International collaboration and globalisation
Your Policy Brief needs to consider the ways that the Australian economy is part of the Asian-Pacific region and connected to the rest of the world. Your team is analysing the ways that countries interact with each other for the purpose of elevating economic prosperity and overall wellbeing.
a) Explain what is meant by the term ‘globalisation’ and what is the link between globalisation and wellbeing? (2-3 sentences)
b) As the world looks to recover from the COVID-19 pandemic, give some examples of the ways that international collaboration and co-operation are important for the global recovery? In what ways has international collaboration been under threat during the pandemic, and what policy arrangements and institutional settings can help to ensure that countries continue to co-operate with each other in the future? (2-3 sentences)
c) The Australian Trade and Investment Commission (Austrade) reports on Australia’s trade patterns with the rest of the world, as illustrated in the map below. In its 2021 Benchmark Report, Austrade noted that “12 of Australia’s top 15 export markets are in the Asian region. China remained Australia’s largest trading partner in 2020, accounting for around 31% of total two-way trade. Japan and Korea continue to be important trade partners, representing around 13% of total trade.”
Source: Austrade, Benchmark Report 2021 https://www.austrade.gov.au/benchmark-report/global-ties (Accessed 1 September 2021).
Much of Australia’s exports with these Asia-Pacific countries include commodities such as iron ore, coal and agricultural products, but also include services such as tourism and international education. When Australia’s international borders reopen and visitors from China, Japan and South Korea can travel to Australia again, what do you predict will happen to the value of the Australian dollar, and why? (2-3 sentences)
a) Your team of economists is constantly monitoring economic conditions around the world, on the lookout for any potential economic shocks that could disrupt the global economy. In recent weeks, your attention has been focused on the UK economy which has been experiencing multiple economic challenges: shortages and price rises in fuel; shortages in transport workers due to the consequences of Brexit; and large disruptions to supply chains that are preventing the transportation of many essential products.
Visually illustrate this shock to the UK economy using the following AD-AS diagram. For simplicity, assume that the economy is initially at Y*.
Imagine that your economist colleagues working at the Bank of England have contacted you to ask for your economic advice. Australia has recently signed on a new trade deal with the UK and it is in Australia’s interest for the UK economy to restrengthen. What ‘doubly problematic’ macroeconomic concerns would you alert them to in relation to this type of economic shock? (1-2 sentences)
The Bank of England is trying to figure out the most appropriate monetary policy response in this situation. Your colleagues inform you that they are concerned about unemployment, but even more concerned about inflation. What monetary policy prescription would you recommend? (2-3 sentences)
Adding on what you have already illustrated in your AD-AS diagram, illustrate what would happen to the UK economy if they adopt your policy advice. Use the bullet points to explain each step Be sure to show the final effect on Output and Price Level, relative to your starting equilibrium.
Illustration of the economic shock on the UK economy and your recommendation for the Bank of England’s monetary policy response
Use these bullet points to firstly explain the shock being experienced by the UK economy, followed by an explanation of your policy advice to the Bank of England. Be sure to refer to every element on your AD-AS diagram:
