Escolar Documentos
Profissional Documentos
Cultura Documentos
10
Outcomes
A student:
H1
demonstrates understanding of economic terms, concepts and
relationships
H2
analyses the economic role of individuals, firms, institutions and
governments
H3
explains the role of markets within the global economy
H4
analyses the impact of global markets on the Australian and global
economies
H5
discusses policy options for dealing with problems and issues in
contemporary and hypothetical contexts
H6
analyses the impact of economic policies in theoretical and
contemporary Australian contexts
H7
evaluates the consequences of contemporary economic problems and
issues on individuals, firms and governments
H8
applies appropriate terminology, concepts and theories in
contemporary and hypothetical economic contexts
H9
selects and organises information from a variety of sources for
relevance and reliability
H10 communicates economic information, ideas and issues in appropriate
forms
H11 applies mathematical concepts in economic contexts
H12
Content
Students learn to:
Examine economic issues
analyse statistics on trade and financial flows to determine the nature and
extent of global interdependence
globalisation
trade in goods and services
financial flows
investment and transnational corporations
technology, transport and communication
international division of labour, migration
effects of globalisation
environmental sustainability
Case study
Undertake a case study of the influence of globalisation on an economy other
than Australia, including an evaluation of the strategies used to promote
economic growth and development in this economy.
Outcomes
A student:
H1 demonstrates understanding of economic terms, concepts and
relationships
H2 analyses the economic role of individuals, firms, institutions and
governments
H3 explains the role of markets within the global economy
H4 analyses the impact of global markets on the Australian and
global economies
H5 discusses policy options for dealing with problems and issues in
contemporary
and hypothetical contexts
H6 analyses the impact of economic policies in theoretical and
contemporary
Australian contexts
H7 evaluates the consequences of contemporary economic
problems and issues
on individuals, firms and governments
H8 applies appropriate terminology, concepts and theories in
contemporary and
hypothetical economic contexts
Content
Students learn to:
Examine economic issues
examine the effects of globalisation on economic growth and the
quality of life,
levels of unemployment, rates of inflation and external stability
assess the potential impact on the environment of continuing
world economic
development
investigate the global distribution of income and wealth
assess the consequences of an unequal distribution of global
income and wealth
discuss the effects of protectionist policies on the global economy
Apply economic skills
analyse 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.
Middle-income
trap
Equilibrium:
o Leakages = injections
o S+T+M=I+G+X
Disequilibrium:
o Leakages injections
o S+T+MI+G+X
Leakages > injections
S+T+M>I+G+X
Causes a recession or contraction in overall
economic activity
o Fall in levels of:
Income
Output
Expenditure
Employment
Leakages < injections
S+T+M<I+G+X
Causes a boom or expansion in overall economic
activity
o Rise in levels of:
Income
Output
Expenditure
Employment
Flows:
Real flow
o Flows of goods and resources
Money flow
o Income earned by households
o Expenditure by households on goods and money flows
Equilibrating mechanisms:
When S + T + M < I + G + X
o As household income increases:
Households have a higher marginal propensity to save
(saving in the financial sector will increase)
Taxation will increase
Spending on imports will increase
o This results in a rise in leakages until they equal injections and a
higher level of equilibrium is the result
When S + T + M > I + G + X
o As household income falls:
Households have a lower marginal propensity to save
(saving in the financial sector will decrease)
Taxation will decrease
Spending on imports will decrease
o This results in a fall in leakages until they equal injections and a
lower level of equilibrium is the result
The circular flow of income:
Expenditu
re
Productio
n
Income
Exchange rate:
The price of one countrys currency expressed in terms of another
countrys currency. It is the rate at which one currency can be
exchanged for another
E.g. the higher the exchange rate for one euro to one yen, the lower
the relative value of the yen. The exchange rate for euros to yen
may be 1.3, meaning it takes 1.3 yen to equal a euro in value.
Exchange rate=
Country A
Country B
Terms of trade:
Is the quantity of imports that can be purchased through the sale of
a fixed quantity of exports
Calculated by:
terms of trade=
E.g.
Year
Nominal GDP
($million)
700
1000
1 (base year)
2
Consumer Price
Index (CPI)
220
310
1000
220=709.7 $ million (1 d . p )
310
real GDP=709.7 $ million ( 1 d . p )
E.g.
