HSC Economics. Year 2014 Mark Pages 13 Published Feb 9, 2017 HSC ECONOMICS: THE GLOBAL ECONOMY. By Sahar (99.1 ATAR)

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1 HSC Economics Year 2014 Mark Pages 13 Published Feb 9, 2017 HSC ECONOMICS: THE GLOBAL ECONOMY By Sahar (99.1 ATAR)

Powered by TCPDF (www.tcpdf.org) Your notes author, Sahar. Sahar achieved an ATAR of 99.

2 Powered by TCPDF ( Your notes author, Sahar. Sahar achieved an ATAR of 99.1 in 2014 while attending Carlingford High School Currently studying Bachelor of Science/ Master of Optometry at The University of New South Wales Achievements: Premier's Award for All-round Excellence in the NSW HSC (2014) First Place in Mathematics (at attended school) Hornsby Shire Council Award for Academic Achievement (2014) Distinguished Achievement Award in 2014 HSC Sahar says: I achieved a Band 6 in all these subjects: English Advanced (93), Mathematics (97), Mathematics Extension 1 (92), Economics (95), Biology (92) and Chemistry (90). Without my notes, I wouldn't have been able to achieve an ATAR of They are very organised and include diagrams, graphs and tables in relevant sections to assist learning. These notes will help you succeed and reach your HSC goals!

3 Topic 1 The Global Economy Chapter 1 Introduction to the Global Economy 1.1 The Global Economy Gross World Product (GWP) aggregate value of all goods and services produced worldwide each year in the global economy Economies more closely integrated, strongest linkages than ever before changes in one economy impacts others (e.g. 1930s Great Depression severe economic downturns globally) Australia (small economy) pursued policies to integrate more in global economy Globalisation integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity (recently, influences in all directions) 1.2 Globalisation Major indicators of integration between economies: International Trade in Goods and Services measure of how goods and services produced in an economy are consumed in other economies around the world Grown rapidly in recent decades (38% global output in 1990 to 68% global output in 2008) Annual growth in value of trade consistently twice level of world economic growth due to developments in technology, communications and transport (reduced costs of moving goods between economies) Economic downturns growth of global trade contracted faster than world economic output (greater volatility of trade compared with GWP) Size of global trade reflects economies do not produce all items they need rely on imports Governments encourage trade by removing barriers and joining international and regional trade groups (e.g. WTO, EU) Composition of trade mix of what goods and services are traded (dominated by manufactures such as clothing, vehicles, electronics) Global demand for good grows economies specialising in production of that good grows Recent years growth in trade of fuels and minerals (high prices of oils, gas and coal) Long-term finance and communication services fastest growing (benefits Australia) Direction of trade flows changed in recent decades (changing importance of different economic regions) High-income economies (North America, Western Europe) share of global trade fell (yet they still have greatest share of world s merchandise exports) while fast growing economies (China, Indonesia, Vietnam) experienced most rapid increase in trade (expanding market) Economies worldwide placing increased priority on trade relationships with fast growing countries International Financial Flows most globalised feature of world economy (money moves around world fast) Expanded rapidly following financial deregulation (controls on foreign currency markets, flows of foreign capital, banking interest rates and overseas investments in share markets lifted) in world (1970s, 1980s) New technologies and global communications linked financial markets throughout world Foreign exchange markets (FOREX) networks of buyers and sellers exchanging one currency for another in order to facilitate flows of finance between countries Experienced extraordinary growth in recent years Exchange rate value of currency expressed in terms of another currency (determined by interaction of forces of supply and demand in FOREX) 1

