syllabus summaries.docx

HSC Topic One -- The Global Economy 25% of indicative time The focus of this study is the operation of the global economy and the impact of globalisation on individual economies. **Outcomes** A student: H1 demonstrates understanding of economic terms, concepts and relationships H2 analyses the...

HSC Topic One -- The Global Economy 25% of indicative time The focus of this study is the operation of the global economy and the impact of globalisation on individual economies. **Outcomes** A student: H1 demonstrates understanding of economic terms, concepts and relationships H2 analyses the economic role of individuals, firms, institutions and governments H3 explains the role of markets within the global economy H4 analyses the impact of global markets on the Australian and global economies H5 discusses policy options for dealing with problems and issues in contemporary and hypothetical contexts H6 analyses the impact of economic policies in theoretical and contemporary Australian contexts H7 evaluates the consequences of contemporary economic problems and issues on individuals, firms and governments H8 applies appropriate terminology, concepts and theories in contemporary and hypothetical economic contexts H9 selects and organises information from a variety of sources for relevance and reliability H10 communicates economic information, ideas and issues in appropriate forms H11 applies mathematical concepts in economic contexts H12 works independently and in groups to achieve appropriate goals in set timelines. **Content** Students learn to: **Examine economic issues** examine the effects of globalisation on economic growth and the quality of life, levels of unemployment, rates of inflation and external stability assess the potential impact on the environment of continuing world economic development investigate the global distribution of income and wealth assess the consequences of an unequal distribution of global income and wealth discuss the effects of protectionist policies on the global economy **Apply economic skills** analyse statistics on trade and financial flows to determine the nature and extent of global interdependence assess the impact on the global economy of international organisations and contemporary trading bloc agreements evaluate the impact of development strategies used in a range of contemporary and hypothetical situations. Students learn about: ***International economic integration*** **the global economy**   **Gross World Product** - The sum of all countries GDP after a period of time measured in \$USD **globalisation** **-- trade in goods and services** - **financial flows** - Finance is the most globalized sector of the world economy because money moves between countries more quickly than goods and services or people. - Financial flows expanded substantially after financial deregulation around the world. - Controls on foreign currency markets, flows of foreign capital, banking interest rates and overseas investments in share markets were lifted. - New technology and global communications made it easier for money to travel internationally. A graph showing the growth of the currency Description automatically generated - **Foreign exchange markets (forex)** are networks of buyers and sellers exchanging one currency for another in order to facilitate flows of finance between countries. Forex markets have experienced significant growth. - the value of a currency expressed in term of another is known as the **exchange rate** between 2 currencies. Most countries determine the value of their currency through the interaction of the forces of supply and demand in forex markets. - The main drivers of global financial flows are **speculators and currency traders** who lift billions of dollars in and out of financial markets worldwide to undertake short-term investments in financial assets. - Speculative purposes -- to derive short term funds from currency and asset price movements, or for technical purposes such as hedging against future exchange rate movements and swapping funds between currencies. - International investment banks hedge funds -- to gain short term movement in asset prices +-----------------------------------+-----------------------------------+ | Advantages of financial flows | Disadvantages of financial flows | +===================================+===================================+ | - Enable countries to obtain | - Speculative behavior can | | funds that are used to | create significant volatility | | finance domestic investments. | in forex markets and domestic | | | financial markets. | | - Global financial flows may | | | enable a country to achieve | - Speculative activity has been | | higher levels of investments | blamed for large currency | | = economic growth | falls. | | | | | | - The IMF is responsible for | | | the overall stability of the | | | global financial system -- it | | | stabilizes individual | | | economies experiencing | | | currency crises in order to | | | prevent effects on other | | | economies. | +-----------------------------------+-----------------------------------+ **-- investment and transnational corporations** **-- technology, transport and communication** - Has led to developments in **freight technology** such as the use of micro warehouses nearer to customers to improve logistics and increased use of blockchain technology to simplify tracking and facilitate greater trade in goods. The WTO estimated that the digitization of trade led to trade costs down 6% - Cheaper and more reliable **international communication** through high-speed broadband allows for the provision of commercial services to customers around the world. - In **finance and investment** technology facilitates globalization through secure, high speed networks that allow money to move around the world in a second. - **Smart phones and mobile internet access** are changing the structure of industries such as retail and transport, education, leisure and professional services. Structures of industries are