CHAPTER ONE Economics_Notes_Daniel_Lee

CHAPTER ONE Economics_Notes_Daniel_Lee - 1.1 THE GLOBAL...

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1.1 THE GLOBAL ECONOMY The global economy refers to the links between national economies, developed through flows of economic resources . The global economy consists of all the countries in the world that produce goods and services thereby contributing to GWP. Gross World Product (GWP) is measured by adding together the outputs of the world economies . An IMF report in 1999 estimated that the total output of the world economy was valued at US$40 714 billion. It is important to note that these Gross World Product figures may vary significantly and are difficult to measure as: Inflation rates vary from country to country Exchange rate differences exist between countries There are variations in statistical methods for calculating asset values Government policies relating to taxation can be different from country to country Inaccuracies may occur in the collection of statistical data Globalisation Globalisation refers to the increased integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity. Indicators of a linking world economy Trade has increased significantly over the past few decades . World trade has grown rapidly with economic transactions of land, labour, capital and enterprise over national boundaries rising rapidly. World trade has risen from $US7.1 trillion in 1990 to $US12.4 trillion in 2001. World trade growth has been exceeding GWP growth with GWP growing to six times its value in 1950 whilst world trade has grown to 16 times its 1950 level. However, the global downturn beginning in 2001 brought the growth of global trade to a near standstill, and it has been slow to recover since. Key influences on world trade have been TNC’s and newly implemented “global production processes”. The second and more direct influence has been trade agreements whether they are free trade, bilateral, or multilateral. The growth of international finance has played a leading role in the process of globalisation. Since finance is crucial to operate many modern economies, the globalisation of finance has had a major impact in terms of linking economies around the world. Finance is the most globalised feature of the world economy because money moves between countries more quickly than goods and services . Another indicator of globalisation is the rapid growth of international investment . One measure of the globalisation of investment is seen from the expansion of Foreign
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Direct Investment (FDI) . FDI’s involve the movement of funds directly being invested in economic activity or in the purchase of companies. FDI’s create capital and are long term investments. Another measure of international investment is through portfolio investments . This refers to the short term movement of funds for loans or the purchase of small share holdings (less than 10%). Technology
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CHAPTER ONE Economics_Notes_Daniel_Lee - 1.1 THE GLOBAL...

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