Khin Maung Nyo (Economics) - Introduction to the World Economy

Introduction to the world economy

Randy Charles Epping-A beginners guide to the World Economy

The world economy is

What is the world economy?

We are part of the global economic fabric in many ways. When we drink imported coffee in the morning, when we turn on a foreign record player and listen to music, when we travel abroad on vacation, we are involved in the growing world of international trade and finance.

As part of the global economy, we are not simply consumers of national goods and services. The income from global investments, from university endowments to pension funds, from universities to funds to pay for retirement, are all part of the global economy. Food imports, automobile exports, international investments, services such as movies, tourism, etc., all contribute to the international economy of the country concerned.

2. How wealth is determined around the world

( How is wealth determined around the world?)

The wealth of a country can be measured by looking at its citizens. But what numbers should we rely on? Would Kuwaitis be said to be rich because they earn more than Brazilians? Would the French be said to be richer because they have more telephones per household than the Japanese? Would the Italians be said to be richer because they have more savings than the Americans?

There are many ways to measure wealth. Each country has its own unique set of statistics. Most economists measure wealth by how much a person owns, such as stocks and land. But many people measure how wealthy they are by their income, their salary.

Comparing salaries in different countries is like comparing apples and oranges. This is because salaries in different countries are not paid in the same currency. Is a French salary of 500,000 French francs worth more than a Canadian salary of 100,000 Canadian dollars? We need to convert these individual incomes into a common measure.

One way to convert salaries is to first compare the values ​​of those currencies. This is often done using foreign exchange rates. Foreign exchange rates measure the value of one currency in terms of another. Foreign exchange rates are set by foreign exchange markets around the world. These rates reflect the market's view of the economy and political system of a given country. Foreign exchange rates can be used to convert a salary in yen for someone living in Tokyo into dollars. This can be used to compare a salary in US dollars for someone living in Los Angeles, USA.

But how much can those salaries buy? The cost of living varies from country to country. So it's difficult to compare using exchange rates. For example, a McDonald's hamburger and a two-bedroom house are three times more expensive in Tokyo than in Los Angeles, but just because Japanese wages are higher doesn't mean Japanese workers are richer than American workers.

Therefore, it is important to look at how much money can buy in each country. The purchasing power of a dollar is how many goods and services can be purchased with that money. By comparing the costs of goods and services, a more reliable foreign exchange rate is obtained by grouping together a basket of goods, such as housing, haircuts, food, movie tickets, etc., and measuring their costs. This rate is called the purchasing power parity (PPP) exchange rate.

The real exchange rate PPP can be used to compare the real value or purchasing power of wages in one country and another. While a citizen of one country may be richer in terms of traditional foreign exchange rates because they own more and earn more than another citizen, what matters is what that person does with that wealth in the long run.