Year
1
2
800600
100
600
33.3 (1 d . p)
To calculate the real GDP growth from the first table, the real
GDPs of both years must first be found before using the
percentage change formula
globalisation
Direction
Trade Blocs encourage trade
between members (a criticism)
Regionalism:
North America
EU
South East Asia (China,
Korea, Japan + ASEAN)
APEC (Pacific Rim)
Shifts in political power
(America China)
BRICs and developing countries
increasing in share of trade
financial flows
Financial flows:
Definition: money flows around the world for currency
exchange and investment. Includes bank lending around the
world
Foreign exchange market (FOREX): The global market for
trading of currencies
Purchasing power parity (PPP): A measure of the relative
power of currencies, estimating the amount of adjustment
needed on the exchange rate between the two currencies in
order for the exchange to be equivalent to each currencys
purchasing power. It asks how much would needed to
purchase the same goods and services in two countries.
Money moves faster than people or goods
Technology links global financial markets linking savers and
borrowers
Speculators: undertake short-term investments in financial
assets (buy low, sell high)
o 95% of foreign currency transactions are related to
speculation
International Monetary Fund: responsible for stability of
the global financial system
Causes of growth in financial flows:
Reduction in man-made barriers
Reduction in natural barriers
Financial deregulation
Technological
o E.g. reductions in
improvements
o Electronic
limits on bank
lending and
transaction
international capital
settlement
movements (Australia
o Computerised record
1980s)
keeping
o E.g. introduction of a
floating (flexible)
exchange rate
(Australia 1983)
o An exchange
rate regime
where its
currency is set
by the FOREX
market
o Deregulated the bank
sector resulted in the
GFC however
The level and direction of global financial flows are the main
determinants of exchange rates
The fastest growing are interest rate, currency, equity and
commodity derivatives
Interest rate and currency derivatives equal over 95% of
derivatives traded
Only 1% of ER market transactions are payments for trade
The impact of financial flows on the global market can be
evidenced in the sub-prime mortgage market disaster in the
USA in 2007-08, which resulted in the Global Financial Crisis
Direction
Trade blocs and
regionalism redirect FDI
flows
Rise of emerging markets
(esp. China and India) has
attracted FDIs
TNCs attracted to new
markets to sell their
products and also the
growing supplies of the
factors of production
Intra-company trade:
Much international trade occurs between businesses that are
owned by each other
Transfer pricing (prices charged in intercompany
transactions) is a concern due to the opportunities for tax
aversion
Strengthening
Trade flows
Investment flows and
investor sentiment
Transnational corporations
Financial flows
Technology
Global interest rates
International organisations
Weakening
Domestic interest rates
Government fiscal policies
Other domestic policies
Exchange rates
Structural factors
Regional factors
Negative externalities
(pollution levels,
exploitation of labour)
Lack of diversity in the
production base
Unfair price cutting and
dumping
The potential for an
increasing Current Account
Deficit due to an imbalance
on the BOGS
Countries
Mexico
Trade scenario
Cocoa
Rice
Resources required to produce
1 unit of product
10
20
China
40
Product
Mexico
China
Total
production
Total
production in
economy
10
Comparative
advantage for
cocoa
Comparative
advantage for
rice
Mexico
China
Total
production
Total
production in
economy
Notes
20
0
20
Equivalent in
the world
economy to
GWP
Specialisation
can occur, for
the two
countries are
trading
0
20
20
40
Increase in
40 27 = 13
production with
specialisation
Consumption after Mexico
trades 6 cocoa for 6 rice
Equivalent in
the world
economy to
GWP
A better
outcome
overall
Mexico
China
Mexico
China
14
6
6
14
Increase in consumption as a
result of specialisation and
trade
14 10 = 4
65=1
62=3
14 10 = 4
Both countries
have benefited
from the
exchange
Scenario 2:
Table 1 Absolute Advantage:- production before specialisation
Australia
China
Total output
Wheat (units)
Cloth (units)
30
20
25
35
45
Australia
China
Total output
Wheat (units)
Cloth (units)
60(+30)
0 (-20)
0 (-5)
50 (+25)
60 (+25)(net gain)
50 (+5)(net gain)
Australia
China
Total Output
Wheat (units)
Cloth (units)
20
10
25
15
1 unit of wheat
1 unit of cloth
Australia
China
Australia
China
Total output
Wheat (units)
Cloth (units)
40 (+20)
0 (-10)
0 (-5)
10 (+5)
Convergence:
The hypothesis that poorer economies per capita incomes will tend
to grow at faster rates than those in richer economies due their
ability to replicate production methods, technologies and institutions
already in use by developed countries on the forefronts of these
things. This results in a convergence of countries in terms of per
capita income
Trade diversion:
An occurrence in international economies in which trade is diverted
from a more efficient exporter towards a less efficient one by the
lowering of trade barriers with the less efficient one.
