Topic 1

Question 1

What is the global economy?

Answer 1

Sum of interactions between diff economies that are now increasingly linked as one eco unit

Question 2

What are the effects of an increasingly integrated global economy?

Answer 2

Because the various economies are increasingly linked to each other, a single change in an economy can have ripple effects on others. This idea is reflected in the covid-19 pandemics and the war in Ukraine which has led to detrimental impacts for economies around the world because everything is increasingly linked, i.e. a downturn in America will lead to a downturn in Australia

In other words leads to higher eco shocks

Question 3

What are developed/advanced economis?

Answer 3

Refers to high income, industrialized or developed economies with high levels of economic development, close economic ties with each other and have liberal-democratic, political/economic institutions

Question 4

What is GWP?

Answer 4

Refers to the aggregate value of all goods and services produced worldwide each year in the global economy) sum of total output of g/s by all economies in the world over a period of time

Question 5

What is globalisation?

Answer 5

Integration between different countries and economies and the increased impact of international influences on all aspects of life and eco activity

Question 6

What are the indicators of globalisation?

Answer 6

Trade in g+s
Financial Flows
Increased TNCs and investment
Technology, transport and communication
International division of labour

Question 7

Explain how trade in g+s is an indicator of globalisation?

Answer 7

It is important indicator of globalisation as it is a measure of the extent to which g+s are produced in an economy and are consumed in other economies and shows how interconnected countries are in relation to trade which would depict globalisation

Question 8

What is the growth in value of exports of g+s from 1990 to 2021?

Answer 8

US 4.3 trillion to $30.1 trillion

Question 9

What are some causes of increased trade of g+s? (3)

Answer 9

Comparative advantage, new tech and transport, trade liberalisation

Question 10

What is comparative advantage?

Answer 10

Idea that economies do not produce all items they need or not as efficiently as other countries. And that countries should specialise in producing a certain product that they have a comparative advantage in (more efficient and less opportunity cost)

Question 11

How has the comp of global trade changed?

Answer 11

Change from manufacturing goods and services to fuels and minerals + commercial services

Question 12

What are financial flows?

Answer 12

Financial flows refer to the movement of cash in and out of a country

Question 13

How are financial flows an indicator of globalisation?

Answer 13

Because it gives an indication of how much money is moving around the world, and thus depicts how reliant countries are on financial flows. It is the most globalised feature as money moves quicker than g/s or peopl

Question 14

What are some benefits of financial flows? (2)

Answer 14

Enables countries to obtain funds that are used to finance their domestic investment

Global financial flows can allow a country to achieve higher levels of investment and thus experience greater growth

Question 15

What are the 2 causes of increased financial flows?

Answer 15

Financial deregulation (controls flow of money)

New tech and global communications (link financial markets throughout the world)

Question 16

What is FDI?

Answer 16

Movement of funds between economies for the purpose of establishing new companies or buying a substantial proportion of shares in an existing company

Question 17

How is investment and TNCs an indicator of globalisation?

Answer 17

TNNCs have production facilities around the world, thus leading to global investment flows through TNCs. Also, they show reliance on other economies which they might be sourcing certain things from. FDI has allowed for more globalisation as there are increased financial flows through SST speculative shifts of money

Question 18

What are TNCs

Answer 18

Global companies that dominate global product and factor markets which have production facilities in at least two countries

Question 19

What are the impacts of TNCs?

Answer 19

TNCs expand production facilities in a country, which lead to bringing in foreign investment, new tech, skills and knowledge –> increased efficiency, they also bring FDI to a country which increases the extent of globalisation

Question 20

How does tech, transport and communication impact globalisation?

Answer 20

Technological developments facilitate the integration of economies.

For example, there is cheaper and more reliable int communication through high speed broadband allowing the provision of commercial services to consumers around the world (increasing financial flows)

Also, developments in freight tech and increased use of automation and robotics allow for greater trad in g+s

Transport also allow for greater labour mobility between economies – > international division of labour

Question 20

What are some benefits of tech, transport and communication?

Answer 20

Boosts trade of tech
Drives FDI
Greater innovation
Greater productivity of labour and capital in production

Question 21

What does international division of labour mean?

Answer 21

Refers to the specialisation of people according to labour tasks in production process.

Question 22

Explain the nature of international division of labour (i.e. what happens at the top)?

Answer 22

At the top end, highly skilled workers are attracted to larger, higher income economies - OECD reports that migrants moving from developing to developed economies has increased from 36% to 51% in the past two decades (as of 2019)

Some smaller advanced economies suffer from a brain drain as skilled and talented workers are attracted to other countries with greater rewards

At the bottom end, low skill labour is in demand in advanced economies where it may be difficult to attract sufficient people born locally for certain jobs - typically filled by migrants

Question 23

How does international division of labour affect globalisation?

Answer 23

This is because there is greater interconnectedness between countries in relation to the transfer of labour

Also migrants may remit their incomes to their family in other ecos

Question 24

How many people does International Labour organisation estimate have migrated to work in different countries?

Answer 24

around 169 million people

Question 25

What is the business cycle?

Answer 25

Refers to fluctuations in the level of eco growth due to either domestic or international factors

Question 26

What is the International business cycle?

Answer 26

Refers to the fluctuations in the level of eco activity in the global economy over time

Question 27

What is the regional business cycle?

Answer 27

Fluctuations in the level of eco activity in a geographical region of the global economy over time, i.e. SEA

Question 28

Can regional business cycles have diff patterns to the overall global eco activity?

Answer 28

Yes

Question 29

What are reasons for regional business cycles having different patterns than global eco activity? (4)

Answer 29

Diff regions may be at diff stages of eco development

1 or 2 large economies may shape a regional business cycle because of the way that their changing growth levels flow onto other economies in the region

Common eco policy settings in a region will result in growth rates becoming more closely linked

Eco crises can intensify regional business cycles as a loss of confidence in one economy can spread quickly to neighbouring economies

Question 30

What is some proof that countries eco growth are parallel to thee eco activity of the country’s eco region or the rest of the world?

