ECOS

Topic 1 The Global Economy

International economic integration

• The global economy

  • Network of interdependent national economies linked by trade, finance, migration and technology.

  • Useful: shows how shocks or growth in one country affect others.

• Gross World Product

  • Total GDP of all countries combined.

  • Useful: quick measure of global output and long‑run growth.

• Globalisation

  • Integration via trade, financial flows, TNCs, tech, transport and communication.

  • Useful: explains rising cross‑border production and capital mobility.

• Trade in goods and services

  • Value, composition, direction: changing shares (manufacturing ↓, services ↑), China’s trade share ↑.

  • Useful: identifies which sectors and partners drive global trade.

• Investment and transnational corporations

  • TNCs bring FDI, tech and jobs; governments offer incentives.

  • Useful: source of capital, technology transfer and employment.

• Technology transport and communication

  • Containerisation, internet and faster finance reduce costs and enable global supply chains.

  • Useful: explains relocation of production and speed of capital flows.

• International division of labour and migration

  • Countries specialise by comparative advantage; migration moves labour where returns are higher.

  • Useful: explains remittances, labour supply changes and structural shifts.

• International and regional business cycles

  • Global cycles interact; regional booms (e.g., China) affect commodity exporters.

  • Useful: for forecasting external demand and policy responses.

Trade financial flows and foreign investment

• Basis of free trade

  • Comparative advantage → mutual gains from specialisation.

  • Useful: frames arguments for trade liberalisation and its limits.

• Role of international organisations

  • WTO, IMF, World Bank, UN, OECD: set rules, provide finance, advise and coordinate.

  • Useful: know strengths (coordination, funding) and weaknesses (conditionality, enforcement).

• Influence of government economic forums

  • G20, G7: coordinate macro policy and crisis responses; limited binding power.

  • Useful: explains global policy coordination in crises.

• Trading blocs monetary unions and FTAs

  • Definitions: blocs reduce internal barriers; unions share currency; FTAs cut tariffs.

  • Useful: weigh trade creation vs trade diversion and sovereignty costs.

Protection

• Reasons for protection

  • Protect infant industries, jobs, prevent dumping, national defence.

  • Useful: policy rationale for tariffs/subsidies.

• Methods of protection

  • Tariffs, quotas, subsidies, local content rules, export incentives.

  • Useful: each method’s immediate effect on prices, supply and government budget.

• Effects of protectionist policies

  • Short term: protect jobs and industries; long term: higher prices, inefficiency, retaliation.

  • Useful: trade‑off between political goals and economic efficiency.

Globalisation and economic development

• Economic growth versus economic development

  • Growth: GDP increase. Development: broader quality of life (HDI).

  • Useful: use HDI to assess wellbeing beyond GDP.

• Distribution of income and wealth

  • Large global disparities; wealth concentrated in advanced economies.

  • Useful: explains migration, aid needs and political pressures.

• Income and quality of life indicators

  • GNI per capita, HDI, life expectancy.

  • Useful: compare countries’ living standards.

• Developing emerging and advanced economies

  • Developing: low income and infrastructure. Emerging: rapid industrialisation. Advanced: high income, services.

  • Useful: policy priorities differ by category.

• Reasons for differences between nations

  • Global factors (trade rules, FDI, aid, tech) and domestic factors (resources, institutions, policy).

  • Useful: target reforms to institutions and infrastructure.

Topic 2 Australia’s Place in the Global Economy

Australia’s trade and financial flows

• Value composition and direction of trade

  • Exports dominated by minerals; shift toward China; rural exports declined.

  • Useful: identifies vulnerability to commodity cycles and partner concentration.

• Trends in imports

  • Rise in finished consumer goods imports; direction shifted to Asia.

  • Useful: explains manufacturing decline and retail price effects.

• Financial trends

  • Deregulation → large foreign portfolio and direct investment; portfolio share ↑ (more volatile).

  • Useful: implications for capital flow volatility and exchange rate sensitivity.

Australia’s Balance of Payments

• Structure

  • Current Account (goods, services, net income, transfers) and Capital and Financial Account (FDI, portfolio, reserves).

  • Useful: double‑entry means CA + KAFA = 0 overall.

• Links between categories

  • KAFA surplus ↔ CA deficit; FDI inflows later generate income outflows (NPI).