Effects of globalisation:
Globalisation has made economies more unequal in their
growth and development patterns, creating a divergence.
Global income inequality, as measured by the Gini Coefficient
has increased rapidly between 1980 and 2002, with the rapid
trend of globalisation due to technological improvements. This
trend seems to have peaked however and begun a reversal,
with rapid economic growth in emerging economies,
particularly the BRIC nations (Brazil, Russia, India, China)
World Bank
United Nations
(UN)
(OECD)
Acronym
stands
for:
World
Trade
Organisati
on
Trade organisations
IMF
World
UN
Bank
Internation
United
al
Nations
Monetary
Fund
Number of
member
nations
General
purpose of
the
organisati
on
157
188
188
193
To
supervise
and
liberalise
internation
al trade
To foster
global
monetary
cooperatio
n, secure
financial
stability,
facilitate
internation
al trade,
promote
high
employme
nt and
sustainabl
e
economic
growth and
reduce
poverty
around the
world
Provides
loans to
developi
ng
countrie
s.
Facilitating
cooperatio
n in
internation
al law,
internation
al security,
economic
developme
nt, social
progress,
human
rights and
the
achieveme
nt of world
peace
WTO
How does
it ensure
complianc
e
A
multilatera
l dispute
resolution
process of
negotiatio
n
Expulsion
from the
IMF for
those who
dont
comply.
This
Goal is
the
reductio
n of
poverty.
By passing
legislation
and
enforcing
this with
peacekeep
ing forces
OECD
Organisation
for
Economic
Cooperation
and
Developmen
t
34
To stimulate
economic
progress
and world
trade.
Provides a
platform to
compare
policy
experiences
seek
answers to
common
problems,
identify
good
practises
and coordinate
domestic
and
international
policies of
its members
WTO
Main
achieveme
nts
Enhanc
ed the
value
and
quantity
of trade.
Eradicat
ed trade
barriers.
Eased
settleme
nt of
disputes
by
enforcing
improve
d rules.
Encoura
ged
sustaina
ble trade
develop
ment
Trade organisations
IMF
World
UN
Bank
involves a
voluntarily
cutting of
provided
any
by
financial
member
assistance.
states
OECD
Major
challenges
Trade organisations
WTO
IMF
World
UN
OECD
Bank
Liberalis Critics
Run by Criticis Exclusive
ing
say that
a small
ed for
ness, for
global
its
numbe
bureau
its
trade in
policies
r of
cratic
members
agricult
make
econo
ineffici
hip is
ure and
economi
mically
ency
limited to
textiles
c crises
powerf
and
a select
worse
ul
waste.
few rich
because
countri
Calls
nations
of the
es
for
severity
which
structu
of the
also
ral
austerit
provid
reform
y
e most
measure
of the
s it
institut
imposes
ions
fundin
g
Number of
member
nations
Why it was
established
A reaction to
the 1973 oil
crisis requiring
better
cooperation
between the
worlds
industrialised
nations to
respond to
crises like this
that affect
them. This was
an inclusion of
Russia to the
G7, despite
that it wasnt a
high-income
Proposed by
Canadian
Prime Minister
Paul Martin as
a forum for
cooperation
and
consultation on
matters
pertaining to
the
international
financial
system after
the GFC
Criteria for
membership
Exclusive to
the leading
high-income,
large
population,
industrialised
nations of the
world (at the
time of
founding
[1982])
nation. This
formed new
political and
economic
relations with
Russia after
the Cold War
Supposedly
the worlds
eight largest
economies,
however does
exclude China
and Brazil
Economically
strong
countries plus
several
countries that
are not
permanent
members are
invited to
participate at
each summit.
This is a
collection of
the 20 highest
producing
nations. This is
because it was
recognised
pre-GFC that
the BRIC
nations
especially were
producing a
large
proportion of
the worlds
product, but
were not highincome nations
or members of
the G8 except
Russia
In 2009 it was
agreed that
the G20 would
replace the G8
as the main
economic
forum for
globalized
economies.