Answer 30

Aus experienced 4.2% growth in 2011 due to commodities boom due to China’s strong EG of 10%

Aus influenced by G7 economies, with 63% of changes in output being influenced by G7 economies

Question 31

What are factors that influence differences in business cycles between economies?

Answer 31

Interest rates (higher IR –> lower EG, vice versa)

GOV FP

Exchange rates (will impact on level of trade competitiveness and confidence within economies)

Structural factors (differences in levels of resilieince in financial system , innovation, tech etc.)

Regional factors (Some economies may be closely linked with neighbours and thus influenced by their eco performance, same vice versa)

Question 32

What are 5 factors that strengthen the international business cycle?

Answer 32

Trade Flows Investment flows and investor sentiment

Transnational corporation

FInancial flows

Technology

Commoditity prices

Question 33

What are 5 factors that weaken the international business cycle?

Answer 33

Domestic interest rates
Gov fiscal policies
Other domestic eco policies
Exchange rates
Structural factors

Question 34

Why do certain factors have a negative influence on the international business cycle?

Answer 34

Because they can cause more fluctuations in thee global economy, and some certain factors may actually cause contractions in the int business cycle such as high interest rates domestically.

Question 35

What are some factors impacting the transmission of eco conditions from one country to another?(7)

Answer 35

Increased trade flows
Increased investment flows
Increased transnational corporations
Financial flows
Financial market and confidence
Global interest rate levels
Commodity prices

Question 36

What is free trade?

Answer 36

Defined as a situation where governments impose no artificial barriers to trade that restrict the free exchange of g+s between countries with the aim of shielding domestic producers from foreign competitors (i.e. governments no longer imposing protection)

Question 37

What is the basis of free trade?

Answer 37

Argument that economies will be able to achieve higher levels of eco growth in a free trade environment thus leading to increased GWP.

The main argument for free trade is based on the concept of comparative advantage (which is essentially the principle that even if one country can produce all goods more efficiently than another country, trade will benefit both countries if each specialises in the production of the good in which it is comparatively more efficient)

Question 38

How is comparative efficiency/advantage measured?

Answer 38

A country with greater comparative efficiency has a lower opportunity cost than the other country

Question 39

What is absolute advantage (Note: not in syllabus)

Answer 39

Where an economy which is able to produce a greater quantity of a product given a certain level of resources than another economy should produce those goods more.

Question 40

What are five advantages of free trade?

Answer 40

Allows countries to obtain g+s that they can’t produce themselves or in sufficient quantities or sufficient efficiency

Allows countries to specialise in the production of g+s in which they are most efficient → better resource allocation and increased production within countries and throughout the world → Increased GWP because everything is much more efficient

International competitiveness will improve, as domestic businesses will have to face greater competitive pressures from foreign producers → greater innovation→ greater efficiency

Greater tendency for specialisation → economies of scale → lower average cost of production

Higher living standards as a result of lower prices → Increased production of g+s and increased consumer choice, as countries have access to goods that a lack of natural resources may otherwise prevent

Question 41

What are 4 disadvantages of free trade?

Answer 41

National security may be undermined if economy is dependent on trade in a time of emergency, i.e. war or pandemic

Production surpluses from some countries may be dumped (sold at unrealistically low prices)

Difficult for less advanced economies to establish new industries if they aren’t protected from larger foreign competitors

May encourage environmentally irresponsible production methods because producers in some nations may win markets by undercutting competitor’s prices, which may only be achieved through undercutting environmental standards

Question 42

What are the 5 international organisations that we study?

Answer 42

World Trade Organisation (WTO)

International Monetary Fund (IMF)

World Bank (WB)

United Nations (UN)

Organisation for economic corporation and development (OECD)

Question 43

What is the role of the WTO?

Answer 43

Implement and advance global trade agreements

Resolve trade disputes between member economies

Question 44

What are some criticisms of the WTO?

Answer 44

WTO has been ineffective in enforcing compliance among powerful nations (wealthy nations can afford expensive process of challenging)

WTO gives priority to free trade over environmental protection. (WTO overturned clean air legislation in the US that restricted oil imports from Venezuela), overturned on the basis that they are an unacceptable trade restriction

Slow progress in accepting certain proposals

Question 45

When was the WTO founded, and how many members?

Answer 45

1995, 164 members

Question 46

When was the IMF founded, and how many members?

Answer 46

Founded in 1944, Has 190 members covering all nations

Question 47

What is the role of thee IMF?

Answer 47

Maintain international financial stability, particulalrly in relation to FOREX markets

Question 48

What are the main responsibilitis of the IMF? (4)

Answer 48

Making resources available to members experience BOP (balance of payments) difficulties

During crises in individual economies, the IMF develops a ‘rescue package to help stabilise the economy’

Facilitating the expansion of international trade

Maintain international financial stability

Question 49

What are some examples of the IMF being useful?

Answer 49

During 2008 GFC, IMF injected 250 billion into global economy providing global liquidity, and provided specific support for countries hit hard by the crisis

During Covid-19 pandemic, $219 billion in loans to 92 countries, allocated $650 billion of special drawing rights

Question 50

What are some benefits of the IMF?(5)

Answer 50

Ensure global financial stability when financial crisis occurs (i.e. the emergency loan of US$17 billion to Ukraine in 2014 where a security crisis threatened to cause a major financial crisis)

Can suspend interest payments on loans to help developing nations cope with eco dowwnturn

IMF advises its members about policies that foster economic stability, reduce vulnerability to eco and financial crises and raise living standards

In 2010, th IMF altered it governance structure to give developing and emerging economics a greater say over IMF policies in which they may disagree with

In the LT, IMF policies are to support the free trade of g+s and the free movement of finance and capital throughout world markets

Question 51

What are criticisms of the IMF? (4)

Answer 51

Pressures certain countries into changing eco policies to be able to receive financial assistance

IMF is controlled by richer countries thus leading to the idea that it benefits richer countries more

IMF has been criticised for moving too slowly and cautiously such as in the covid 19 pandemic

The IMF’s policies that it wants countries to follow may make conditions worse for economies affected. (the measures demanded by the IMF upon Greece during the crisis intensified the collapse of Greece’s GDP, falling 26% lower than the IMF projection

Question 52

When was the WB formed and how many member countries?