4 Speculators investors buying and selling financial assets to make short term profits from price movements in currency and share prices Positive impact financial flows allow countries to obtain funds used to finance domestic investment in large-scale businesses (leads to economic growth) Negative impact speculative behaviour creates volatility in FOREX and domestic financial markets due to herd mentality leading to financial crises (downward trend continues) Investment and transnational corporations rapid growth of investment and movements of capital between countries (past 2 decades) Foreign direct investment (FDI) movements of funds that are directly invested in economic activity or in the purchase of companies (strongly influenced by level of economic activity), long term investment Traditionally favoured developed nations of Organisation for Economic Co-operation and Development (OECD) now more economies are benefitting from increased foreign investment * However, developed countries continue to be dominant source of FDI (89% in 2008) TNCs global companies that dominate global product and factor markets and have production facilities around world (sourcing inputs, manufacturing and packaging in different countries), owned by residents of at least 2 countries (e.g. Microsoft, Shell, Ford, Nike) Vital role in global investment flows bring capital and job opportunities therefore governments provide subsidies and tax incentives to attract them Since 1990s, number of TNCs grown from 37,000 to 82,000 Increased level of international mergers and takeovers cause of growth of international investment Formation of companies worth large sums of money reducing number of truly global companies in different product markets (e.g. automotive Volkswagen and Porsche, telecommunications Vodafone and Hutchison) Technology, transport and communication facilitate integration of economies, driver of globalisation Freight technology (shipping containers) greater trade in goods Cheaper, reliable international communications (high-speed broadband) services to customers in world Technology (computer networks) allow money to move around world fast for finance and investment Mobile telecommunications, Internet necessary for modern TNCs to function International division of labour and migration people moving to different countries to take advantage of better work opportunities and greater rewards where their skills are needed and also the shift of businesses between economies for most efficient and cost effective labour Labour markets less internationalised than goods and services, finance and investment markets 200 million people estimated have migrated to different countries for work (rising labour supply pressures and income inequality expected to increase this level despite immigration restrictions) Movement of labour between economies concentrated at top and bottom end of labour market Top end highly skilled workers attracted toward richest economies (e.g. US) due to higher pay (immigrants in high-income countries rose from 7% to 11% in past 2 decades) *Aus. and NZ suffer brain drain lost talented workers to other countries Bottom end low-skilled labour in demand in advanced economies (difficult to attract local workers for some types of work), positions filled by migrants from poorer countries (e.g. Asia, Africa, Latin America) Barriers to working in other countries: - Immigration restrictions - Language and cultural factors - Incompatible education and professional qualifications 2

5 Powered by TCPDF ( Offshoring companies shift production between countries to reduce costs (operate global supply chain) Development of export-oriented economies competing on basis of abundance of low wage labour Recent years services functions (e.g. IT support, accounting) moved to more competitive locations while offshored labour-intensive manufacturing processes has been occurring for decades Comparative advantage theory states that economies should specialise in the production of goods and services they can produce at lowest opportunity cost (reflected by international division of labour) Developing economies comparative advantage is in labour-intensive manufacturing due to large population with basic skills and education Advanced economies comparative advantage - specialised services due to supply of high skilled workers 1.3 The international and regional business cycles Fluctuations in business cycle caused by changes in level of aggregate supply and demand Economies usually experience overall trend of growth in output International business cycle fluctuations in level of economic activity in global economy over time Synchronisation of economic growth levels across individual economies (strong global growth strong growth for most individual economies and vice versa) Reserve Bank of Australia found that 63% of changes in output levels in Australia resulted from changes in interest rates, growth levels and inflation rates of G7 (domestic factors less influence on economic growth) Transmission of economic conditions more immediate by increased integration of economies: - Trade flows: Boom or recession in one country affects demand for goods and services from other nations having flow on effects in economic activity of trading partners - Investment flows: Strong economic conditions more likely country will invest in other nations adding to their economic growth (e.g. late 2000s, US weak growth cause of slower FDI in developing economies) - TNCs: improved economic conditions increased TNCs seeking to expand operations in other countries - Financial flows: 2009 IMF paper showed bank lending and linkages transmit financial conditions from advanced to emerging economies almost one-for-one (main reason late 2000s downturn quickly spread) - Financial market and confidence: Investor and consumer confidence influenced by conditions in other countries (strong correlation between movements in share price of world s major stock exchange) - Global interest rate levels: monetary policy conditions in individual economies increasingly influenced by interest rate changes in other countries - International organisations: G8 or G20 impact global economic activity macroeconomic policies have major effects on policy decisions of other countries) Factors that influence business cycle which differ between economies: - Interest rates: if higher dampen economic activity, if lower stimulate economic activity - Government fiscal policies: short to medium term effect on economic growth (tax rises and cuts) - Exchange rates: impact on level of trade competitiveness and confidence within economies - Structural Factors: countries have different attitudes towards consumption and savings, population growth, age distribution, education, training and labour market regulation - Regional Factors: some economies more closely integrated with neighbours than others therefore very influenced by economic performance of trading partners 3

HSC Economics Complete Syllabus Summary + China Case Study BAND 6

HSC Economics Year 2016 Mark 90.00 Pages 47 Published Sep 2, 2017 HSC Economics Complete Syllabus Summary + China Case Study BAND 6 By Mary (97.1 ATAR) Powered by TCPDF (www.tcpdf.org) Your notes author,