The Global Economy

The economy without borders

No country makes everything it needs on its own. Instead, countries buy and sell goods and services across the world, and this trade shapes daily life more than most people notice: the phone in your pocket, the fruit on your table and the fuel in the bus may each come from a different continent. This module looks at how the global economy works. It covers why countries trade at all, and how goods flow between them; how the value of one currency against another sets the cost of anything bought abroad; how large companies now operate in many countries at once; how groups of nations join together to trade more freely; and how we judge whether a country is developing and its people are becoming better off. Throughout, trade policy is treated as a set of choices with winners and losers, not a settled matter.

Global economy words

Learn these terms before the trade ideas are matched up. They name the ideas used in this topic.

Match each trade term to its meaning

Free trade against protection

Countries must decide how open their markets should be, and the choice is a genuine trade-off.

What kind of company is this?

A business has factories, offices and shops in fifteen different countries at once. What is it best described as?

• A multinational company
• A monopoly
• A trading bloc
• A charity

Why countries trade

At the heart of the global economy is a simple idea: countries are better off when each makes what it is best at and buys the rest from others. A country with a warm climate can grow fruit cheaply, while one with skilled engineers can build machines cheaply. If each concentrates on its strength and sells the surplus abroad, both end up with more than if each tried to do everything at home. This is why even a country that could make a thing for itself will often buy it in from abroad instead, freeing its own workers for tasks where they add more value. Trade also gives shoppers a wider choice and pushes firms to improve. The gains are real, though they are not shared equally, which is why trade is argued about.

Pick the true facts about global trade

Select every statement about the global economy that is true.

• Countries gain by making what they are best at
• Trade widens the choice available to shoppers
• A multinational operates in more than one country
• Every country should make everything itself
• The gains from trade are always shared equally

Order how a product crosses the world to you

Put the stages of a product reaching you from abroad into a sensible order.

• A firm abroad makes the goods
• The goods are shipped across the world
• They pass through customs and any tariff
• A local shop buys them in
• You buy the product

Complete the global economy facts

Goods a country sells to other countries are called _____. Goods a country buys in from other countries are called _____. The price of one currency in terms of another is the _____ rate. The way national economies have become closely linked and dependent on one another is called _____.

Tap the two effects of a tariff

A tariff is a tax on goods from abroad. Tap the TWO things a tariff does.

• raises the price of foreign goods
• protects some local jobs
• makes foreign goods cheaper
• widens the choice for shoppers

Two neighbours who swap

Picture two neighbours. One has a garden full of apple trees but no hens; the other keeps hens and gathers eggs but has no fruit. Each could try to have both, but the first would struggle to raise hens and the second would wait years for an orchard. Instead they strike a deal: the gardener hands over a basket of apples, the hen-keeper hands back a box of eggs, and both go home with a fuller table than either could manage alone. Neither is worse off, and both are better fed, simply because each did what their own plot was suited to and traded the rest. Whole countries behave in the same way, concentrating on what their land, climate and workers do best and swapping the surplus with others.

Work out the euros

A tourist changes 100 pounds into euros. The exchange rate is 1 pound to 1.2 euros. How many euros do they receive? Give the number only.

Advise on a global trade choice

Read each situation and choose the best answer.

• A government wants to protect local carmakers from cheaper foreign cars. What could it place on those imports?
• The value of the pound falls against other currencies. What happens to goods sold abroad?
• You want to judge whether a country is developing and its people are better off. What could you measure?

Build a global economy point

Choose the word for each gap to complete one point about the global economy.

Explain the global economy

A friend asks how the global economy works. Using what you have learned, explain the main ideas and weigh up trade fairly.

• Explain why countries trade rather than making everything themselves
• Explain the difference between exports and imports
• Explain what an exchange rate is and why it matters
• Explain what globalisation and multinational companies are
• Weigh up one benefit and one drawback of free trade