Answer 52

1944, 189 member countries

Question 53

What is the main role of the World Bank?

Answer 53

Helping poorer countries with eco development, focus of funding investment in infrastructure, reduce poverty and help countries adjust their economies to demand of globalisation.

Question 54

What are the 2 major goals and objectives of the world bank

Answer 54

Reducing the rate of extreme poverty to less than 3 percent of the world’s population by 2030. At 3 percent level, those in poverty will mostly be experiencing ‘frictional poverty’, that is, poverty related due to short-term disasters such as extreme weather events rather than long term poverty.

Reducing inequality by fostering income growth for the world’s bottom 40%.

Note: also aimed to achieve the millennium development goals and sustainable development goals

Question 55

How does the World Bank provide support?

Answer 55

Make loans to developing countries that are below standard commercial rates to help fund infrastructure projects such as power plants, roads and dams.

Attempts to influence design of macro and micro economic policies to create conditions conductive to foreign investment and development

Question 56

What are the benefits of the world bank?

Answer 56

It makes loans to developing countries at rates below standard commercial rates in order to fund infrastructure projects such as power plants, roads and dams

World bank supported the (HIPCI)Heavily Indebted Poor Countries Initiative, which aims to reduce debt by ⅔ in the world’s poorest countries in Africa, South Asia and Latin America (The world bank provided US$60 billion in loans, grants, equity investments and guarantees in 2017)

Question 57

What are some criticisms of the WB?

Answer 57

World Bank’s programmes are vulnerable to corruption - policy advice focuses on pro-market policies which nurture foreign investment

Debt relief is an irresponsible eco policy - some claim that debt relief is irresponsible as it creates an expectation that all debts will one day be written off, increasing the chance that gov in developing countries will incur more unsustainable debt

Question 58

When was the UN formed, how many members?

Answer 58

Formed in 1945, 193 members

Question 59

What are the 3 key objectives of the UN:

Answer 59

Maintaining international peace and security

Promote human rights

Foster social and eco development

Provide humanitarian aid

Question 60

Has the UN played an important role in supporting greater linkages between economies and promoting globalisation?

Answer 60

Yes

Question 61

What was UN’s comprehensive response to covid?

Answer 61

Created Recovery Trust Fund programming US$75 million to 80 programmes spanning 67 countries

Initiated coordinated responses across vulnerable domains such as public health, education, women and global supply chains

Question 62

What is the OECD, how many members?

Answer 62

It is an international eco organisation of 38 mostly advanced economies committed to democracy and open markets.

Question 63

What is the main goal of the OECD?

Answer 63

Promote policies to achieve the highest sustainable co growth and employment and a rising standard of living in member countries while maintaining fiscal stability, thus leading to the development of the world economy

Policies generally advocate in favour of free markets, globalisation

Question 64

What are the 2 gov eco forums that we study?

Answer 64

G7 and G20

Question 65

What are free trade agreements?

Answer 65

Formal agreements between countries designed to break down barriers to trade within those nations. There are two types; bilateral and multilateral trade agreements

Question 66

What are trading blocs?

Answer 66

Occurs when a number of countries join together in a formal preferential trading agreement, which leads to the exclusion of other countries

Question 67

What are monetary unions?

Answer 67

A monetary union is where two or more countries share a single currency. This makes trade between member nations more efficient, i.e. Europe’s Euro

Question 68

What are regional trade agreements?

Answer 68

Regional trade agreements refer to treaties that are signed by two or more countries to encourage the free movement of goods and services across the borders of its members - i.e. more efficient trading

However, this may lead to trade diversion in which a country’s imports of a good or service switch from the most efficient producer to a less efficient producer with whom a regional trade agreement exists

Question 69

What are the countries involved with G7?

Answer 69

US, UK, France, Germany, Canada, Japan, Italy

Question 70

What is the purpose and significance of the G7?

Answer 70

Unofficial forum coordinating global macroeconomic policy due to its influence over fiscal and monetary policies of the powerful economies, its agenda has often included general political issues and current priorities including climate change, global poverty, security

Significance of G7 is now in decline, as there is a shift in global balance of power towards emerging economies, especially China.

Question 71

What is the G20?

Answer 71

G20 includes 19 of the world’s largest national economies + the EU, and covers 96% of the world in 2021, and 65% of the world’s population

Question 72

What is the main purpose of the G20?

Answer 72

Introduce forums for the 20 largest national economies and the EU to discuss economic policies. Forum for coordinating lobal response to avert depressions and agreeing to coordinate fiscal stimuli around the world

Question 73

What aree 2 examples of theee success of the G20 summit?

Answer 73

2009 - agreement on measures to improve coordination of fiscal stimulus being implemented by gov around the world, as well as a plan for improved supervision of the global financial system and international financial institutions

2018 - Allows for a platform of discussion, as in the Midst of the China - US trade war, they were able to suspend tariffs on each other as it allowed for a platform for discussion

2019 - Xi Jinping and Trump agree to a trade war truce - delaying imposition of new US tariffs of up to 25% on US $300 bn worth of Chinese goods

Question 74

What are 3 examples of Aus bilateral agreements?

Answer 74

CERTA (NZ and Aus)
AUSFTA (US and Aus)
ChaFTA (China and Aus)

Question 75

What are the key features of the CERTA

Answer 75

Began in 1983. Prohibits all tariffs and export restrictions. Contributed to average annual increase in trade between Aus and NZ of around 7%

Question 76

What are the key features of the AUSFTA?

