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Description
Flashcards by Rachel Moore, updated more than 1 year ago
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Created by Rachel Moore
almost 7 years ago
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| Question | Answer |
| What is the Global Economy? | -The Global Economy is the World Economy - It includes all production, trade, financial flows, investment, technology, labour and economic behaviour between nations |
| How is the size of the Global Economy measured? | 1. Getting the total value of each nation's assets and adding them together. 2. Getting the value of the world's output- known as world real GDP. This is an aggregate of all the individual nations output |
| How do we measure World Output? (hint: there are two ways) | 1. By the value of world output in $US at market exchange rates- adjusting a nation's outputs into $US. 2. The value of the world output at purchasing power parities (PPP)- This compares the relative prices of products in different countries. |
| How does Purchasing Power Parity work in absolute terms | - PPP can be measured in absolute terms or relative terms. - In absolute terms- PPP is equal to the price level in $AUD divided by the price level in $USD. e.g. $3aud and $6us= 1/2 therefore $1AUD= $2USD |
| How does Purchasing Power Parity work in relative terms? | - Relative PPP relates to changes in price levels in the two countries- if the price in one country rises faster then that currency will depreciate in value. - The relative PPP is started in terms of domestic currency per unit of foreign currency. |
| Why is it more acceptable than absolute terms? | -- Relative PP is more acceptable as absolute PPP due to the large number of products, transport costs, tax rates and trade barriers which prevent this from being an accurate measure of relative prices. |
| What was the growth rate for the USA, EU, Japan and developing Asia in 2016? | - The USA: 1.6% growth in 2016 - the EU: 1.7% growth in 2016 - Japan: 0.9% growth in 2016 - developing Asia: 6.3% |
| Who are the main source of Global Growth in recent years? | - China - India -and some improvement in the USA. |
| How have falling oil prices affected the global economy? | - Oil prices fell by more than 70%: $115USD in 2014- $30USD in 2016. - Increase in financial market volatility. - Advanced economies not reaching full employment. - economic distress creates economic uncertainty in commodity and foreign exchange markets. - lower commodity prices undermining growth in low-income countries. |
| What effects does BREXIT have on the global economy? | - lower trade between the UK and the EU because of higher tariff and non-tariff barriers to trade. - UK would benefit less from further market integration within the EU. - Creates economic uncertainty - Reduces global investment and growth - a decline in the value of the British Pound. - one benefit is lower net contributions to the EU budget. |
| The effect Trump will have on the Economy? | - He opposes global free trade deals. - aims to protect the US economy by putting tariffs on imported goods. - wants to renegotiate all the US trade agreements to ensure the US gets a better deal. - This is creating economic uncertainty. |
| What is the state of the global economy? | - The GFC slowed the world output from 5.2% in 2007 to 3% in 2008. - The global growth fell to -0.5% in 2009. - Global recovery has been slow especially in advanced economies. - The emerging and developing economies grew by 4% in 2015- China 6.9%. - Growth in emerging and developing countries projected to increase by 4.5% |
| What are the two aspects that make up globalisation? | 1. the actual movement across nations in trade, investment, technology, finance and labour. 2. The capacity to move and potential movement across nations of trade, investment, technology, finance and labour. |
| Trade in goods and services. What are the latest trends? | - growth in export volumes in advanced economies averaged 5.2% per annum from 2000-2008. - emerging and developing countries averaged 9.3%. - World trade volumes slowed from 12.2% in 2010 to 3.3% in 2014 in advanced economies and from 14.7% to 3.4% in emerging and developing economies. - World trade is dominated by advanced economies. |
| What is the major concern for developing countries? | - Their terms of trade. - the relative price of exports compared to imports. - While trade is increasing, the long-term decline in the the terms of trade can lead to great debt for developing countries and income transfers for advanced economies. |
| What is International Investment? And what is its growth level? | - Relates to the investment made by transnational corporations. - Also known as International Direct Investment. - IDI is growing about 3 times the rate of GWP. This is due to low wages and growing economies. |
| What effect is technology having on the global economy? | - New technology is what drives globalisation. - the cost of global communication is declining and innovated tools are easier to use. -The cost of internet, eft and mobile phones have opened up the global economy. |
| What have the trends been in international financial flows in the global economy? | - Growing at 10 times the rate of GWP. - The fastest growing financial flows are interest rates, currency, equity and commodity derivatives. - The main form of derivatives: interest rate contracts, foreign exchange contracts and credit default swaps. |
| What are derivatives? | - they are simple financial contracts whose value is linked to an underlying asset such as stocks, bonds and commodities. - they are international financial instruments for spreading risk or hedging. they include futures, options, swaps, forward rate agreements and other hedging instruments. |
| What are futures and options? In regard to derivatives? | - Future: a currency future is a contract that you can effectively lock in the price at which you buy or sell a foreign currency at a set date in the future. - Options: a currency option gives the buyer or holder of the option the right to buy or sell foreign currency sometime in the future at a price set today. It gives the right but not an obligation. |
| What are swaps and forward rate agreement derivatives? | - Currency Swaps- is an agreement to exchange currency during a specific period of time. -Forward Rate Agreements- This is a contract between two parties to lock in a given interest rate or exchange rate starting at some point in the future for a set period of time. |
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