changing due to technology. - Advances in **transportation**, such as non-stop flights and high speed rail networks allow greater mobility of labour between economies and increased accessibility to tourism and travel for consumers. **Technology and globalization:** - Technology is a major driver of globalization, enabling integration at unprecedented levels. - OECD research in 2023 indicates that a 1% increase in bilateral digital connectivity leads to a 2.1% increase in domestic trade and a 1.5% increase in international trade. - Economies that swiftly embrace new technologies tend to be more closely integrated with other economies globally or within their regions. - The study shows a positive correlation between digital connectivity and both domestic and international trade growth. **Impact of COVID-19:** - The COVID-19 pandemic underscored the importance of technology in dealing with crises. - Disparities in technology access created a \"digital divide\" between countries. - Countries with high digital technology use (e.g., Israel, the Netherlands, and Australia) coped better with lockdowns by leveraging digital marketplaces, virtual meetings, and online learning. - The pandemic highlighted and exacerbated the existing gap in technology access between nations. **Technology's impact on trade and investment:** - Technology has led to growth in trade and investment on a global scale. - Leading technology innovators and exporters, such as the United States, view technology as a major trade opportunity. - The United States earns substantial export revenues due to its global leadership in various new technology areas. - The majority (59%) of the top 100 digital Transnational Corporations (TNCs) are headquartered in the United States. - Some countries import technology from developed economies with the aim of eventually becoming innovators and exporters themselves. - Trade facilitates the spread of new technologies globally, contributing to the ongoing innovation process. - The leading country in technology often maintains its technological superiority for an extended period. - Leading information and communications technology corporations, such as Google, Salesforce, and IBM, expand globally. - Corporations involved in technology development often enter foreign markets directly to sell products and services to local buyers. - Technology corporations invest substantially in education and training in the new countries they enter. - Technology, particularly in digital Transnational Corporations (TNCs), drives increased foreign investment. - In 2020, e-commerce TNCs increased their greenfield investments by 120%, followed by a further 10% increase in 2021. **Technology's impact on communication:** - Internet communication links businesses individuals and nations in the global economy - Reduces business costs -- has been a barrier to economic integration. - Global marketplace for information and communications technology is worth US\$5 trillion - COVID-19 accelerated rapid spread of technology. - Cybersecurity attacks increased by 40%  **-- international division of labour, migration** **International Labour:** - Are less internationalised as people do not necessarily move jobs much and generally work near home. - Recently more people are moving to different countries to take advantage of better work opportunities. - movement of labour is at the top and bottom ends of the labour market - at the top end this is because highly skilled workers are attracted to larger, higher income economies such as Europe and the US because of higher pay and better job opportunities available. - 2/3 of international migrant workers move to high income countries. - At the bottom end of the labour market low skilled labour is also in demand in advanced economies where it may be difficult to attract sufficient people born locally to do certain types of work - **International division of labour** -- people move to jobs where their skills are needed which the globalisation of the labour market is increasingly but there may be barriers to work in some countries. Barriers include: - Immigration restrictions - Language - cultural factors - incompatible education - professional qualifications - most people choose to stay where they live near friends and family. Others are forced to move due to domestic instability and geopolitical turmoil. - Businesses also offshore certain aspects of the production process to be done cheaper in other countries. - The international division of labour reflects the economic concept of "comparative advantage". This theory states that economies should specialise in the production of the goods or services that they can produce at the lowest opportunity cost. Developing economies have a large population of workers with only basic labour skills and education levels, giving them a comparative advantage in labour-intensive manufacturing. Advanced economies have generally shifted away from labour-intensive manufacturing to focus on specialised service aspects of the economy that use more highly skilled workers who are in greater supply in advanced economies. ** the international and regional business cycles** Business cycle is the fluctuations in economic growth in an economy. The **international business cycle** is the fluctuations in the global economy measured via GWP. - The level of growth in 1 country is influenced by what\'s going on in other economies. - Seen during global financial crisis, covid pandemic, and 911. - Trade flows - level of economic growth in 1 country impacts the demand of goods and services, which influences growth in trade. - Investment flows - growth affects investment which affects the growth of countries receiving money. - Some economies are more integrated than others - for e.g. - economies in europe will impact each other more than other countries further away. ***Trade, financial flows* *and foreign investment*** ** the basis of free trade -- its advantages and disadvantages** **Free trade** occurs when there are no barriers to trade are imposed between economies - trade policies encourage the exchange of goods and services.   