This marks a
greater
acceptance of
the importance
of Asia to the
global
economy
Current
constitue
nts
Advantages
28
European
nations
A monetary
union. They all
use the Euro
currency
o Easier
curren
cy
excha
nge
betwe
en
countr
ies
o Reduc
ed
excha
nge
rate
volatili
ty
Disadvantag
es
Economic
converge
nce
standard
s to
synchroni
se
economie
s before
their
adoption
of a
single
currency
meant
that
some
nations
could not
join
Many
countries
in the EU
now have
large
sovereign
debt
problems
, causing
the
European
Sovereig
n Debt
Crisis
which
threatens
the
stability
of the
entire EU
as
opposed
to just
these
countries
Asia
Pacific
Economi
c
Coopera
tion
(APEC)
47.3%
North
America
n Free
Trade
Agreem
ent
(NAFTA)
Associat
ion of
South
East
Asian
Nations
(ASEAN)
12.9%
6.9%
Bilateral FTAs:
21 AsiaPacific
countries
including
Australia,
China,
Japan,
the
ASEAN
nations
and the
USA
USA,
Canada
and
Mexico
10 Asian
nations
General:
Advantages:
o Increase volumes of trade, maximising the benefits of
globalisation
o Greater political unity and cooperation
Disadvantages:
o Trade diversion: when members of FTAs favour trade
between each other than to other nations
Non-members of the FTAs lose trade opportunities
The allocation of resources is distorted, because
members of the block may be the sources of trade
even if they are less efficient than outside
members. They may be more cost-efficient merely
because they dont have as many barriers to trade
This is why multilateral trade agreements are
favoured over bilateral agreements because they
minimise the numbers of nations excluded
o Bilateral agreements are easier to found, due to the
reduced number of compromises and political
negotiations when just two parties are involved. They
are less effective however
Protection
reasons for protection infant industry argument, domestic
employment, dumping, defence
Reasons for protection / disadvantages of free trade:
Protection: a government action that is taken to give
domestic producers an artificial advantage over foreign
producers. The forming of trade barriers. The practise of this is
called protectionism. It aims to hinder the foreign
competitors of local firms or advantage local exporters to give
domestic firms an advantage on the global market
Infant industry argument:
o That nascent businesses need assistance to aid them in
their establishment to deal with initial costs and
problems for they do not have the economies of scale
that geriatric, established businesses enjoy
Nascent: Just coming into existence and
beginning to display signs of future potential. Not
fully developed yet
Geriatric: Old
o However,
It is hard to know which industries have potential
and thus should be protected
Defence:
o Some nations argue that it is necessary to protect
industries which are related to the defence of the
country
o Despite that it would result in the most efficient
allocation of global resources, countries do not want to
rely on other countries for their defence equipment for
political reasons. This is an example of a political
expediency and it is an example of where political
considerations trump economic principles
Also:
Ethical reasons:
o To prevent the purchase of goods produced that exploit:
The environment
Labour
Though there is a strong argument that
cheap labour is one of the main factors that
develops nations into industrialised
economies, for developing countries have a
comparative advantage in labour, over
advanced economies for their labour is
cheaper.
o Embargoes can prevent the import of items which are
deemed unethical
One of the main political reasons for protection is nationalism which
can cause xenophobia and tribalism in which other nations are
secluded.
methods of protection and the effects of protectionist policies on
the domestic and global economy tariffs, subsidies, quotas, local
content rules, export incentives
0Qe to 0Q1
For at the world price for the product, that is how much domestic
industries are willing to supply (that is where the domestic supply curve
intersects the price), however at this price the demand is at Q2, and thus
Q1Q2 is filled in with imports, which are happy to provide at this price.