Answer 76

Began in 2005. Trade between the two countries doubled. It included making 97% of Aus non-agricultural exports to the US becoming duty free, and 2/3 of agricultural tariffs going to zero

Question 77

What are the key features of ChaFTA?

Answer 77

Began at the end of 2015. 85% of AUS goods exported to China became duty free, and will increase to 95% when ChaFTA is fully implemented. Reduction and elimination of tariffs on all major australian agricultural products and processed foods other than sugar and rice

Question 78

What are some examples of multilateral/regional agreements?

Answer 78

EU (European Union)
NAFTA (US, Canada, Mexico)
APEC forum (Asia Pacific Eco cooperation)

Question 79

What are the key features of the EU?

Answer 79

28 member nations. Objective is to dismantle trade barriers within Europe and increase tariff barriers against non-member countries. EU is also a monetary union –> more efficient trade.

Question 80

What is an example of how the EU discriminates against other countries (i.e. creation of trade blocks)

Answer 80

Common Agricultural Policy: Involves the implementation of a system of agricultural subsidies and other programs for those in the EU to help promote the domestic market > international market → This affected Aus as EU doesn’t have comparative advantage, but wants to keep good employment in the industry → decreased revenue in Aus → decreased eco growth

Question 81

What are the key features and significance of the APEC forum?

Answer 81

Established in early 1990sby countries in region of Aus following formation of trading blocs in other areas such as the EU and NAFTA

APEC is NOT a protectionist trading bloc but aims to reduce the cost of cross border trade amongst member countries. Because of this, Aus exports of merchandise goods + commercial services increase by 72% from 2009-2019

Question 82

What are the advantages for free trade agreements?

Answer 82

Allows for a stepping stone towards free trade, initially convincing economies to reduce their protection barriers against a small group but eventually encouraging them to remove those barriers for the rest of the world

Question 83

What are 3 disadvantages of trade agreements?

Answer 83

Agreements are exclusive –> retaliation effect for excluded economies

Hinders global free trade by slicing up world into smaller regions

Causes global inequality betwween developing and developed countries

Question 84

What are three advantages of trading blocs?

Answer 84

They can expand the benefits of specialization of prod beyond the national boundaries by ↓ barriers to trade

Factors of production increasingly move more freely between economies

Easier negotiations

Question 85

What is the main disadvantage of trade blocs?

Answer 85

Trade diversion - Non-members of the bloc lose export opportunities to less efficient nations that are members of that respective bloc

Question 86

What are 2 advantages to multilateral agreements?

Answer 86

Facilitates increased trade integration within regions

Stepping stones towards free trade

Question 87

What are 2 disadvantages to multilateral agreements?

Answer 87

Could lead to global trade fragmenting into self-contained regions→ limiting global free trade

Complex and time consuming to negotiate→ higher compliance costs

Question 88

What are two benefits of bilateral agreements?

Answer 88

Promotes growth in trade

Enables smaller countries who are excluded from trade blocs and regional FTAs to access advantages of free trade

Question 89

hat are two disadvantages of bilateral agreements?

Answer 89

Impact is often much smaller than government claims

Trade diversion

Question 90

Wha is protection?

Answer 90

Protection refers to the implementation of artificial barriers to trade by the government to give domestic producers an artificial advantage over foreign competitors

Question 91

What are the four main arguments for protection?

Answer 91

Protect infant industries

Protect domestic employment

Prevent dumping

Defence

Question 92

What are the four main impacts of protection

Answer 92

Long term costs such as inflation

Lower levels of productivity

Lower levels of exports and growth

Higher unemployment

Question 93

Explain the argument of protecting infant industries

Answer 93

This argument is based around the idea that new industries face lots of difficulties and high barriers to entry as they have relatively higher costs than established competitors in the foreign markets. This argument proposes that the infant industries may need to be shielded from competitors in the short run to enable them to build capacity, establish markets and achieve economies of scale, so that they can compete in the global economy. The idea is only for temporary protection

Question 94

What is the counter argument to the argument of protecting infant industries?

Answer 94

Industries have relied to continue on this assistance, which leads to rent seeking behaviour –> higher inefficiency –> misallocation of resources

Question 95

What is the argument for the prevention of dumping?

Answer 95

Dumping occurs when foreign firms attempt to sell their goods in another country’s market at unrealistically lowprices. The purpose may be to dispose of large production surpluses. Although these low prices are usually temporary, it can harm domestic producers. Thus when a country believes another country is dumping their goods in their country, they may impose protection in the form of tariffs to prevent the impact of dumping

Question 96

What is a counter argument for dumping?

Answer 96

A countr argument is that a certain economy cannot be sure that another economy is actually dumping or if they aree just efficient in what they produce, which could lead to retaliation and retaliatory tariffs. For example China imposed trade tariffs of 116-218% on wine exports due to dumping accusations

Question 97

Explain the argument of protection of domestic employment

Answer 97

If local producers are protected from competition with cheaper foreign imports, the demand for local goods will be greater, and will create more domestic employment

Question 98

Explain the counter argument to protection of domestic employment

Answer 98

However, protection will distort the allocation of resources away from efficient industries to more inefficient industries. In the LT, this may lead to higher levels of unemployment and lower growth rates

Question 99

Explain the defence and self-sufficiency argument

Answer 99

This argument raises the idea that a certain country doesn’t want to rely on other nations for defence products, because there is uncertainty in times of war, so it is good if they don’t have to rely on other nations. For example, the US wouldn’t buy crucial defence equipment from overseas countries even if they could produce them cheaper because this would make it reliant on other countries for their national security.

Question 100

WHat are the main forms of protection?

Answer 100

Main ones:
Tariffs
Subsidies
Quotas

Secondary ones:
Local Content rules
Export incentives

Question 101

what are the 2 positive effects of tariffs?

Answer 101

Domestic producers supply greater quantity of good → Increased domestic production and employment (because the increased revenue will allow for them to continue spending (and keeping jobs))

The tariff raises revenue for the government but that is not the primary objective. In fact the more successful the tariff as a protectionist device (ie. the more imports it restricts) the less revenue it will raise

Question 102

What are the 3 negative effects of tariffs?