Opposite to free trade is **protection** where there are barriers to trade imposed between economies.   **Theory between free trade:** 1. **Opportunity cost -** what you miss out on when you engage in a certain economic activity. 2. **Comparative advantage -** countries should produce the goods where they have the lowest opportunity cost. 3. **Specialisation** - when countries only make the stuff, they are really good at making   **Free trade:** 1800\'s - countries recognised the importance of specialisation and comparative advantage. 1995 - WTO founded - encourages international trade Currently - against free trade - links to domestic unemployment and exploitation of workers and the environment in developing countries +-----------------------------------+-----------------------------------+ | **Advantages** | **Disadvantages** | +===================================+===================================+ | - Promote competitiveness and | - Benefits of free trade | | innovation. | agreements are often | | | overstated by governments. | | - Boosts economic growth. | | | | - Short term structural | | - Lower prices and more | unemployment | | consumer choice | | | | - Workers lose jobs and their | | - Create jobs in competitive | skills are no longer | | industries. | relevant. | | | | | - Encourages investment | - FTA\'s have restricted global | | | free trade. | | | | | |   | +-----------------------------------+-----------------------------------+  ** role of international organisations -- WTO, IMF, World Bank, United Nations, OECD** We need global organisations to help global problems   **The world trade organisation (WTO):** - Facilitates International trade flows - The WTO encourages the dismantling of trade barriers between economies and organises trade negotiations and establishes trade agreements - Trade protection has fallen since the creation of WTO - Most-favoured nation policy - trade concessions must be provided to all members - Makes sure countries aren\'t excluded from any beneficial trade agreements - Important role in global trade dispute resolution - resolves by facilitating a discussion or providing a decision   Doha round - Began in 2001 - Goal of reducing global protection - Specific focus on poorer nations - suffering because of protection implemented by advanced economies - Progress has been slow - Advanced economies reluctant to cut protection - agriculture, pharmaceutical   **Effectiveness of WTO has been limited due to advanced economies**   **International monetary fund (IMF):** - Ensures financial stability \--\> avoids global recessions - IMF uses rescue packages to counteract economic disasters - In global financial crisis the IMF pumped out \$520 billion USD into the global economy - The IMF only gives packages to economies that agree to adjust their financial policies - Deregulating markets and balancing budgets - These structural adjustment policies improve the stability of countries financial markets - The IMF faces criticism and sometimes make crises worse   **The world bank:** - Boosts development of poorer economies - Aims to reduce the rate of extreme poverty to less than 3% by 2030 - Reducing overall inequality by stimulating income growth for the bottom 40% of global income earners - Low investment is a major reason for poor development - Provided loans to developing nations - Provides soft loans to the poorest economies - 0 or very low interest rates and extended payment periods allowed - Provides debt relief packages - allows economies facing high levels of debt to channel income into productive activities such as infrastructure and business expansion - Encourages private investment in development projects   **The united nations (UN):** - Almost universal membership - Looks after issues such as global security, the environment, international health and law = more globalised world - Agencies like the UN Conference on Trade and Development devises international standards and rules for things like food quality and intellectual property Fauli+ah..s flow of 300k services - Focuses on economic development - boosts quality of life - Has 17 goals to do with sustainable and clean energy, climate change, education, trade and poverty to be achieved by 2030.   **The organisation for economic cooperation and development (OECD):** - 36 members - highly developed economies - Aims to promote growth, employment, fiscal stability and high standards of living - Conducts research into different economies and economic issues - Helps coordinate international economic action ** influence of government economic forums -- G20, G7/8** **The G7:** - Created in 1976 - connects Italy, Germany, France, Japan, Canada, the US and UK - Discuss economic growth and international security issues   **The G20:** - Created in 1999 in response to a number of financial crises - Includes the G7 economies + advanced and emerging economies - More accurately reflects economic power than G7   ** trading blocs, monetary unions and free trade agreements** **-- advantages and disadvantages of multilateral (EU, APEC, NAFTA, ASEAN) and bilateral agreements** **Trade blocs -** when countries in a region formally cooperate on trade by implementing a FTA - More protection against non-members   **The European union - main trade block**    - Rich members have to support struggling members - Implements protection again other countries - like in agriculture - Firms in other economies struggle and must find new export markets   v!sv V! +s009 % sw!v \> yvv \'νγνι.ΙΌ 03dV V!SV aa..g **Multilateral Trade agreements:** Members of the EU: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. EU negotiates trade agreements on behalf of the member states, such as preferential duty rates on shipments with goods between the EU and countries around the world. Cover a wider range of areas to facilitate trade.     United States-Mexico-Canada Agreement. Supporting mutually beneficial trade resulting in freer markets, fairer trade, and robust economic growth.   