Home > Economics > The global economy > The international business cycle
This tutorial was written by Ken Edge
Head Teacher HSIE
Cardiff High School
Outcomes
Overview
Content
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HSC topic: The Global Economy is covered in the Board of Studies NSW Stage 6 Economics Syllabus (1999) on pages 31-33. The specific outcomes for this tutorial are:
| H1: | demonstrates understanding of economic terms, concepts and relationships. |
|---|---|
| H3: | explains the role of markets within the global
economy.
|
| H4: | analyses the impact of global markets on the Australian and global economies. |
| H8: | applies appropriate terminology, concepts and theories in contemporary and hypothetical economic contexts. |
The tutorial describes the characteristics of the international business cycle and relates these to current World Output figures (Real GDP). Global economic events are analysed to explain some of the patterns and trends in the business cycle.
This tutorial is based on 2002 information and this should be kept in mind as you read it. Students of Economics need to be aware of what is happening now and what has happened recently, in respect to the international business cycle.
After completing this tutorial you may wish to do some research on the current situation by visiting the websites listed under 'MORE' at the bottom of this page.
The global economy, like any economy, is affected by regular and recurring fluctuations in the levels of economic activity. If a country’s economy is experiencing a boom or recession its domestic demand for goods and services can be affected. The combined effects of the level of economic activity of individual countries will in turn affect the global economy.
The periodic and irregular expansions and contractions in world output can be measured by changes in real world GDP.
Characteristics of the phases in the business cycle:
Historically there is a strong relationship between the business cycles of the world economies. To identify a global recession is a difficult task, even when they are occurring. This is why most recessions are not determined until after the economic event has taken place. Gross world product (GWP) tends to go through upswings, booms, downswings and troughs.
Graph 1
Factors that can affect the level of global economic activity
The following graph indicates the growth patterns in world output (series 1) over the past decade. Australia’s real GDP growth figures are indicated by series 2.
The variations in growth figures can be linked to the international business cycle and the changes in levels of world economic activity (Real GDP).
Graph 2
Table 1
The growth figures for Advanced and Transition economies
Note:
The percentage changes in graph 2 and Table 1 were
calculated using PPP (purchasing power parity) weights
which compares the relative prices of goods and services
in different nations.
The Asian Economic Crisis is an example of how events in a region of the world can impact on the international business cycle.
It took place during the later part of the 1990s and caused economic hardship in many Asian economies. In 1997 there was concern about the growing current account deficit (CAD) in Thailand. The government floated the Thai baht to try and stop the outflow of capital. This precipitated a large depreciation of the Thai currency.
The impact of the depreciation was also felt in Korea and Indonesia, where currency traders slashed Korean and Indonesian currency values. Many Korean and Indonesian companies could no longer afford to pay for imports and many closed their doors. This caused millions of workers to lose their jobs.
The International Monetary Fund (IMF) had to provide emergency funds to help stabilise these economies. Within two years a number of these economies had recovered from the crisis.
During 2001 there was a slowdown in global growth from the very high rates of late 1999 and early 2000. By the end of 2000 global economic activity, particularly in the United States, had weakened and the Japanese economy was stalling in recovery.
This was partly due to the tightening of monetary policy in the USA to dampen the high rates of growth in late 1999. The Japanese economy also slowed, indicating weaker consumer confidence, slowing business investment and weakening export growth.
Other factors which may have led to a slow down in the growth of domestic demand and weaken consumer and business confidence in the global markets include:
Use the tables, graphs and global snapshots in this section to answer the following questions.
The United States stock exchange technology index (NASDAQ
) has some interesting information
on recent trends.
Various organisation post information on the internet on
recent trends in the international business cycle and a
google search including the current year will bring several
sites, including the following National Australia Bank Site
which includes a
Global Overview October 2004 ![]()