Economics are essentially the study of how groups produce, consume or transfer wealth or resources. For many American paying attention to the economics of their country is a natural every day thing that they do. However to truly understand economics it is important to pay attention to it- not just on a national scale- but a global scale as well. Global economics focusses on what the entire world’s economy is doing and analyzes the different trends to find the crucial connections between world economies.
A Few Terms to Know With Global Economics
It may be helpful to know a few important terms that go hand and hand with understanding global or national economics:
- Microeconomics is the study of economics on a very small scale, such as focusing on a business.
- Macroeconomics is the study of economics on a large scale, focusing on national aspects.
- Gross Domestic Product or the GDP is the value of goods and services produced by a country annually.
- Inflation and Deflation– Inflation occurs when the cost of goods and services rise, and deflation is when those prices decrease.
- Opportunity Costs represent the potential loss a person or business may face when checking out options.
- Imports and Exports– Imports are the amount of products a country buys from outside of their nation, while exports are the amount of goods sold to other countries (usually expressed in annual terms)
- Unemployment Rate– The amount of people in a country seeking employment/ without employment.
- Tariffs are taxes put on goods entering and leaving or entering a country’s borders.
- Exchange Rate is the value of currencies when converting one type of money to another.
- Globalization is the process in which businesses develop on an international scale- in other words businesses moving and operating across the globe.
- Trade Liberalization is the reduction or elimination of trading barriers/restrictions between countries.
Globalization and Global Economics
Globalization is a very controversial issue because some feel as though it is developed countries taking advantage of less developed countries. And some of this criticism is warranted-as globalization does have real effects on lesser developed countries. Globalization can be devastating for locals where a large corporation/ business takes over. It can impact everything from the gross domestic product of a nation to the ability of a country to develop its own economy.
However in terms of business and capitalism globalization carries many positive connotations, as it can increase profit for a company, and create job growth. It also played a very big role in spreading cultures across the world and connecting global economies. No matter what opinion you have about globalization, it a central part global economics and gave birth to international trade.
NAFTA, EU, WTO and Global Economics
When it comes to developing and sustaining global economies- there is one major agreement and two organizations who are key players.
The North American Free Trade Agreement (“NAFTA”)
NAFTA is a trade agreement signed by the countries who make up both South and North America- Canada, the United States and Mexico. The agreements main focus is to increase the amount of trade that happens throughout the continent. NAFTA controls and regulates these giant economies.
The European Union (EU)
The EU is an organization made up of presently twenty eight European countries. Its aim is to improve the economy through cohesion. In 2002 the EU introduced and implemented the euro for currency across all of its countries. This greatly improved European economies, and pretty much eliminated any tax tariffs for trading within Europe for the countries involved.
The World Trade Organization (WTO)
The WTO is an organization that involves almost all the countries in the world, its goal is to improve the state of global economics by practicing trade liberalization. The WTO is in charge of negotiating trade agreements between several countries. This organization plays a huge role in global economics.
What Factors Impact the Economics of a Country?
There are a few factors that impact the economics of a country:
- Natural and Human Resources- Natural resources include things like oil, minerals, water, trees, all of which can be cultivated for economic growth. Human resources mean the contribution of each person in a country through their skills, education or creative abilities.
- Social and Political Factors- These are a major part of a country’s economic growth. These are the values, belief and systems in which a country operates- and these systems can be limiting or help with increasing economic growth.
- Technology- How technologically developed a country is can impact every part of the economy and trading process. Countries with more technological advancements and developments do better economically than those countries without.
- Standard of Living- If each individual of a country has access to things like food, water, living wages, transportation, education, communication, a place to live etc. it turns out they contribute more to the countries economy, places where the standard of living is higher tend to have better economies.
When it comes to global economics 101 it is important to know; some important terms, know about the key organizations that contribute to maintaining a global economy, and the factors that impact any country’s economy. The economics of a country are important because they give a glimpse into not only the financial aspects of a country- but also a glimpse into the state of the people who live there.