Answer 102

More domestic resources are attracted to the protected industry (negative effect) - reallocation of resources towards less efficient producers (Decreased efficiency → lower allocative efficiency

Consumers pay a higher price and receive fewer goods → Redistributes income away from consumers to domestic producers → decreased QOL of the consumers because paying higher for products they could normally get

Retaliation effect

Question 103

What are tariffs?

Answer 103

taxes placed on imports

Question 104

WHat are subsidies?

Answer 104

subsidies involve financial assistance to domestic producers, which enable them to reduce selling price and compete easily with imported goods due to an increased efficiency

Question 105

WHat are two benefits of subsidies?

Answer 105

Domestic producers supply a greater quantity of the good. Therefore, the subsidy stimulates domestic production and employment in the protected industry

(side note: economists prefer a subsidy to a tariff because they tend to be abolished quicker)

Question 106

What are 2 negative impacts of subsidies

Answer 106

More resources in that economy are attracted to the protected industry leading to reallocation of resources from other sectors of the economy (where production and employment will fall)

Subsidies impose direct costs on government budgets because they involve payments from the government to the producers of goods and services. This means that governments have fewer resources to allocate to other priorities such as education and health care

Question 107

What are import quotas?

Answer 107

A control on the volume of a good that is allowed to be imported over a given period of time

Note: the higher the quota, the lower the protection; and the lower the quota, the higher the protection

Question 108

What are tariff quotas (not in syllabus)?

Answer 108

Under this protectionist method goods imported up to the quota pay the standard tariff rate whereas goods imported above the quota pay a higher rate.

Question 109

What are two benefits of quotas?

Answer 109

THE QUOTA GUARANTEES DOMESTIC PRODUCERS A SHARE OF THE MARKET (NEEDS TO BE MENTIONED)

Domestic producers supply a greater quantity of the good. Therefore, the quota stimulates domestic production and employment in the protected industry

Question 110

What are three negative effects of quotas?

Answer 110

Consumers pay a higher price and receive fewer goods. This redistributes income away from consumers to domestic producers in the protected industry and results in lower overall levels of economic growth

As with tariffs the imposition of a quota on imports can invite retaliation from the country whose exports may be reduced because of the quota. This can result in lower exports for the country that initiated the import quota.

More resources in that economy are attracted to the protected industry leading to reallocation of resources from other sectors of the economy (where production and employment will fall)

Question 111

What are local content rules?

Answer 111

Local content rules refer to gov industry plans and policies where goods must contain a minimum percentage of inputs/outputs which have been locally made. In return for guaranteeing that a certain percentage of a good will be locally made the imported components may not attract a tariff.

Question 112

What is an example of local content rules?

Answer 112

Used in the Collins - class replacement submarines - after the signing of AUKUS (2021), a new fleet of nuclear powered submarines are expected to be built. These MUST be built in Adelaide (thus utilising local labour)

Broadcasting Services Act (1992) - mandates a 55% minimum transmission quota on AUs broadcasting channels

Question 113

What are export incentives?

Answer 113

Domestic producers are given grants, loans and technical advice so businesses can attempt to penetrate the global market → increased market share

Question 114

What are three general eco effects of protectionism?

Answer 114

Global protectionist policies have the overall effect of reducing trade between nations. For an individual economy protectionism means that exports and imports will be a smaller share of the national economy.

Overall protectionist policies reduce living standards and reduce global economic growth by shielding inefficient producers

Protectionist policies make it more difficult for individual economies to specialise in production in which they are most efficient. Businesses are less able to achieve economies of scale and therefore have lower profits and lower dividends.

Question 115

What are four effects of protection on the domestic economy?

Answer 115

Imported inflation (results from the effects of tariffs on import prices which passes into the domestic cost and price structure.)

Negative protection (efficient export industries such as mining being penalised through higher capital prices due to tariffs and as they cannot increase prices as they have the comp adv and are the price takers, their competitiveness decreases)

EG is decreased by protection because resources aren’t being used efficiently in protected industries. Capital and labour may not be utilised intensively.

Reduced living standards

Question 116

What are the 3 effects of protection on the global economy?

Answer 116

Reduced world trade –> decreased GWP (protectionism is estimated to reduce GWP by US $300bn - $700bn a year estimated by Institute of International economics in Washington)

The world Bank has stated if Africa, East Asia, South Asia and Latin America each increase their share of world exports by 1%, 128m people will be lifted out of poverty (2022)

OECD estimates that agricultural protection policies in OECD economies cost consumer and taxpayers around $350b a year

Question 117

What is the difference between eco growth and eco development?

Answer 117

EG: Refers to an increase in the level of g+s produced in an economy

ED: Refers to the broad measure of welfare in a nation that includes indicators of health, education and environmental quality

Question 118

What is the measure of Eco growth?

Answer 118

Typically GDP

Question 119

What is the measure of Eco development?

Answer 119

Measured by various means such as HDI, GNI per capita and QoL indicators

Question 120

What is the HDI?

Answer 120

It is a score between 0 for nations with no human dev and 1 for maximum

It is a measure of a country’s average achievements in the basic aspects of human development; health, knowledge and standard of living

Question 121

Can there be high EG but limited eco development? (3)

Answer 121

Yes it is possible. This may be due to:

Corruption; so benefits of the EG only goes towards corrupt politicians instead of it being reinvested into the economy

Environmental problems caused as a result of desire for greater EG. This may be because certain inefficient industries may sacrifice the environment for greater efficiency to help increase EG → pollution → health problems

EG may only benefit a small % of the population. For example, if a country produces more oil, it will see an increase in GDP. However, it is possible, that this oil is only owned by one firm, and therefore, the average worker doesn’t really benefit.

Question 122

What is considered extreme poverty? What is the trend in extreme poverty?

