HSC Economics Complete Syllabus Summary + China Case Study BAND 6

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1 HSC Economics Year 2016 Mark Pages 47 Published Sep 2, 2017 HSC Economics Complete Syllabus Summary + China Case Study BAND 6 By Mary (97.1 ATAR)

2 Powered by TCPDF ( Your notes author, Mary. Mary achieved an ATAR of 97.1 in 2016 while attending Ascham School Currently studying Bachelor of Commerce / Bachelor of Arts at The University of Sydney Achievements: 97.1 ATAR HSC High Achievers List 2016 Ascham Dalton Merit Prize 2015 Ascham Honour Board for Modern History Ascham Honour Board for Economics Ascham Honour Board for Visual Arts Ascham Honour Board for Advanced English Mary says: Hi there, I graduated from Ascham School in 2016 with an ATAR of Currently, I am studying a double degree of Commerce and Arts at The University of Sydney. During the HSC I studied Advanced English (94), Mathematics (89), Economics (90), Modern History (90) and Visual Arts (95) - giving me a final atar of 97.1 My notes were my pride and joy during my HSC year as I put so many hours of work into perfecting them to be perfect study notes for the final HSC exams.

3 TOPIC 1: THE GLOBAL ECONOMY

4 CHAPTER 1 SUMMARY: INTRO TO THE GLOBAL ECONOMY GROSS WORLD PRODUCT Gross World Product (GWP): total value of all G+S produced worldwide each year o 10 x 1950 level à volume 50 x 1950 level GLOBALISATION: the increased connectedness between countries and their economies through a process of integration TRADE IN GOODS AND SERVICES: A measure of how G+S produced in an economy are consumed in economies around the world o Grown rapidly: US$8.7 trillion in 1990 à US$46 trillion in 2014 High volumes of global trade = economies don t produce all G+S they need, or not as efficient o Grown b/c new technology in transport + communications à reduced costs o Also removal of barriers to trade + new trade agreements o Richest 15% of nations had 61% of global trade, poorest 30% less than 4% Composition of trade: what G+S are traded o Used to be dominated by manufactures à growth in fuels, minerals, services Direction of trade flows: where the G+S traded move from and to o Changing à reflects changing importance of economic regions o : North US + Western Europe à 82% to 70% o : East Asia + Pacific (China, Indonesia, Vietnam) à 7% to 17% Terms of Trade: relative prices of exports compared to imports à favourable = $X rise faster than $M o Export Price Index x 100 Import Price Index FINANCIAL FLOWS: Foreign exchange markets (FOREX) are an important feature of international finance à networks of buyers and sellers exchanging one currency for another o Daily turnover reaching almost $5.5 trillion in 2014 o Only 5% of FOREX market involves payments for G+S, 95% is speculative investment Main benefit: enables countries to obtain funds to finance domestic investment = EG Negative economic impacts: speculation creates volatility à herd mentality AUD is the 5 th most traded currency INVESTMENT AND TRANSNATIONAL CORPORATIONS: Foreign direct investment (FDI) à movement of funds b/w economies to establish a new company or buy a substantial proportion of shares in an existing company (10%+) à long term investment o 2012: LICs received more FDI than HICs o Long term: more FDI to HICs safer à short term: more going to MICs profits o 68% comes from richest 20%, 1% from the poorest 20% Transnational corporations (TNCs): production facilities overseas à bring investment, technology, knowledge o Governments encourage TNCs through incentives (subsidies, tax concessions) o TNCs with foreign affiliates à number falling b/c mergers and takeovers = hold more power o 1/3 of all world trade, ¼ total output TECHNOLOGY, TRANSPORT AND COMMUNICATION: Technological developments facilitate integration of economies o Cheap + reliable communications = international services à : internet use 566% o Finance + investment: rapid movement of money worldwide o Phones + internet = changing structure of industries à online o Advances in transport (aircraft, rail) allow greater labour mobility, better movement of G+S Firms move directly into overseas markets to sell G+S à invest in new countries \ tech drives FDI Benefits: stock ordered instantaneously (reduces waste), IT systems maintain inventories (reduced warehousing costs), increased choice, lower prices (increased competition) Structural changes in production + distribution of G+S INTERNATIONAL DIVISION OF LABOUR, MIGRATION: Labour markets far less internationalised à people do not move jobs so freely Outsourcing of work to countries with cheap labour is increasing e.g. manufacturing, communications World Bank estimates 230+ million people have moved country for work o Highly skilled to wealthy economies - higher pay, better opportunities à Brain Drain o Low skilled to HICS not enough locals for some work Barriers to working overseas: immigration, language, culture, incompatible education + qualifications THE INTERNATIONAL AND REGIONAL BUSINESS CYCLE: International business cycle: fluctuations in the level of economic activity in the global economy Factors that strengthen the international business cycle: o Trade Flows: affects demand for G+S o Investment Flows: can affect confidence, herd mentality o TNCs: spreads international business cycle

