business that owns or controls production in more than one country.

Transnational Corporation (TNC)

A multinational business whose operations are globally integrated rather than centred in one home country.

Comparative Advantage

The ability of a country to produce a good or service at a lower opportunity cost than another country.

Opportunity Cost

The value of the next best alternative forgone when resources are used for another purpose.

Specialisation

The concentration of production in goods and services where opportunity costs are lowest.

Why do countries specialise?

Specialisation allows countries to maximise efficiency, increase productivity and benefit from comparative advantage.

Free Trade

The unrestricted movement of goods and services between countries without trade barriers.

Trade Liberalisation

The reduction or removal of tariffs, quotas and other barriers to international trade.

Protectionism

Government policies that restrict imports to protect domestic industries.

Tariff

A tax on imported goods designed to increase their price relative to domestic products.

Quota

A limit on the quantity of a good that can be imported.

Subsidy

A government payment to domestic producers that lowers production costs and improves competitiveness.

World Trade Organization (WTO)

An international organisation that promotes free trade and resolves trade disputes between member countries.

International Monetary Fund (IMF)

An international organisation that promotes financial stability and provides loans to countries experiencing balance of payments problems.

World Bank

An international organisation that finances economic development projects and poverty reduction.

Organisation for Economic Co-operation and Development (OECD)

An organisation that researches and promotes policies to improve economic performance and living standards.

Group of Twenty (G20)

A forum of the world's largest economies that coordinates international economic policy.

Economic Integration

The increasing interconnectedness of economies through trade, investment and financial markets.

Economic Interdependence

The mutual reliance of countries on each other through trade, investment and global production.

Global Supply Chain

The international network involved in producing and distributing goods and services.

Outsourcing

The contracting of business activities to external firms, often overseas.

Offshoring

The relocation of production or business operations to another country.

Containerisation

The use of standardised shipping containers that greatly reduced transport costs and increased global trade.

How has technology contributed to globalisation?

Advances in communication, transport and digital technology have reduced costs and made international business faster and easier.

Why has financial deregulation promoted globalisation?

It allows capital to move more freely between countries, increasing international investment.

How do multinational corporations promote globalisation?

They establish production facilities in multiple countries, increasing trade, investment and technology transfer.

What are the benefits of globalisation?

Higher economic growth, greater productivity, increased investment, lower prices, improved technology and greater consumer choice.

What are the costs of globalisation?

Increased inequality, structural unemployment, environmental degradation, financial instability and vulnerability to global shocks.

How does globalisation increase economic growth?

It encourages trade, investment and specialisation, increasing productivity and real GDP.

How does globalisation improve productivity?

Businesses gain access to better technology, larger markets, skilled labour and increased competition.

How does globalisation increase competition?

Foreign firms compete with domestic businesses, encouraging efficiency and innovation.

How does globalisation benefit consumers?

It provides lower prices, greater product variety and higher-quality goods and services.

How does globalisation benefit businesses?

It provides access to larger markets, cheaper inputs, new technology and international investment.

How can globalisation increase unemployment?

Businesses may relocate production overseas, reducing employment in high-cost industries.

How can globalisation increase income inequality?

Highly skilled workers and business owners often benefit more than low-skilled workers.

How does globalisation affect developing countries?

It attracts investment and creates jobs but may increase dependence on foreign firms and expose workers to poor conditions.

How does globalisation affect developed countries?

It increases export opportunities and productivity but may reduce manufacturing employment.

How does globalisation affect Australia's economy?

It increases exports, attracts foreign investment, improves productivity and integrates Australia into global markets.

Why is Australia considered an open economy?

Australia relies heavily on international trade, foreign investment and global financial markets.

Why is China important to Australia's economy?

China is Australia's largest trading partner, purchasing significant exports such as iron ore, natural gas and agricultural products.

How does globalisation expose Australia to international shocks?

Global recessions, pandemics, financial crises and supply chain disruptions reduce trade, investment and economic growth.

What is economic growth?

An increase in the real value of goods and services produced by an economy over time.

What is GDP?

The total market value of all final goods and services produced within a country during a given period.

What is GDP per capita?

GDP divided by population; commonly used as an indicator of average living standards.

What is economic development?

Improvements in living standards, health, education and income alongside economic growth.

Human Development Index (HDI)

A measure of development based on life expectancy, education and gross national income per person.

Emerging Economy

A developing economy experiencing rapid industrialisation and economic growth.

Developed Economy

A country with high incomes, advanced infrastructure and a high standard of living.

Developing Economy

A country with relatively low incomes that is still industrialising and improving living standards.

Terms of Trade

The ratio of export prices to import prices.

Exchange Rate

The price of one country's currency in terms of another currency.

Current Account

The section of the balance of payments recording trade in goods, services, income and transfers.

Balance of Payments

A record of all economic transactions between residents of one country and the rest of the world.

HSC Analysis: Explain how comparative advantage promotes globalisation.

Comparative advantage encourages countries to specialise in producing goods with the lowest opportunity cost and trade for other goods, increasing efficiency and world output.

HSC Analysis: Explain one benefit of multinational corporations.

Multinational corporations increase foreign investment, create employment, transfer technology and improve productivity in host countries.

HSC Analysis: Explain one cost of globalisation.

Globalisation can increase structural unemployment when firms relocate production to countries with lower labour costs.

HSC Analysis: Why is the global economy increasingly interdependent?

Countries rely on each other for trade, investment, finance and production, meaning economic events in one nation increasingly affect others.

HSC Analysis: Why is globalisation important for Australia?

As a small open economy, Australia depends on global trade, investment and financial flows to support economic growth, employment and living standards.