  • Useful: explains how investment inflows affect future income payments.

• Trends and drivers

  • Exchange rate, terms of trade, competitiveness and borrowing shape BOP.

  • Useful: know how commodity prices and AUD moves affect CA.

Exchange rates

• Measurement

  • Bilateral rates and Trade Weighted Index (TWI).

  • Useful: TWI reflects trade‑weighted currency movements.

• Demand and supply of AUD

  • Driven by foreign investment, interest differentials, export demand and speculation.

  • Useful: link interest rate changes to capital flows.

• Appreciation and depreciation

  • Appreciation: AUD buys more foreign currency; Depreciation: buys less.

  • Useful: impacts competitiveness, inflation and CAD.

• Determination systems

  • Flexible (market), fixed (pegged), managed (band).

  • Useful: pros/cons: flexibility vs stability and reserve costs.

• RBA influence

  • Interest rate policy and direct intervention (buy/sell AUD) affect exchange rate.

  • Useful: monetary policy transmits to AUD and trade balance.

• Effects of exchange rate fluctuations

  • Appreciation: cheaper imports, pressure on exporters; Depreciation: boosts exports, raises import costs.

  • Useful: sectoral winners/losers and inflation implications.

Free trade and protection in Australia

• Australia’s policy stance

  • Historically large tariff cuts; current tariffs very low.

  • Useful: explains openness and exposure to global competition.

• Multilateral and bilateral FTAs

  • Examples: ANZCERTA, JAEPA, AANZFTA, APEC.

  • Useful: FTAs expand market access and reduce tariffs for exporters.

• Implications for stakeholders

  • Individuals: cheaper goods, structural job shifts. Firms: competition and cheaper inputs. Government: lower tariff revenue, need for adjustment support.

  • Useful: policy trade‑offs and adjustment programs.

Topic 3 Economic Issues

Economic growth

• Aggregate demand identity

  • 
    

  Y=C+I+G+(X−M)  

• Useful: shows components policymakers target.

• Injections and withdrawals

  • Injections: I, G, X. Withdrawals: S, T, M.

  • Useful: net injections drive short‑run GDP changes.

• Simple multiplier

  • 
    

  k=11−MPC  

• Useful: small fiscal changes can have amplified effects.

• Measurement of growth

  • Real GDP adjusts for inflation: Real GDP=Nominal GDP1+Inflation Rate.

  • Useful: use real GDP for true output comparisons.

• Sources and effects of growth

  • AD increases raise short‑run output; AS improvements (productivity, tech) raise long‑run capacity.

  • Useful: distinguish demand stimulus vs supply reforms.

• Increasing AS

  • Productivity, education, investment, immigration and technology.

  • Useful: sustainable growth policies focus on AS.

• Business cycle trends

  • Pre‑COVID long expansion; COVID recession; post‑COVID inflation and rate rises.

  • Useful: context for recent policy choices.

Inflation

• Measurement

  • CPI headline and underlying (volatile items removed).

  • Useful: underlying inflation guides policy.

• Causes

  • Demand‑pull, cost‑push, imported inflation, inflationary expectations.

  • Useful: identify source to choose correct policy.

• Effects

  • Low stable inflation supports growth; high inflation erodes purchasing power and worsens distribution.

  • Useful: trade‑offs for monetary policy.

Unemployment

• Measurement

  • Labour force, participation rate, unemployment rate.

  • Useful: compute rates from labour statistics.

• Types and causes

  • Cyclical, structural, frictional, seasonal, underemployment, hidden, long‑term.

  • Useful: policy differs by type (stimulus vs retraining).

• NAIRU

  • Non‑accelerating inflation rate of unemployment; lowest sustainable rate without rising inflation.

  • Useful: benchmark for full employment policy.

• Groups affected and costs

  • Youth, Indigenous, regional, migrants; economic (lost output) and social (inequality, crime) costs.

  • Useful: target labour programs to vulnerable groups.

External stability

• Measurements

  • CAD/GDP, net foreign debt/GDP, net foreign liabilities, terms of trade, exchange rate, competitiveness.

  • Useful: indicators of vulnerability to external shocks.

• Trends and effects

  • Commodity prices, AUD and capital flows drive external balances.