Answer 122

Extreme Poverty, characterised by living under US$1.90 a day, has decreased since the 1980s

Percentage of people living in extreme poverty has decreased to less than 10% of thee population in 2020 from 40% in 1981

Question 123

What are the millennium Development Goals?

Answer 123

8 global goals to guide efforts by international organisations to improve economic development in poorer countries

Question 124

What is the change in life expectancy for those born in countries with low human development (1990-2020)?

Answer 124

50 –> 66 years

Question 125

What is the under 5 mortality rate reduction between 1990 and 2020?

Answer 125

Close to 60% reduction

Question 126

What was contradictory about globalisation during the covid pandemic?

Answer 126

Despite globalisation, during the covid pandemic, almost 12 bn covid vaccinee doses were administered globally in 2022, yet low income countries only accounted for <1% of total vaccine does, despite having 8% of world population

Question 127

What is income?

Answer 127

Income is the amount of money or other monetary benefits measured in money terms which flow to individuals, it is typically awarded to an individual for their involvement in production of goods or services

Question 128

How has income inequality changed as a result of globalisation?

Answer 128

Income inequality has risen by 0.5% per year over the last 30 years as a result of globalisation

IMF reveals that 1/3 of increase in income inequality is due to globalisation and tech changes worldwide

Question 129

What are the living standards in Sub-Saharan Africa and South Asia?

Answer 129

Living standards in Sub-Saharan Africa and South Asia (where one third of the world’s population lives) are exceptionally low with 43% of the people live in extreme poverty

Question 130

What is wealth?

Answer 130

Wealth is the total value of the stock of assets held by individuals at a point in time

Question 131

What is the wealth inequality in the world?

Answer 131

Top 10% of the world accounts for 87.7% of the world’s $US280T in wealth

According to Oxfam (which used Credit Suisse data), the total wealth owned by the top 1% of the global economy surpassed the wealth of the remaining 99% in 2016

Covid involved doubling the wealth of the world’s ten richest men, while for 99% of people, incomes were reduced

Question 132

What are the two main methods of looking and income and quality of life indicators?

Answer 132

Gross national income (GNI) or Human Development Index (HDI)

Question 133

What is Gross national income (GNI)?

Answer 133

Total income earned by domestically owned factors of production over a period of time

Question 134

What is real GNI?

Answer 134

Real GNI- obtained by discounting GNI growth for the effects of inflation

Question 135

What is GNI per capita?

Answer 135

GNI per capita is calculated by dividing the real GNI of each country by its population – accounts for limitations of GNI such as difference in size of population and rate of population growth

Question 136

What is Purchasing Power Parity (PPP)?

Answer 136

theory that compares the relative price of products in different countries due to varying exchange rates

Question 137

What sort of statistics are involved in the HDI?

Answer 137

Life expectancy at birth: indicative of the health and nutrition standards in a country, high levels of longevity are critical for a country’s economic and social well-being

Levels of educational attainment: HDI measures average number of years for which adults aged 25 attended school and expected years of total school attendance for school-age children

Gross National Income per capita: measures the sum of gross value added by all resident producers in the economy, plus income from foreign sources on a purchasing power parity basis

Question 138

What is the Aus trend in HDI?

Answer 138

Aus has a very high HDI of 0.951 in 2021, and has stayed around that level for a decade, only increasing from 0.923 in 2010

Question 139

What are advanced economies?

Answer 139

refers to high income, industrialised or developed economies with high levels of economic development, close economic ties with each other and have liberal-democratic, political/economic institutions

Question 140

How many advanced economies are there in the world?

Answer 140

As of 2020, the IMF recognises 39 countries as advanced

Question 141

Where can many of the advanced economies be found?

Answer 141

Found mostly in the North America and Western Europe, and a small number in the Asia-Pacific region

Comprise most of the members of the OECD

Question 142

What are the characteristics of advanced economies?

Answer 142

Income levels: High income, with GNI per capita > US$12, 476

EG: Slower growth in recent decades

Structure of economy: Large service industries and advanced manufacturing

Stable population, low migration, low birth and death rates, high levels of labour participation, high levels of minimum wage, high levels per capita, diversified economies, large service sectors, smaller agricultural sectors, well developed manufacturing sectors, stable rates of growth (typically between 2-4%), high carbon footprints, high savings, low levels of absolute and extreme poverty, good access to clean water and education, advanced healthcare systems

Question 143

What are emerging economies?

Answer 143

economies in the process of industrialization and experiencing sustained high levels of economic growth, contains a range of economies that are neither high income nor do they share traditional characteristics of developing economies

Question 144

What are the characteristics of emerging economies?

Answer 144

higher birth rate than developed countries, inconsistent levels of participation but improving, low levels or no minimum wage but improving, increasing levels of GNI per capita, Increased diversity (large agricultural sectors but developing manufacturing sectors), very high carbon footprints, higher saving rats compared to developing economies, falling levels of poverty, increasing levels of access to education and clean water, improving medical care, improvement in development of financial markets

GNI per capita between $4085 - $12616

Question 145

What are developing economies?

Answer 145

Developing economies experience low living standards, low health and education levels and generally have agriculture-based economies with poor infrastructure and economic and political institutions and high prevalence of corruption

Generally, suffer from low income levels, weak human resources and have only experienced industrialization to a limited extent

Rely on foreign aid and development assistance as a major source of income

Low labour productivity, industrialization, technological innovation and infrastructure development

High levels of income inequality within their economies

Question 146

What are the characteristics of developing economies?

Answer 146

loss of population through emigration, high birth and death rates, high population ‘dependency’, inconsistent levels of participation, unofficial labour markets, low levels or no minimum wage, low levels of GNI per capita, lack of industry diversity, low growth rates (often in recession), exports primary products (including low value agriculture), high carbon footprints, low saving rates, high levels of absolute and extreme poverty, considerable inequality of wealth

GNI per capita typically below $4085.

Question 147

What are examples of developed countries?