Asia-Pacific Economic Cooperation. Formed to encourage a growing and prosperous reginal economy through: trade and investment liberalisation and facilitation, reduce costs of cross-border trade and economic/technical cooperation.   Association of Southeast Asian Nations. Political and economic union of 10 states in Southeast Asia. Brunei, Burma (Myanmar), Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam.600million combined populations. Accelerate economic growth, social progress and cultural development in the region and promote regional peace and stability through abiding respect and justice and the rule of law between countries.   Comprehensive and Progressive Agreement for Trans-Pacific Partnership. A trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Covers virtually all sectors and aspects of trade between member countries to reduce barriers and facilitate trade.   An intergovernmental organisation comprising of Brazil, Russia, India, China and South Africa. Seeks to establish deeper ties between member states and cooperate on economic expansion, including trade.   **Monetary unions:** - Members have a common currency and are run by a central bank - The central bank implements 1 monetary policy or 1 interest rate ***Protection*** ** reasons for protection -- infant industry argument, domestic employment, dumping, defence** **Protection** is when governments impose policies that give domestic producers an artificial advantage against foreign competitors. - Protect Australian small business against foreign competition   Protection is done via: 1. Making imports more expensive and less attractive 2. Making local goods cheaper and more attractive   ARGUMENTS FOR PROTECTION = ARGUMENTS AGAINST FREE TRADE   **Arguments for trade protection:** 1. Prevention of dumping: - Dumping is when foreign firms sell surplus goods in the domestic market at super low prices, leaving domestic firms unable to compete - This leads for domestic businesses to be forced out of the market and unemployment increases. - Governments implement protection to prevent dumping **Dumping is the only justification for protectionism accepted by economists.** 1. Infant industries: - New firms need to build the economies of scale to compete against large firms - Protection can \"buy\" these firms the time to become internationally competitive 1. Domestic employment: - Foreign goods tend to be cheaper than what we produce domestically, but with protection domestic prices become cheaper - Therefore consumers buy Aussie goods over foreign ones - Aussie firms have to maintain output to meet demand - Protection preserves domestic employment - Without protection, Aussie firms couldn't compete, firms would shut down and unemployment would rise. - **Economists disagree with domestic employment because:** - It distorts the allocation of resources - Long term protection detract growth and employment - These businesses don\'t contribute much to productivity, export revenue or economic growth - Also don\'t grow so employment doesn\'t grow  1. Self sufficiency: - Some governments initiate protection to ensure the economy can meet its own needs without any help. - Such as making own defence machinery/weapons - in a war can\'t reply on other countries. 1. Environmental and ethical factors: - This can include discouraging imports from countries that support unethical practises such as forced labour or environmental exploitation   **ECONOMISTS DON\'T LIKE PROTECTION AS IT PREVENTS INDUSTRIES AND ECONOMIES FROM REACHING THEIR FULL POTENTIAL** ** methods of protection and the effects of protectionist policies on the domestic and global economy -- tariffs, subsidies, quotas, local content rules, export incentives** **Tariffs:** tax on imports. - The tariff is added on top of the price of the imported good - This makes foreign products more expensive, while domestic goods stay the same price - Therefore consumers buy the cheaper Australian goods   - With tariffs less units are imported so less money is lost to foreign industries - Imports are the distance between Q3 and Q2 - By using tariffs: - Domestic supply increases - Employment increases - The government earns revenue - may fund education, infrastructure, ect. - Tax revenue = tariff x quantity of imports - Cons of tariffs: - Keep inefficient firms operating - prevent an efficient allocation of resources - Consumers pay more for goods and services - May invite retaliation from other countries \-\--\> export losses may cancel out tariff benefits   **Quotas:** a restriction on the amount of a good or service that can be imported - Large tariff = large tax on imports = more protection - Large quota = more imports allowed = less protection - Quotas are: - Bad for productivity and efficiency - May invite retaliation from foreign firms - But quotas don't raise any government revenue   **Local content rules:** states that a certain percentage of products must be produced locally   **Red tape:** when the government implements regulations to discourage importing      **Subsidies:** cash payments given by the government to producers - Directly support Aussie industries - Firms can cut production costs and produce same amount at a lower price.       **Export incentives:** incentivising firms to export: - May be via loans or business advice - Makes it easier for domestic firms to harness overseas markets   ***Globalisation and economic development*** ** differences between economic growth and economic development** ** distribution of income and wealth** ** income and quality of life indicators** There is inequality in the global economy.   **Economic growth:** an increase in the value of goods and services that an economy produces over a period of time. - Measured by looking at increases **in real GDP** - \'real\' accounts for effects of inflation - Governments want a sustainable rate of economic growth \-\-\--\> more is being made and higher living standards - Some economies have higher growth rates than others - so cant compare economic welfare because: 1. Differing prices and currencies mean one currency can\'t accurately capture the GDP of different countries 2. Varying population size means that the same level of GDP can lead to different quality of life - We look at GDP per capita to measure economic quality of life - GPD per capita = GPD/population      **Economic development:** measure of quality of life (welfare): - Measured by Human Development Index (HDI). Which is measured by 1. Life expectancy at birth - reflective of health standards within an economy 2. Educational attainment - expected and actual years that people within an economy attend school 3. Gross national income per capita - how much individuals would receive if national income were split evenly ** developing economies, emerging economies, advanced economies** +-----------------------+-----------------------+-----------------------+ | **Advanced** | **Emerging** | **Developing** | +=======================+=======================+=======================+ | - Most developed | - High economic | - Lowest level of | | | growth rate - | development | | - High per capita | between 5-10% but | | | incomes | sometimes higher | - Growth rate | | | | varies | | - Lower levels of | - Incomes are low | | | economic growth | but growing | - High population | | \--\> already | | growth | | grown, advanced | - Large | | | tech | manufacturing | - Low per capita | | | industry | incomes | | - Often have | | | | sizeable services | - Popular with | - High incidence of | | industries - | investors due to | poverty | | finance and | higher than | | | education | average returns | - Large ag | | | | industries | | - Sometimes feature | - Shift of power | | | niche | towards larger | - May manufacture | | manufacturing - | emerging | cheap consumer | | medical equipment | economies | goods | | | | | | - Higher levels of | - Development tends | - Foreign aid is | | development - | to be low | vital | | high health | | | | stats, quality | - Although high | - Key development | | education is | growth may drive | indicators are | | widely available | development | low | | | | | | - High quality of | | - Living standards | | life | | are poor | | | | | | | | - HDI\'s below 0.5 | +-----------------------+-----------------------+-----------------------+ A chart of different types of industry Description automatically generated with medium confidence ** reasons for differences between nations** **Global causes:** 1. Trade flows: - Trade is a crucial part of wellbeing - economic revenue drives economic growth and imports provide access to products otherwise not available - Access to trade is a huge determinate of wealth - Protection poses a problem to developing economies - Some advanced economies have high levels of protection \--\> producers in developing economies lose export revenue and markets - Trade agreements - dominated by developed economies - poor economies miss out - Developing economies miss out on increased trade but may also be disadvantaged by protection implemented against non-members - The round of WTO negations designed to support developing economies failed - advanced economies refused to cut protection in lucrative areas such as ag and pharmaceuticals 1. Financial flows and investment: - Investment tends to be directed towards emerging economies - Developing economies face significant debt burdens - Meaning money must be directed towards repaying previous financial obligations rather than productive and growth driving activities like industry expansion and infrastructure - High levels of debt make investors not want to invest 1. Foreign aid: - - - a. b. - - 1. Technology: - Technology is more readily absorbed in richer economies that have the infrastructure and skilled workers to implement new tech - New technology is costly to implement often due to expensive intellectual property rights - If poorer economies can\'t afford to bring in new technology, they will slip further and further behind advanced economies   **Domestic causes:** 1. Allocation of resources: - Factors of production - land, labour, capital, enterprise are essential - Some economies have more natural resources than others \--\> can produce and export more - Richer economies have better educated and skilled workforces - Labour forces in poorer economies have lower levels of education and training - Access to capital is inconsistent between economies - Richer economies tend to have higher levels of saving, so more capital available to borrow - Some economies have stronger entrepreneurial cultures than others. 1. Institutions: - Political instability can undermine investor confidence - capital flows are diverted to where risks are lower - Corrupt governments may misspend aid or tax revenue ** effects of globalisation** **Economic development** - Globalisation has driven improvements in economic development such as UN and the World Bank **Income inequality:** - Gotten worse due to globalisation - Income inequality within economies has worsened - Income inequality in advanced economies is the highest it\'s been in decades - In developing and emerging economies income distribution is worsening due to varying production and investment **Economic growth:** - No evidence that globalisation has boosted overall economic growth - Emerging economies have experienced high growth rates but global growth have actually fallen in recent decades ** trade, investment and transnational corporations** **Trade:** - Globalisation has driven huge growth in trade flows - Economies specialise more, focusing production where they\'re most efficient and have a comparative advantage \-\-\--\> because of this economies are exchanging goods and services more than ever before - Shift from small domestic firms to huge TNCs   **Investment:** - Deregulation of financial markets \-\--\> leads to easy flow of investment across borders - This is useful for countries with low savings rates and therefore not a lot of domestic funds for borrowing - Investment is important for emerging economies who need large capital inflows to sustain high economic growth ** environmental sustainability** **Environmental sustainability:** - Globalisation has had a negative impact on the environment    - Globalisation allows governments to collaborate on solutions to environmental issues through international agreements   ** the international business cycle.