Before imports
Definitions:
Consumer surplus:
The monetary gain obtained by consumers
because they are able to purchase a product for a
price that is less than the highest price that they
would be willing to pay
Producer surplus:
The monetary gain of a producer obtains by selling
a product at a market price that is higher than the
least they would be willing to sell it for
Summary:
Without imports
(Autarky [selfsufficiency]):
With imports:
With tariffs:
In this economy:
Autarky:
o Equilibrium would occur at price Pe and Quantity Qe for
barley
o Domestic producers make 0Q2
With uninhibited global free trade:
o Barley is imported at a lower cost than what is produced
domestically. Thus domestic production falls from 0Qe to
OQ1 and foreign production now occupies the supply of
Q1Q2. Both accept a price of Pworld and by multiplying
In this economy:
Autarky:
o Equilibrium is at Pe and Qe for sorghum
o Domestic producers make 0Q2
With uninhibited global free trade:
o Price of Sorghum is Pworld due to lower world price
(comparative advantage of other economies at
producing it)
o Domestic producers make 0Q1 and foreign producers
make Q1Q2
o Domestic producers earn box a
o Foreign producers earn boxes b, c and d
With a government quota on imports of foreign sorghum:
o The Sdomestic supply curve shifts right to Sdomestic +
quota
o Domestic producers produce 0Q1 and Q3Q4 and foreign
producers produce Q1Q3 (the limit of the quota)
o Box j is a deadweight loss due to the domestic
producers being less efficient than the foreign producers
o Domestic producers earn a, f, c, I and j and foreign
producers earn b, g, h
Economic development
Economic development:
a broad measure of a
nations welfare and living
standards
Achieved by increased
aggregate demand and
supply in the economy
A lack of government
Excessive government
intervention may promote high
intervention may promote
economic growth at the expense economic development at the
of economic development
expense of economic growth
The two concepts are related however in that economic growth
facilitates economic development, and also vice versa due to the
increased demands (AD) of economic development
Economic growth:
Real GDP=nominal GDP
Economic growth=
Base CPI
Current CPI
real GDP
Population count
Base CPI
Current CPI
Therefore:
Base CPI
Current CPI
Population count
nominal GDP
Real GDP per capita=
o Limitations:
Only measures the approximate material standard
of living
Does not account for inequality, which may cause
an unequal distribution of this real GDP to be
concentrated in the hands of the few. This will not
benefit the majority of the populations standards
of living
Standard of living: a holistic term encompassing the general
quality of life of a person or population
Ginicoefficient=
A
A+ B
Global inequality:
As of 2010:
o Advanced economies constitute just 16.3% of the global
population, yet earn just 55.1% of GNI (PPP)
o Developing economies constitute 11.5% of the
population, yet earn just 1.3% of GNI (PPP)
(Brazil, Russia,
India, China),
Mexico, Middle
East oil
exporters
Developing
E.g.
Bangladesh,
Sub Saharah
Africa, Chad,
Niger, Ethiopia,
Zimbabwe
manufacturing)
$995 or less
Moderate
growth (and
high population
growth)
Agriculture and
foreign aid
effects of globalisation
trade, investment and transnational corporations
environmental sustainability
the international business cycle.
Case study
Undertake a case study of the influence of globalisation on an
economy other than Australia, including an evaluation of the
strategies used to promote economic growth and development in
this economy
China
(Strategies used to promote economic growth and development)
China is an emerging economy due to its rapid economic
growth rates and increases in economic development
Planned/
socialist
economy
Market/
capitalist
economy
Domestic
focus/
isolationist
Tradeorientated
focus/
globalised
Labour supply
Access to technology
Consequentially:
Agricultu
ral
economy
Industrial
economy
Industrialisation
Urbanbased
society
Agrarian
society
Urbanisation
Other policies:
GDP
Therefore:
o Lower interest rates make borrowing
more attractive and encourage
investment and consumption (C > S)
o Due to the reduction in the reserve
requirements for banks: Banks have
the ability to lend more money (as
they are not obliged to hold as much),
this increases lending
Unemployment
o Has been pump priming economy for the last decade
to keep GDP growth at around 8%
Taxation reforms
o Future challenges
Recently:
The one child policy has restricted the growth in the labour
force
o Wage rates are rising as the demand for labour grows
(an average of 20% per annum)
Timeline:
Agricultural reforms (1978-1994)
o Abandonment of the commune system of agriculture (decollectivisation)
o Replaced with the Household Responsibility System
Households can make their own production decisions
and sell surplus output in free markets once the state
quota is met. This is a policy of incentivisation
o Resulted in:
Dramatic increases In food production
Surplus income was invested in privately run Town and
Village Enterprises (TVEs). This further raised output
Open-door policy (1980)
o Towards foreign trade and investment
o Special Economic Zones (SEZs) established
Attracted foreign investment and TNCs through marketliberalist policies such as:
Lower tax rates
Exemption from import duties
Less stringent government regulations
o Inflows of foreign capital increased Chinas access to export
markets, transfers of Western technology and management
skills, creating substantial employment in Chinas
manufacturing sector
Cuts to tariffs and other forms of protection (1992)
o Encourage greater domestic efficiency through import
competition, exposing domestic businesses to the global
market
o Chinas average tariff rate was cut from 32% to 19% in 1996
and reduced to 15% in 2000. This represents a decrease in
protectionism and a flouting of Chinas Maoist policy of
economic isolationism
Taxation reforms (1994)