Answer 147

United States, UK, Canada, Norway, Switzerland etc.

Typical EG of 1-3%

Question 148

What are examples of emerging countries?

Answer 148

Malaysia, Philippines, China, India, Indonesia

Typical EG of 4-6%

Question 149

What are examples of developing countries?

Answer 149

Nepal, Ethiopia, Zimbabwe

Typical EG of 4-6%

Question 150

What is the ranking for emerging, developing and developed countries in terms of development?

Answer 150

1. Developed
2. Emerging
3. Developing

Question 151

What are the 2 broad reasons for differences between nations?

Answer 151

Global factors and domestic factors

Question 152

What are the global factors for the differenes between nations?

Answer 152

Global Trade System

Global financial architecture

Global aid and assistance

Global tech flows

Question 153

What are the domestic factors for the differences between nations?

Answer 153

Economic resources

Institutional factors (political and economic institutions)

Economic policies

Government responses to globalisation

Question 154

What is meant by the global trade system as a reason for differences between nations? (4)

Answer 154

Several features of the global trade system work to reinforce rather than reduce global inequities. For example:

Wealthy countries protect their domestic agriculture sector as its not competitive with agricultural producers in developing nations –> severely affecting developing countries that export agriculture

Expanding regional trading blocs (e.g. EU and NAFTA) exclude poorer countries from gaining access to lucrative global consumer markets – exclusion from trade opportunities has an enormous impact on poorer countries

WTO’s Doha Round (focus on trade reforms to benefit poorer nations) has been met with resistance by developed countries, especially in regard to making concessions on issues that would benefit developing countries most

Benefits of FTAs inaccessible to developing nations due to substantial cost in implementing international agreements

Question 155

What is meant by global financial architecture as a reason for differences between nations? (5)

Answer 155

Although deregulated global financial markets are intended to create development opportunities, the global financial system can also entrench global inequalities. For example;

Long-term international flows of investment heavily favoured developed countries, but developing economies are receiving an increasing share of global FDI flows in recent years

Short-term financial inflows heavily favour the more prosperous emerging economies which offer better financial returns for currency and stock market speculators, also exposes economies to economic volatility

International financial rules have not kept pace with the globalisation of the economy and have tolerated loopholes that contribute to large flows of income or wealth to those who already hold substantial wealth

IMF’s Structural policies have been criticised as it serves the interests of rich countries and may be inappropriate to the conditions of developing countries

Many developing countries have massive foreign debt burdens – interest repayments on past loans reduce the income available for governments to promote growth and development due to debt servicing costs

Question 156

what is meant by global aid and assistance as a reason for differences between nations? (2)

Answer 156

small scale efforts made by developed countries to address the problems of global inequalities contribute to the entrenched problem of differences in living standards. For example;

Distribution of aid by high income countries reflects strategic and military considerations rather than the needs of the world’s poorest countries

Critics of aid policies of developed countries argue that a significant proportion of official development assistance is ‘phantom aid,’ which do not improve the lives of the poor. For example, when the US provides fixed support to poor countries, it sometimes forces them to buy American crops; a far greater expense than buying crops in the local region

Question 157

What is meant by global tech flows as a reason for differences between nations? (3)

Answer 157

It has the capacity to contribute to closing the gaps in living standards but can also entrench inequalities. For example;

New technology can be absorbed much more quickly in economies that have better infrastructure, higher levels of education and already have high penetration rates of related technologies such as computers. Thus, poorer countries have a slower adoption of new tech

New technology large geared to the needs of high-income countries because they choose the priority areas of scientific research

Developing nations also find it difficult to gain access to new technologies, intellectual property rights restrict the benefit of technological transfer to poorer countries and also as they cannot pay for these technologies

Question 158

What is meant by economic resources as a domestic reason for the difference between nations? (4)

Answer 158

economies face difficulties in acquiring and maintaining sufficient resources for the production process, namely natural resources, labour, capital and entrepreneurship. For example;

High income countries tend to have highly educated and skilled labour resources, whereas low income nations have high population with poor education –> reduction in quality of the labour supply

Entrepreneurial culture such as the values of individual responsibility, enterprise, wealth creation and a strong work ethic can assist the industrialization and the transitioning towards sustainable economic development

Access to capital and technology: difficulty in gaining access to capital for investment and development is another major structural weakness for developing nations that contributes to lower living standards. In this scenario, poorly developed financial systems increase difficulty for businesses to gain easy access to loans for investment purposes. Essentially for developing countries, it is hard to access capital and technology

Economies with an abundant and reliable supply of cheap natural resources have better opportunities for ED than those who do not. However, an abundance of resources can hamper a country’s ED if it leads to an overvalued e/r, narrow X base and over reliance on small number of industries to drive EG

Question 159

What are the institutional factors as a domestic reason for the difference between nations?(2)

Answer 159

political stability, legal structures, central bank independence, extent of corruption, strength of social institutions and the government’s domestic and external economic policies affects the ability of an economy to develop. Take political and economic institutions for example;

Political and eco institutions in individual countries can have a dramatic influence on the eco environment for businesses, investors and consumers.

Thus, Political instability, corruption and lack of law enforcement by government agencies tend to undermine confidence of investors, who become more reluctant to take risks due to threatened business interests

Question 160

What are the economic policies as a domestic factor for the reason for difference between nations? (5)

Answer 160

Economic policies can have a substantial impact on development, in how governments balance the roles of market forces and government intervention in the economy

If left to market forces, countries may achieve high levels of economic growth but may not improve education, health care and quality of life

Excessive government control and decision-making constrains entrepreneurship and innovation, reducing economic growth

Developed countries have strong market economies and significant government investment in human development

Less able to implement policies to ease inequality because they collect less tax revenue and cannot provide the same level of public services and social welfare

Question 161

How can a governments’ response to globalisation as a domestic factor influence the differences between nations? (2)

Answer 161

Government responses to globalisation have a substantial influence on a nation’s ability to achieve economic development;

Policies related to trade, financial and investment flows, TNCs and the country’s participation in regional and global economic organisations influences an economy’s ability to take advantage of the benefits of integration

Policy responses to an economic crisis have a significant impact on the domestic economy – active labour market policies that support unemployed workers produced long-term benefits for the economy

Question 162

What are the effects of globalisation?