** **The business cycle:** - Globalisation has seen the convergence of individual business cycles into an international business cycle - Growth rates in economies are increasingly influenced by what\'s going on in other economies - This convergence leaves economies vulnerable to downturns in other economies ***Case study*** **Undertake a case study of the influence of globalisation on an economy other than Australia, including an evaluation of the strategies used to promote economic growth and development in this economy.** **\ **HSC Topic Two -- Australia's Place in the Global Economy 25% of indicative time The focus of this topic is an examination of Australia's place in the global economy and the effect of changes in the global economy on Australia. **Outcomes** A student: H1 demonstrates understanding of economic terms, concepts and relationships H2 analyses the economic role of individuals, firms, institutions and governments H4 analyses the impact of global markets on the Australian and global economies H5 discusses policy options for dealing with problems and issues in contemporary and hypothetical contexts H7 evaluates the consequences of contemporary economic problems and issues on individuals, firms and governments H8 applies appropriate terminology, concepts and theories in contemporary and hypothetical economic contexts H9 selects and organises information from a variety of sources for relevance and reliability H10 communicates economic information, ideas and issues in appropriate forms H11 applies mathematical concepts in economic contexts H12 works independently and in groups to achieve appropriate goals in set timelines. **Content** Students learn to: **Examine economic issues** assess the impact of recent changes in the global economy on Australia's trade and financial flows examine the effects of changes in trade and financial flows on Australia's economic performance analyse the effects of changes in the value of the Australian dollar on the Australian economy discuss the impact of free trade and protection policies on the quality of life in Australia propose likely changes to the structure of industry within Australia as a result of current trends in the global economy **Apply economic skills** calculate the main components of Australia's balance of payments analyse the relationship between the balance of the capital and financial account and the net income balance - explain the relationship between the current account balance and the balance of the capital and financial account - use supply and demand diagrams to explain how the value of a currency is determined under different exchange rate systems - analyse the impact of changes in the components of the balance of payments on the value of the Australian dollar Students learn about: **Australia's trade and financial flows** ***Value, composition and direction of Australia's trade and financial flows*** ** trends in Australia's trade pattern** ** trends in financial flows -- debt and equity** ***Australia's Balance of Payments*** ** structure** **-- Current Account, debits and credits** **-- Capital and Financial Account** **The balance of payments** is a record of Australia\'s economic transactions with the rest of the world over a period of time. - Shows all the money flowing in and out of the country. - Money flowing in is **a credit.** - Money flowing out is **a debit**.   **Categories:** +-----------------------------------+-----------------------------------+ | Current account (CA) | The capital and financial account | | | (KAFA) | +===================================+===================================+ | All non reversible transactions | Reversible transactions - can be | | | paid back when they are no longer | | | wanted | +-----------------------------------+-----------------------------------+ | - The balance on goods and | - Capital account (CA) | | services (BOGS) | | | | - Capital transfers to | | - records all export and | other countries | | import transactions | | | | - E.g. debt forgiveness | | - BOGS = net goods + net | | | services | - Exchange of non-produced | | | non-financial assets - | | - BOGS = exports - imports | something that isn\'t | | | money or a regular good | | - The net primary income | or service, but is still | | account (NPY) | valuable in some way. | | | | | - All earning on foreign | - Mostly intellectual | | investment through | property rights, like | | interest payments, rent, | patents and franchises | | profit and dividends | | | | - Financial account (FA) | | - When an Australian | | | invests overseas - | - Transactions related to | | incoming earnings are | investment. | | credit | | | | - Borrowing and lending of | | - If a foreign investor | money | | invest is Australia it is | | | a debit | - Purchasing and selling | | | assets | | - The net secondary income | | | account (NSY) | - Including direct | | | investment, portfolio | | - Records all non-market | investment, financial | | transfers | derivatives, reserve | | | assets and other | | - Financial support or | investment | | products provided without | | | anything specific in | - When someone invests | | return | money in AUS it is a | | | credit, AUS investing on | | - Payouts on insurance | foreign markets is a | | claims, workers | debit | | remittances, pensions to | | | Aussie residences, | | | unconditional foreign aid | | +-----------------------------------+-----------------------------------+   Current account = BOGS + NPY + NSY The capital and financial account = CA + FA   Credits \> debits = surplus Credits \< debits = deficit   Under a floating exchange rate system, the current account and the capital and