5 o Financial Flows: spreads international business cycle o Global Interest Rates: Monetary policy influenced by interest rates abroad o Commodity Prices: role in general level of inflation o International Organisations: influence global economic activity o Technology External Shocks: o Real shocks à changes in world output, commodity prices, technological change = structural changes o Financial shock à changes in financial variables à transmitted more quickly than real shocks Ties b/w countries enhance the effect that one country s events/performance has on another à e.g. EU o E.g. Synchronisation is highlighted by GFC CHAPTER 2 SUMMARY: TRADE IN THE GLOBAL ECONOMY THE BASIS OF FREE TRADE ADVANTAGES + DISADVANTAGES Free trade: Gov s impose no barriers to trade that restrict the free exchange of G+S between countries, with the aim of shielding domestic producers from foreign competitors o Advantages: Access to G+S countries cannot produce Specialisation in production comparative advantage Efficient allocation of resources Economies of scale à specialisation = costs of production = increased efficiency Encourages innovation and spread of new technology Higher living standards o Disadvantages: Short term UE: domestic firms find it difficult to compete à production = UE Infant industries: difficult to establish if not protected from large foreign competitors Dumping of surpluses Environmentally irresponsible production methods ROLE OF INTERNATIONAL ORGANISATIONS 1. Manage instability 2. Assist countries experiencing economic crises 3. Develop global standards 4. Establish global rules on free trade 5. Resolve disputes World Trade Organisation (WTO): implement and advance global trade agreements and to resolve trade disputes between economies à power to enforce agreements o General Agreement on Tariffs + Trade (GATT): couldn t enforce à Uruguay Round = WTO Now includes services and intellectual property o Doha Round: to free up global trade à remove agricultural protection, lowering tariffs on manufactures + reducing restrictions on services trade International Monetary Fund (IMF): maintain international financial stability o Advice + financing to members, work with developing nations to help achieve stability + reduce poverty o Supports free trade and movement of finance + capital globally o Structural Adjustment Policies: demand countries make changes before receiving aid à up to 125% quota Helped Thailand, problems for Indonesia o Funds paid by members (based on national income), voting power based on contributions World Bank: helping poorer countries with economic development, investment in infrastructure, reducing poverty and in adjusting economies to the demands of globalisation o Aim: reduce extreme poverty to 3% of global pop. by raise incomes for the lowest 40% of earners o Controlled by members à voting power based on contributions o Millennium Development Goals (MDGs) o Support of Heavily Indebted Poor Countries Initiative: reduce debt by 2/3 in 46 of the poorest countries United Nations (UN): agenda is broader than any other organisation à global economy, poverty + development, international law, global health issues, environment, international security à internal agencies + orgs o Maintain international peace and security o Established 1945, 193 members Organisation for Economic Cooperation + Development (OECD): achieve highest sustainable EG+D, raise standard of living o Coordinates economic cooperation among members Trans-Pacific Partnership (TPP): 12 parties e.g. Aus, NZ, Canada, Japan, Singapore o Potential to forge stronger economic links b/w economies o Access to new markets à e.g. opportunities for Aus. goods + services

