Year 12 Economics Lecture Notes

Economics Notes Year 12 - Elsie Gillezeau

Year 12 Outcomes Objectives

A student will develop:

  • Knowledge and understanding about:

    • The economic behaviour of individuals, firms, institutions, and governments.

    • The function and operation of markets.

    • The operation and management of economies.

    • Contemporary economic problems and issues facing individuals, firms, and governments.

  • Skills to:

    • Investigate and engage in effective analysis, synthesis, and evaluation of economic information from a variety of sources.

    • Communicate economic information, ideas, and issues in appropriate forms.

  • Values and attitudes about:

    • Informed participation in economic debate and decision-making.

    • Responsible approaches towards people, societies, and environments.

Year 12 Course Topics

  1. The Global Economy.

  2. Australia’s Place in the Global Economy.

  3. Economic Issues.

  4. Economic Policies and Management.

Key Issues in Economics

  • Economic Growth.

  • Unemployment.

  • Inflation.

  • External Stability.

  • Distribution of Income.

  • Environmental Sustainability.

HSC Topic One: The Global Economy

Focus of Study

The operation of the global economy and the impact of globalisation on individual economies is the main focus of this topic.

Note: This topic is less tested in the HSC, however, understanding these concepts is crucial for supporting arguments in other topics and can appear in multiple-choice questions.

Learning Outcomes

Students learn to:

  • Examine economic issues related to globalization, including effects on:

    • Economic growth.

    • Quality of life.

    • Unemployment.

    • Inflation.

    • Environmental sustainability.

    • External stability.

  • Investigate the global distribution of income and wealth along with its consequences.

  • Discuss the effects of protectionist policies on the global economy.

Application of Economic Skills

  • Analyze statistics on trade and financial flows to determine the nature and extent of global interdependence.

  • Assess the impact on the global economy of international organisations and contemporary trading bloc agreements.

  • Evaluate the impact of development strategies used in a range of contemporary and hypothetical situations.

Content
International Economic Integration (1.1)

  • The Global Economy (1.1.1)

    • The ‘global economy’ refers to the increasing linkage of individual economies economically. Changes in one economy can ripple through others, thus creating a global economy.

  • Gross World Product (GWP) (1.1.2)

    • GWP is the total value of all goods and services produced worldwide each year in the global economy, combining the GDP of all countries.

    • GWP Statistics:

    • GWP in 2019 compared to 2020 shows a proportional increase.

    • GWP is now 50 times its level in 1960.

  • Globalisation (1.1.3)

    • Globalisation refers to the increasing economic integration and interdependency between national economies. Major indicators include:

    1. International trade in goods and services (G/S).

    2. International financial flows.

    3. International investment flows and presence of TNCs.

    4. Technology, transport, and communication advancements.

    5. Movement of workers across countries.

Trade in Goods and Services

  • Trade represents the sale of goods and services across national borders.

    • Imports: Goods and services purchased from another country.

    • Exports: Goods and services sold to another country.

    • Trade is pivotal for globalization, reflecting how much of economy's production is consumed abroad.

Statistics:

  • Annual growth in trade has doubled that of economic growth but remains highly volatile (e.g., Coronavirus saw a 30% fall in world trade).

  • Volume of world trade has grown to 125 times its level in 1960, driven by the inability of economies to independently produce all required goods due to technological advancements in transport and communication.

  • Trade from US$6.2 trillion in 1987 (37% of global output) to US$43.8 trillion in 2018 (50% of global output).

Composition and Direction of Trade

  • The composition of trade involves the types of goods and services exchanged and has shifted towards significant growth in services over time.

  • The East and Pacific region's contribution to global trade rose from 7% in 1995 to 15% in 2016, reflecting stronger growth in emerging markets.

Financial Flows
International Financial Flows (1.1.4)

  • Financial flows indicate quick movement of money for investment or speculation, usually quicker than goods or labor.

  • Major expansion of financial flows since the 1970s/80s deregulation, with measurement through exchange trade derivatives increasing from US$1 trillion in 1990 to US$74 trillion in 2014.