financial account must = 0. ** links between key Balance of Payments categories** The current account + the capital and financial account = 0   Although they don\'t have to be exactly equal because of net errors and omissions, which we add to the KAFA to ensure BOP balances. For example:    The financial account records initial investments and the net primary income account records all returns on these investments. So what happens on the FA will affect the NPY - The more investment coming into the country, the more returns need to be paid out to overseas investors - So, the larger the FA surplus overtime, the larger the NPY deficit ** trends in the size and composition of Australia's Balance of Payments** **-- international competitiveness, terms of trade, international borrowing, foreign investment** **-- effects of these trends on Australia's Balance of Payments** **Factors influencing BOGS:** **Cyclical factors - fluctuate over time:** 1. Domestic economic growth - Higher economic growth \-\--\> higher household incomes \-\--\> consumers more able to buy goods and services - Domestic economic growth affects the amount spent on imports (BOGS debits) - 2. Global economic growth - Overseas economic growth rates influence Australia\'s export revenue (BOGS credit) - Increase in overseas growth \-\--\> improvement in BOGS, decrease in overseas growth \-\--\> deterioration of BOGS 3. Exchange rates - The value of one currency expressed in terms of another currency - When the AUD appreciates its more expensive for foreigners to buy Australian dollars and products - less internationally competitive = BOGS credit falls. But also becomes cheaper for Aussies to import from overseas = BOGS debits increase - AUD depreciation improves international competitiveness. Less expensive for foreigners to buy AUD and products - export revenue increases increasing BOGS credit 4. Terms of trade (TOT): - An index that measures the price movements in an economy\'s exports and imports -  -   **Structural factors - built into the economy:** 1. Narrow export base - Australia is competitive in the resources and minerals sector, but not in other sectors \-\--\> Australia can profit by exporting these resources, but it has to spend a lot importing goods it can\'t make = expensive manufactured goods such as cars, computers, ect. - = BOGS deficit due to high import spending   **Factors influencing NPY:**  Australia is a net capital importer - it receives more investment than it gives to other countries   **Cyclical factors:** 1. **Exchange rate:** - **When the AUD appreciates it gains value and can buy more foreign currency, whereas when it depreciates it loses value and can\'t buy as much foreign currency** 1. **Interest rates:** - **Returns due on loans are determined by interest rates** - **Interest rate repayments are charged on the NPY** - **Increases in foreign interest rates will worsen the NPY** - **Decreases in foreign interest rates will improve the NYP** 1. **Domestic economic growth:**   **Structural factors:** 1. **Savings-investment gap:** - **Australia has a low level of domestic savings but needs a high level of investment to power industries, firms and growth**   ***Exchange rates*** ** measurement of relative exchange rates** **-- to other individual currencies** **-- Trade Weighted Index** ** factors affecting the demand for and supply of Australian dollars** ** changes in exchange rates -- appreciation/depreciation** ** determination of exchange rates including fixed, flexible and managed rates** ** the influence of the Reserve Bank of Australia on exchange rates** ** the effects of fluctuations in exchange rates on the Australian economy** ***Free trade and protection*** ** Australia's policies regarding free trade and protection** ** Australia's multilateral and bilateral free trade agreements -- (overview of two examples of each type of agreement)** ** the implications of Australia's policies for individuals, firms and governments** ** implications for Australia of protectionist policies of other countries and trading blocs.** **\ ** HSC Topic Three -- Economic Issues 25% of indicative time The focus of this topic is the nature, causes and consequences of the economic issues and problems that can confront contemporary economies. **Outcomes** A student: H1 demonstrates understanding of economic terms, concepts and relationships H2 analyses the economic role of individuals, firms, institutions and governments H4 analyses the impact of global markets on the Australian and global economies H7 evaluates the consequences of contemporary economic problems and issues on individuals, firms and governments H9 selects and organises information from a variety of sources for relevance and reliability H10 communicates economic information, ideas and issues in appropriate forms H11 applies mathematical concepts in economic contexts H12 works independently and in groups to achieve appropriate goals in set timelines. **Content** Students learn to: **Examine economic issues** examine the arguments for and against increasing economic growth rates investigate the economic and social problems created by unemployment analyse the effects of inflation on an economy discuss the effect of a continued current account deficit on an economy investigate recent trends in the distribution of income in Australia and identify the impact of specific economic policies on this distribution analyse the economic and social costs of inequality in the distribution of income examine the economic issues associated with the goal of ecologically sustainable development **Apply economic skills** identify and analyse problems facing contemporary and hypothetical economies calculate an equilibrium position for an economy using leakages and injections determine the impact of the (simple) multiplier effect on national income explain the implications of the multiplier for fluctuations in the level of economic activity in an economy calculate the unemployment rate and the participation rate using labour force statistics