Economics

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The global economy Features of the global economyNature of the global economy & globaln

define the terms globaln & global economy

Outline 2 econ indicators of the globaln process

define gross world product

Explain why globaln has int fin flows.

The global economy

Gross world product Gross world prodn measured by totalling conventional GDP estimates for

each country.

Globaln

-trade Globaln has significantly higher growth in world output & even higher in

world trade-I & techy

Tech progress has played a pivotal role in the very large ↑ in per capita output

World stock mkts, linked by new techy have ↑ their turnover & provided greater access for indiv, co & gov to raise funds

The ∆ brought by IT has spread to most regions & countries of the world, reducing costs of conducting int businessecon of scale of prodn

IT has also a global mkt in ICT goods which has resulted in structural ∆ to the way G+S are produced & distributed to consumers

Innovative techy in developed countries has exported to the rest of the world techy diffusion

-finance The main objective of derivatives trading is to offset fluctuations in share

currency, commodity & i rates prices. The growth in derivatives trading is due to co seeking new products to suit

their risk management strategies & the spread of fin innov form global primary & secondary mkts to the derivatives mkt.

-labour An int mkt for labour has developed with guest workers from developing

countries gaining temp empl in developed & newly industrialised countries in response to labour shortages in particular industries in those countries.

Int migration continues to grow However, problems still arises as a result of a global labour mkt such as;

-a brain drain of highly skilled workers in particular countries-workers from developing countries are often exploited by their employers in foreign countries-the emergence of the black mkt in migrant workers

Govs that have embraced a globaln strategy have generally pursued policies to raise labour prody as a way of ↑ competitiveness

Natural ↑in the developed countries has slowedto an aging popn , an old w/force & higher age dependency ratios

In developing countries the rate of natural↑ is higherto a younger popn

i.e. the working age popn is expanding but jobs may not keep up with this growth.

The int business cycle Int business cycle-∆ in world output over time The general trend is for world output to grow in real terms overtime Business cycles are irregular & unpredictable. ∴ govs intervene to smooth

out the fluctuations

Global economy-all countries in the world that produce G+S thus contributing to GDPGross world output-total mkt value in $US for all G+S produced by all countries over a given time period adjusted for Nat variations in prices paid for G+S at PPP(purchasing power parities)Globaln-the dev & deepening of world mkt in capital, G+S by increasing occurrence of commercial exchanges across Nat boundaries

Economics

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world trade- X & M of G,S,Y and transfers between countries that comprise the global economyworld fin flows-the movement of cap,money & countries between countriesReasons for increasing trade & fin flows in world econ:Fin deregulation & flowing ↑ exchange rates the mobility of capThe reduction in trade barriers thru bilateral, regional & multi-lateral trade agreements has ↑ trade flows. ↑ int specialn & exchange in ETMs & services The collapse in communism as transition countries has sought more integration with the global economy thru int trade & I. The formation of trade agreements.

Economics

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free trade-the exchange of G+S between countries without the constraint of protective trade barriersAbsolute advantage-a nation is said to have an absolute advantage in prodn when it can produce more of a commodity using its resources than another country canComparative advantage- when a country specialises for those goods it has the greatest comparative advantage/ least comparative disadvantageprotection- any artificial advantage given by govs to domestic industries to protect them from int compThe world economy Impact of globaln on the standards of living in the global economyVariations in the standards of living in the global economy

Y & quality of life indicators To measure aver standards of living thru either:

-the aver Y in each nation & then convert this money Y level into one of the main currencies used across the world (GDP)-quality of life where we look at aspects of the typical life experience in a nation

The measure of the aver value of prodn can be used to indicate Y levels of as Y reflects the value of prodn.

Contrasts in levels of development

Describe 2 econ benefits of developing countries sustaining positive rates of EG

Explain the relationship between ED & EG

Explain the econ Reasons for differences in the standard of living between two nations.

Difference between growth & development EG involves:

- When a economy can produce more G+S- an ↑in the productive capacity of a nation which ↑the vol of material

G+S to satisfy wants & needs- there is an ↑in prodn ,C & I overtime- EG may have -ve social impacts e.g. environ degradation or loss of

traditional culture & values ED is:

- A measure of well being of an nation- More comprehensive than EG- It occurs when GDP per capita ↑ as well as improve the welfare of the

popn. e.g. a ↓in poverty levels, ↑empl, improved health & longer life spans may not result in ↑GDP per capita

Factors contributing to EG

PQLIincludes 3 basic indicators:life expecty at 1,infant mortality,literacymeasures absolute human devHDIrank all countries on a scale of 0 to 1based on 3 characteristics of dev:ife exp at birth, edun/literacy,standard of particular G+Smeasures relative human devGDI-measures same varibales as HDI but is adjusted for gender inqualitiesGEM- measures gender inequality but in econ and political spheresHPI-1(developing countries)measures deprivations same way as HDIHPI-2(industrialed countries)includes social exclusion technological progressinvolves the intro of new & better techniques of prodn in order to raise the prody of the economyinstitutional factorsstable govts ensure that there is a sound educational, communications, fin & legal frame work which will ecourage EGexport industriesare a source of EG where they can be an escape from restrictions on growth that may come from less adequete domestic Dimproved efficiency in resource usereductions in the extent to which labour & capital are unempl will permit an economy to raise it EG rate

Economics

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popn factors↑workforcebetter educatedhealthly popnpopn must want EGcapital accumulationgross I ie.new capital+replacement of old capital(outdated)net I(more important)-process of adding capital stock to a nationnet I+depriciation= gross Icapital widening eg.popn↑10%,capital↑10%capital deepening eg.↑10%popn capital ↑15%→EG→↑GDP per capitaLow per capita Y’sreduced ability to S & I. thus LDC’s find it hard to ↑prody & EG compared to DC’sLow savings levels in LDC’slow Y’s & rural poverty. poorly developed cap mkts discourages savings due to conspicuous consumption of western luxury goodsLack of infrastructure & capital formationprevents formation of mkts & efficient use of resources. i.e. unempl + underempl common in LDC’sLittle incentive for entrepreneurs to take on risk & start business due to low spendingD inflationarises in LDC’s when domestic D is not satisfied by domestic prodnHigh popn growth rates-in LDC’s high dependency ratios & D for health, edu, empl. if popn↑>EG in LDC ↓living standards & ↑povertyLow levels of tech progress & prodylow EG due mainly to labour intense agricEcon dualismis common in LDC’s i.e. urban elite emerging in conspicuous consumption in formal economy, alongside less formal rural economydemonstration effectin LDC’s caused by rural to urban drift↑D for jobs, infrastructure, shanty towns occurInstitutional problems e.g. corrupt govs, inefficient departmentslack of confidence in economyhard to access fin help form O/SLack of foreign exchange & high foreign debt-in LDC'shigh debt servicing costsmkt based on free enterprise system of mkt allocation of resourceslimited govt intervention, have high per capita y & developmentDeveloped or advanced industrialised nations made the transition from developing to sustaining high rates of growth↑per capita yNewly industrialised econ (NIE)in process of raising rates of econ growth but do not have high per capita Y’s or living standardDeveloping or less developed (LDC)former socialist economies trying to become mkt economieseconomies in transition