Economic Study Notes

Topics: International trade, Free trade, Economics Pages: 22 (5426 words) Published: November 24, 2013
Year 12 Chapter Summaries: The Global Economy
Chapter One: Introduction to the Global Economy
1.1 The Global Economy
• The global economy refers to the integration between national economies and the increased impact of international influences on all aspects of life and economic activity. • We live in a global economy where the economies of individual countries are linked to each other and changes in a single economy can have ripple effects on others. • After the Great Depression in the 1930s, there was a reduction of links resulting in reductions on trade and other economic links. However in the late twentieth century efforts to reverse the retreat of nations towards self-sufficiency were widespread. • Great Depression of 1930s had a global impact- experienced an economic downturn. • Major indicators of integration between economies/ globalisation: ➡International trade in goods and services

➡International financial flows
➡International investment flows and transnational corporations ➡Technology, transport and communication
➡The movement of workers between countries
1.2 Globalisation
Trade in Goods and Services
• Trade in g+s is an important indicator of globalisation because it is a measure of how goods and services produced in an economy are consumed in economies internationally. • Trade has grown rapidly in recent decades increasing from $US8.7 trillion in 1990 to $US53trillion in 2012.

• Gross World Product (GWP) refers to the sum of total output of g+s by all economies in the world over a period of time.
• Annual growth in the value of trade has been consistently around twice the level of world economic growth- highlighting the greater volatility of trade compared with gross world product.
• High volume of global trade reflects that economies do not produce all the items they need, or do not produce them efficiently as other economies, and have to import g+s. • New technology in transport and communications impacted to strong growth of global trade which have reduced cost of moving goods between economies. • Governments have encouraged trade by removing barriers and joining international and regional trade groups such as World Trade Organisation (WTO), European Union (EU), and the Association of South East Asian Nations (ASEAN).

• Composition of trade refers to the mix of what goods and services are traded. • Global trade is dominated by manufacturers, such as vehicles, clothing, and electronic goods.
• As global demand grows for these goods, economies specialising in the production grow. • Recently there has been a growth in trade in fuels and minerals, reflecting the higher prices for sources of energy like oil, gas and coal.

Year 12 Chapter Summaries: The Global Economy
• Future expectations that trade in services like finance and communication will be the fastest growing category.
• The Direction of trade flows has changed recently reflecting the changing importance of different economic regions.
Financial Flows
• International finance plays a leading role in the global economy. • Finance is crucial to many aspects of modern economic work and has had a major impact in terms of linking economies around the world.

• Finance is the most globalised feature of the world economy because money moves between countries more quickly than g+s or people.
• International financial flows have expanded following financial deregulation in the 1970s and 1980s- controls on foreign currency markets, flows of foreign capital, banking interest rates and overseas investments in share markets were lifted. • New technologies and global communication networks have linked financial markets throughout the world, allowing events in major international markets to produce immediate results.

• Foreign exchange markets (FOREX markets) are networks of buyers and sellers exchanging one currency for another in order...
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