Answer 162

Developing economies have ↑ market access, ↑ access to tech and ↑ foreign investment

High income economies → ↑growth through TNCs, global supply chains and global service markets

Economies have not gained as much as expected from globalisation and greater economic integration has caused disruptive structural changes in some regions

Globalisation has however, led to a convergence in living standards in the global economy, in recent decades:

Question 163

What is the trend in the growth rate in East-Asia and Pacific region?

Answer 163

It is (one of) the fastest growing region

9% growth per year on average across the 1990s and 2000s, though it fell to 6.7% on average between 2011-19

Grew by 7.2% overall in 2021, but this reflected strong growth of 8.1% in China, while the rest of the region averaged 2.6% growth

Question 164

What is the trend in the growth rate in the Europe and Central Asia region?

Answer 164

Made a successful transition to becoming market economies

Grew by 5% in the 2000s, and 2.9% between 2011 and 2019. Emerging economies of Europe and Central Asia contracted by 3% in 2020, and rebounded to growth above 6% in 2021

Question 165

What is the trend in the growth rate in the South Asia region?

Answer 165

Experienced successful growth

5.7% since 2000s

Particularly India (5.8%) after greater integration with global economy, Bangladesh (6%)

SA contracted by 7% in 2020, rebounded by 7.7% in 2021

Question 166

What is the trend in the growth rate in the Middle East and North Africa region?

Answer 166

Solid EG throguh 1990s and 2000s underpinned by greater competition for energy resources during globalisation era

4.0% throughout 1990s and 2000s however went through less eco growth due to lower oil prices

3.3% contraction during 2020, but rebounded with 4.5% growth in 2021

Question 167

What is the trend in the growth rate in the Sub-Saharan Africa region?

Answer 167

growth rates faster than 1980s levels, but are insufficient for meaningful catch-up against advanced economies

Average growth rate of 4.8% during 2000 to 2019

Ethiopia (9.1% growth),
Mozambique (6.8% growth)

Economies contracted 2% in 2020, but rebounded with 4.5% growth in 2021

Question 168

What is the trend in the growth rate in the High income economies?

Answer 168

slower growth rates than those recorded in 1980s

2.2% growth on average in 1991-2019 period, slower than 3.3% recorded during the 1980s

IMF estimation that group of high income economies grew by 5.2% in 2021 after contraction of 5% in 2020

Question 169

What are the positive impacts of global financial markets on economies?

Answer 169

Countries would be unable to conduct international transactions without forex markets

Businesses would find difficulty to access loans or attract investors if confined to domestic financial markets

Efficient international financial markets encourage greater transparency of businesses and governments, fostering economic development

Question 170

What are the negative impacts of global finance markets on economies during the globalisation era?

Answer 170

Change in investor (global due to globalisation) sentiment against a particular economy can result in collapse of exchange rates, a shock to the economy and a recession accompanied by rising unemployment

Question 171

What is the impact of globalisation on trade, investment and transnational corporations? (5)

Answer 171

Globalisation→↓ Protection, ↑ FTAs, Improved technology→↑ Trade flows

Globalisation of financial markets (i.e. Deregulation and govt policies encouraging foreign investment). ↑ FDI→↑ economic growth (especially in emerging economies with ↓ barriers to investment)

↓ Restrictions on foreign ownership and development of foreign capital markets→↑TNCs

Low labbour and environmental laws in developing nations can lead to the exploitation of workers and environmental regulations in developing countries, which is esp relevant during globalisation

Globalisation highlighted the reliance on trade for many of our economies, especially because of several supply chain issues that emerged due to the covid pandemic

Question 172

What is the effect of globalisation on environmental sustainability?

Answer 172

Globalisation can have negative environmental consequences

Low income countries desperate to attract foreign investment and earn higher export revenue may engage in eco behaviour that harms the environment to increase efficiency.
-For example,deforestations for paper or wood chip industries, depletion of marine life through unsustainable fishing practices, poisoning of water supplies, pollution, increase CO2 emissions

However, it has some positive effects as globalisation also offers opportunities to protect the world’s environment from harm. It forces individual nations to face up to their global responsibility for envrionmental preservation

International forums regarding environment such as the COP26, allows for discussion for the development of regulations to preserve environment and improve enviro sus . Also negotiations such as Kyoto Protocl and Paris Agreement are achieved due to globalisation

It has also facilitated the transfer of new technologies to improve energy efficiency and reduce environmental pollution. Such as electric cars and LED lights

Question 173

Does increased globalisation impact the international business cycle?

Answer 173

Yes. Closer linkages between economies can improve the IBC and the reliance on other countries as part of the Business cycle

Question 174

Wat are the benefits of increased integration contributing to a more connected IBC? (4)

Answer 174

Allows countries to achieve faster rates of economic growth by specialising in certain types of production and by engaging in trade

Countries with higher levels of trade experience faster economic growth

During times when world economic growth is higher, individual economies are likely to benefit from the upturn in growth

Reasons for the strength of global economic growth in the mid-2000s was the simultaneous upswings in the US and China which propelled the global economy to its fastest growth rates in 30 years

Question 175

Wat are the drawbacks of increased integration contributing to a more connected IBC? (4)

Answer 175

Makes economies more exposed to downturns in the international business cycle and to developments in their regions (i.e. eco shocks)

Closer links between economies resulted in a downturn in the US economy in the late 2000s spreading quickly to other developed and developing economies

As extent of trade and financial integration continues to increase, there is likely to be greater synchronisation of the IBC, intensifying both the downturns and the upswings in the global economy

Furthermore, this is seen in the global economic fallout from covid which spread quickly to both developed and developing economies