Deregulation Measures:

  1. Foreign Exchange Market (FOREX) controls lifted.

  2. Foreign capital flow restrictions removed.

  3. Banking interest rates regulations lifted.

  4. FDI inflow restrictions lifted.

Purposes of International Financial Flows:

  • Speculation: Increases market volatility; 95% of Australian currency participates in speculative trading causing fluctuations against stable currencies like USD.

Investment and Transnational Corporations (TNCs)

  • Foreign Direct Investment (FDI): Movement of funds across borders for creating or acquiring businesses (more than 10% control).

    • Generally a long-term investment involving direct management involvement.

    • FDI trends shifted towards emerging economies, accounting for 59% of inflows in 2014 with developed nations previously favored.

  • TNCs: Companies operating in multiple countries, significantly driving FDI growth. Their numbers have escalated from 37,000 in the 1990s to over 104,000.

Technology's Role in Globalisation
Technology, Transport, and Communication (1.1.5)

  • Technological advancements facilitate global trade and labor mobility, encompassing logistics improvements and communication breakthroughs.

  • Significant increases in Internet usage and mobile phone subscriptions aiding international information exchange.

Migration Trends:

  • Migration indicates an international division of labor whereby different skills are pulled toward regions where they are in demand.

  • Barriers: Factors such as immigration restrictions and cultural differences hinder labor movement, yet efficient transportation aids labor flexibility.

The International Business Cycle

Business Cycle Overview (1.1.4)

  • Business cycles denote fluctuations in economic activity across economies, increasingly synchronized due to globalization.

  • Economic growth in one country can elevate trading partner exports, amplifying global growth.

Impact of Other Economic Conditions

  • Economic changes reciprocally influence imports, exports, financial flows, and investment across countries. Countries with integrated finances react quickly to global shocks.

Trade, Financial Flows, and Foreign Investment (1.2)

Free Trade vs Protectionism

  • Free Trade: Trade without artificial barriers by governments.

    • Advantages:

    • Access to goods and services.

    • Encourages specialization and efficiency.

    • Lowers production costs while enhancing innovation.

  • Disadvantages:

    • Potential for structural unemployment due to industry shifts.

    • Lesser market barriers may hinder new businesses in developing economies.

    • May lead to environmental externalities through unchecked production demands.

Global Economic Institutions and their Role
Key International Organizations (1.2.2)

  • WTO (World Trade Organisation):

    • Aims to oversee global trade agreements and settle trade disputes.

  • IMF (International Monetary Fund):

    • Maintains global financial stability through adjustment policies and liquidity support.

  • World Bank:

    • Focuses on economic development in poorer countries, targeting poverty reduction and income growth.

  • United Nations:

    • Established in 1945, aims for international cooperation across security, development, and health issues.

Trading Blocs and Agreements

  • Definition: Trading blocs are formal agreements among countries fostering easier trade among members but imposing restrictions on non-members.

  • Types of Economic Integration:

    1. Free Trade Area: Differences in tariffs removed.

    2. Customs Union: Common external tariffs added.

    3. Common Market: Free movement of labor and capital adheres.

    4. Monetary Union: Shared currency and monetary policy.

Economic Issues

Key Economic Issues in Australia (3)

  1. Economic Growth (3.1)

    • Defined as the increase in value of goods/services produced in an economy, typically measured by the percentage change in real GDP adjusted for inflation.

  2. Unemployment (3.2)

    • Measured by estimating the percentage of the labor force not currently employed but seeking work.

  3. Inflation (3.3)

    • General increase in price levels measured through the Consumer Price Index (CPI).

  4. External Stability (3.4)

    • A nation's ability to service external economic obligations without compromising domestic economic stability.

  5. Income Distribution (3.5)

    • Explored through measures such as the Lorenz curve and the Gini coefficient to gauge economic inequality.

  6. Environmental Sustainability (3.6)

    • Implementation of sustainable practices to balance environmental preservation against economic growth.

Detailing the above components, including analyzing their causes, consequences, intricacies, and real-world implications would be essential for robust preparation, ensuring comprehensive understanding of economic theories and application throughout the Australian economic landscape.