  • Useful: monitor for policy adjustments.

Distribution of income and wealth

• Measurement

  • Lorenz curve and Gini coefficient.

  • Useful: quantify inequality and track policy impact.

• Sources and policy tools

  • Wages, property income, transfers; taxes and transfers redistribute.

  • Useful: progressive tax + transfers reduce inequality.

• Dimensions and trends

  • Differences by gender, age, occupation, ethnicity, family structure.

  • Useful: design targeted support (childcare, training).

Environmental sustainability

• Ecologically sustainable development

  • Meet present needs without compromising future generations.

  • Useful: principle for long‑run policy.

• Market failure and externalities

  • Private costs/benefits diverge from social ones → regulation or market instruments needed.

  • Useful: justify taxes, subsidies or permits.

• Public private and common goods

  • Public goods non‑excludable/non‑rival; common goods rivalrous but non‑excludable.

  • Useful: explains free‑rider problems and need for government action.

• Policy tools

  • Regulations, taxes, subsidies, emission trading schemes, targets and international agreements.

  • Useful: mix of instruments needed for effective environmental management.

Topic 4 Economic Policies and Management

Economic objectives and trade offs

• Objectives

  • Economic growth, full employment, price stability, external stability, environmental sustainability, equitable distribution.

  • Useful: policies must balance conflicting goals.

• Potential conflicts

  • E.g., growth vs sustainability, low unemployment vs inflation.

  • Useful: choose policy mix based on priorities and constraints.

Macroeconomic policies

• Rationale

  • Stabilise AD and smooth business cycle; shift AD or AS as needed.

  • Useful: fiscal and monetary tools target short‑run demand; micro reforms target supply.

Fiscal policy

• Federal budgets and outcomes

  • Government spending and taxation decisions affect AD, resource allocation and distribution.

  • Useful: budget stance (expansionary/contractionary/neutral) signals policy direction.

• Financing deficits

  • Use savings, domestic/foreign borrowing, asset sales or money creation.

  • Useful: each method has costs (crowding out, exchange risk, inflation).

• Use of a surplus

  • Pay down debt or save in sovereign funds.

  • Useful: reduces future interest burdens and stabilises finances.

Monetary policy

• Purpose and implementation

  • RBA sets cash rate to meet inflation target and influence AD via interest rates and open market operations.

  • Useful: affects C, I, exchange rate and inflation.

• Channels of influence

  • Savings/investment, cash flow, asset price/wealth, exchange rate channels.

  • Useful: explain transmission to real economy.

• Limitations

  • Time lags, blunt tool, less effective near zero lower bound.

  • Useful: combine with fiscal policy when needed.

Microeconomic policies

• Rationale

  • Improve efficiency and shift AS via competition, deregulation, privatisation and labour market reform.

  • Useful: long‑run productivity gains but short‑term adjustment costs.

• Effects on markets

  • Factor market reforms lower input costs; product market reforms increase competition and lower prices.

  • Useful: target reforms where productivity gains are largest.

• Regulation and deregulation

  • Deregulation encourages entry and lowers prices; regulation protects consumers and environment.

  • Useful: balance competition with public interest.

Labour market policies

• National system and standards

  • Minimum standards, awards, enterprise agreements, dispute resolution and Fair Work framework.

  • Useful: ensures baseline protections and dispute mechanisms.

• Methods of determining wages

  • Centralised, decentralised, individualised systems each have equity and efficiency trade‑offs.

  • Useful: decentralised systems boost productivity incentives; centralised systems support equity.

• Education training and employment programs

  • Retraining, apprenticeships, wage subsidies and job search assistance reduce structural unemployment.

  • Useful: essential for long‑term labour market adjustment.

Environmental management national and global

• Regulations and market based policies

  • Laws, taxes, subsidies, ETS and targets (renewable energy, Paris Agreement).

  • Useful: mix of instruments needed; international agreements support collective action.

Limitations of economic policies

• Time lags

  • Implementation and impact lags differ by policy type (monetary short‑medium, fiscal medium, micro long).

  • Useful: anticipate delays when planning interventions.

• Global influences and political constraints

  • External cycles, capital flows and election cycles limit policy choices.

  • Useful: policy must be flexible and politically feasible.