6 INFLUENCE OF GOVERNMENT ECONOMIC FORUMS Role in coordinating policies b/w major economies, especially during times of economic/financial crisis o Aim: enable nations to discuss global economic issues with attention to economic stability and growth G7: US, UK, Fra, Ger, Canada, Jap, Italy à largest industrialised nations o Coordinate global macro policy à influence over FP + MP of largest economies o Agenda often includes political issues + priorities e.g. climate change, global poverty, security o Significance declining no longer most important forces in global economy G20: G7 + Argentina, Australia, Brazil, India, Indonesia, China, Mexico, Russia, Saudi Arabia, Turkey à some emerging o Leading forum for coordinating key issues relating to global economic stability (post GFC) o 80% of GWP and 2/3 world s population TRADING BLOCS, MONETARY UNIONS + FREE TRADE AGREEMENTS Countries form agreements + trading alliances to ensure they are in best position to gain from growing trade opportunities and to avoid being excluded from emerging trading blocs o Global agreement: World Trade Organisation (WTO) à break down all trade restrictions Trading bloc: 2+ countries form a trading arrangement to the exclusion of others à EU, NAFTA Free trade agreement: agreements between countries to break down barriers to trade between them o Regional + bilateral = trade blocs = hinder progress towards global free trade o Initially convince economies to reduce protection against few economies, eventually remove fully European Union (EU): 37 members e.g. Austria, France, Germany, Italy, UK, Spain, Ireland etc. o To increase trade within Europe o Tariffs against non-members = oversupply of agricultural products à NAFTA o Monetary union 1999 à 19 members à common currency + IR Stability of Euro undermined by sovereign debt crises à loans needed to prevent collapse Asia-Pacific Economic Cooperation (APEC): 21 members: Aus, NZ, Canada, US, China, Russia, Singapore, Indonesia etc. o Intended to be a FTA that supports the WTO North American Free Trade Agreement (NAFTA): US, Canada, Mexico o To counter power of EU à trade tripled b/w countries o Agricultural protection completely eliminated, other tariffs phased out over 5-15 years o Access to US = increased exports for others, US shifted production facilities to Mexico Association of South East Asian Nations (ASEAN): e.g. US, China, Japan, South Korea, Indonesia, Singapore o To enhance international competitiveness and enjoy free trade among members o Working towards lowering tariffs to 5% Bilateral Agreements: 2 countries e.g. CERTA (Aus, NZ), SAFTA (Singapore, Aus), AUSFTA (Aus, US) o Resurgence à reflects slower progress of WTO negotiations o Gov. s claim they will deliver large increases in trade - impact is often much smaller Multilateral Agreements: between 2+ countries e.g. EU, NAFTA, APEC, AFTA, ASEAN o 27 in 1990, 406 in 2015 o Most effective way to reduce trade barriers REASONS FOR PROTECTION Protection: Gov. intervention that gives domestic producers an artificial advantage over foreign competitors TYPES OF PROTECTION: Infant industries: difficulties early years = establish markets, achieve economies of scale so can compete Protect domestic employment: demand for local product = more jobs à long run: unemployment, growth Prevent dumping: foreign firms sell G+S overseas at unrealistically low prices to eliminate surpluses or establish market position à may force local firms out of business Defence + self-sufficiency: defence force for war + self-sufficiency in food Protect human rights: should prohibit trade with goods produced using forced/child labour Environmental factors: environment may be harmed in production METHODS OF PROTECTION: Quota: controls the volume of a good allowed to be imported over a period of time à guarantees domestic producers a share of the market o Tariff quotas: goods up to quota pay standard tariff, above pay higher Tariff: government imposed tax on imports à raises price of goods \ domestic product is more competitive o Stimulates domestic production + employment b/c supply more o Reallocation of resources to less efficient producers à to protected industry o Consumers pay a higher price for fewer goods o Raises government revenue (not primary objective) o Retaliation effect Subsidies: financial assistance to domestic producers, reduces selling price, compete more easily with imports o Consumers pay a lower price for more goods à indirectly pay for subsidies through taxes o Impose direct costs on Gov. budgets à abolished quicker than tariffs

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