interpret a Lorenz curve and a Gini coefficient for the distribution of income in an economy use economic concepts to analyse a contemporary environmental issue assess the key problems and issues facing the Australian economy. Students learn about: **Economic issues in the Australian economy** *Economic growth* aggregate demand and its components: Y = C+I+G+X--M injections and withdrawals (I+G+X; S+T+M) the simple multiplier: k = 1/(1--MPC) measurement of growth through changes in real Gross Domestic Product sources and effects of economic growth in Australia increases in aggregate supply -- improvements in efficiency and technology trends in business cycle *Unemployment* measurement -- labour force -- participation rate -- unemployment rate trends types and causes -- cyclical -- structural -- frictional -- seasonal -- underemployment -- hidden -- long term non-accelerating inflation rate of unemployment (NAIRU) main groups affected by unemployment effects of unemployment -- economic and social costs *\ Inflation* measurement -- headline and underlying trends causes -- demand inflation -- cost inflation -- imported inflation -- inflationary expectations positive and negative effects *External stability* measurement -- Current Account Deficit (CAD) as a percentage of Gross Domestic Product - - -- terms of trade -- exchange rate -- international competitiveness trends positive and negative causes and effects *Distribution of income and wealth* measurement -- Lorenz curve and Gini coefficient sources of income as a percentage of household income taxation, transfer payments and other assistance sources of wealth dimensions and trends, according to gender, age, occupation, ethnic background and family structure economic and social costs and benefits of inequality *Environmental sustainability* ecologically sustainable development private and social costs and benefits -- externalities, market failure public and private goods -- free riders environmental issues: -- preservation of natural environments -- pollution, climate change -- depletion of renewable and non-renewable resources. HSC Topic Four -- Economic Policies and Management 25% of indicative time This topic focuses on the aims and operation of economic policies in the Australian economy and hypothetical situations. **Outcomes** A student: H1 demonstrates understanding of economic terms, concepts and relationships H2 analyses the economic role of individuals, firms, institutions and governments H5 discusses alternative policy options for dealing with problems and issues in contemporary and hypothetical contexts H6 analyses the impact of economic policies in theoretical and contemporary Australian contexts H7 evaluates the consequences of contemporary economic problems and issues on individuals, firms and governments H9 selects and organises information from a variety of sources for relevance and reliability H10 communicates economic information, ideas and issues in appropriate forms H11 applies mathematical concepts in economic contexts H12 works independently and in groups to achieve appropriate goals in set timelines. **Content** Students learn to: **Examine economic issues** analyse the opportunity cost of government decisions in addressing specific economic problems or issues investigate structural changes in the Australian economy resulting from microeconomic policies apply economic theory to explain how a government could address an economic problem or issue in hypothetical situations analyse alternative ways to finance a budget deficit **Apply economic skills** explain how governments are restricted in their ability to simultaneously achieve economic objectives use (simple) multiplier analysis to explain how governments can solve economic problems identify limitations of the effectiveness of economic policies explain the impact of key economic policies on an economy propose and evaluate alternative policies to address an economic problem in hypothetical and the contemporary Australian contexts explain, using economic theory, the general effects of macroeconomic and microeconomic policies on an economy select an appropriate policy mix to address a specific economic problem. Students learn about: **Economic objectives in relation to:** economic growth and quality of life full employment price stability external stability environmental sustainability distribution of income *Potential conflicts among objectives* **Macroeconomic policies** rationale for macroeconomic policies -- stabilisation and shifts in aggregate demand *Fiscal policy* Federal Government budgets and budget outcomes effects of budgetary changes on resource use, income distribution and economic activity methods of financing deficits use of a surplus *Monetary policy* purpose of monetary policy implementation of monetary policy by the Reserve Bank of Australia impact of changes in interest rates on economic activity and the exchange rate **Microeconomic policies** rationale for microeconomic policies including shifts in aggregate supply, efficiency effects of microeconomic policies on individual product and factor markets, individual industries and the economy regulation and deregulation -- competition policy *\ Labour market policies* role of national and state systems the national system for determining -- minimum employment standards -- minimum wages -- awards -- enterprise agreements -- employment contracts for high income earners dispute resolution arguments for and against the use of centralised, decentralised and individualised methods of determining employment contracts education, training and employment programs National and global context for environmental management regulations market-based policies targets international agreements Limitations of economic policies time lags global influences political constraints **Policy responses and their effects in dealing with the economic objectives** economic growth and quality of life full employment price stability external stability distribution of income environmental sustainability.