International Trade and Free Trade

This assignment delves into the concepts of international trade and free trade. It explains how countries engage in the exchange of goods, services, labor, and capital across borders. The text highlights the advantages of international trade, such as lower production costs and increased consumption choices. It also discusses free trade, where goods flow between nations without restrictions or tariffs, illustrating its potential to foster economic relationships. However, it acknowledges that free trade can sometimes lead to price increases for domestic products due to competition from international imports.

Gross Domestic Product (GDP)

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1.1 Comparing the welfare of Australia and UK by using GDP per capita income and HDI.. . .1
2.1 Criterion used by the firms to undertake investment expenditure........................................2
3.1 International trade and free trade..........................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Gross domestic product or GDP is the monetary measure of the market value
of the final goods and services produced in the country in the financial year or on
quarterly basis. GDP normally measure the economic performance of the country in
according to its performance last year or performance of the other country. However,
GDP does not measure the cost of living and the inflation rate of the countries so it is
not a good base of the measure of the welfare of any country.
1.1 Comparing the welfare of Australia and UK by using GDP per capita income and HDI.
Australia's GDP
In the year 2016 the GDP of Australia was about 1204.62 billion US dollars
and it represents worlds 1.94% that of world economy. While it was about 1345.38
billion dollars in the year 2015 which fell by about 0.80% in 2016 (GDP of
Australia, 2017). The GDP per capita which means the GDP income divided by the
number of people in the country and is useful in comparing with the other country as
it shows the relative performance of the countries. The GDP per capita of Australia
was about 49,927.82 USD in 2016 with its population of 24.13 million in 2016.
UK's GDP
The GDP of UK in the year 2016 was about 2618.89 billion USD and was
about 2861.09 USD in the year 2015 with a growth rate of about 0.30% (GDP of
UK, 2017). The GDP per capita obtained by dividing the total number of population
which is about 65.64 million in 2016, with the adjustment of inflation rate was about
41602.98 in 2016.
As the cost of living in Australia is low and the population is also low in
comparison to UK so the GDP per capita of Australia is more than UK. Australia is
experiencing continuous growth, also low unemployment very low public debt and a
strong and stable financial system.
Australia's HDI
Australia ranked second in the world economy in the UN report of 2016 in
terms of the living standards and the life expectancy behind Norway. The nations
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HDI was measured at 0.935 out of one (Bahmani‐Oskooee and Mohammadian,
2016). The people in Australia have a low cost of living a decent standard of living
and also higher education level.
UK's HDI
UK ranked 16 in the world economy in the UN report of 2016 with the index
of 0.909 out of one. And is not considered better form Australia's HDI.
2.1 Criterion used by the firms to undertake investment expenditure.
Investment expenditure is the total amount a firm plans to spend on the goods
and services at each level of income. The investment made by the firm is mainly the
capital expenditure which it spends on the purchase of new machinery or factories,
the human capital expenditure and the inventory investment. The investment
expenditure is also measured on aggregate expenditure and used to measure the
national income of the country (Cumming and Johan, 2016.). Is the total of all the
money or value spending on the goods and services which include the household
expenditure, planned expenditure, all the spending made by the government and the
net exports made by the economy in the financial year.
Aggregate expenditure is defined as AE=C+Ip+G+NX
where C = household expenditure
Ip= planned investment
G= government expenditure
NX= net exports i.e. exports-import
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(Source: Investment and economic growth, 2017)
The expenditure on the investment will grow the GDP of the Australia as it
increased it by 1.1% in the March quarter of 2016 export by 1% and household by
0.5%. If in an economy the aggregate expenditure increases then the GDP will also
increase, it depicts the development of the economy (Harding and Pritchard, 2016).
As in the above diagram upward shift of AD is seen, which is the aggregate
expenditure or aggregate demand because the GDP of Australia has been increased
in the March quarter of 2016 as the AE increased.
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(Source: Investment and economic growth, 2017)
The investment expenditure of UK was recorded with a fall of 0.8% with the fall in
the GDP by in the March quarter of 2016 after the Brexit referendum but business
expenditure raised by 0.5%. The economic growth of the March quarter was only
0.6% and the exports also remained weak for the said quarter for UK economy. The
downward shift of the AE curve shows decrease in GDP of UK in march quarter of
2016.
3.1 International trade and free trade.
The international trade is exchange of goods and services, capital across the
borders and the territories of a country with whole world. It includes all the exports
and imports of a nation with the world and GDP forms a significant part of this
international trade (Pham, Nghiem and Dwyer, 2017). If the country is capable of
producing a good and that good cost it less than it should produce it and export it to
other country not producing that good. As without international trade a country
would be having very less to consume within its own border and also will not be
participating in the international trade. International trade not only include the
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exchange of goods and services but also include the labour and capital exchange. It
involves all the movable goods which can be exchanged on the basis of money or of
any value.
Free trade means the exchange of all goods and services form one country to
other without any restriction or rules implied on exports and imports. Free trade is
seen in the European economic area and the Mercosur which have established open
markets in these economies. Generally, the governments impose tax on the exported
or imported goods as trade generate more revenue to the nations. Free trade increases
the price of domestic products as international goods are freely traded in the
economy. So, the people of country does not prefer domestic products because of
high price of goods and international goods being available at a low price. Free trade
is important for better relationship with other countries as there are no restriction
applied on the goods exchanged.
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REFERENCES
Books and journals
Bahmani‐Oskooee, M. and Mohammadian, A., 2016. Asymmetry effects of exchange rate
changes on domestic production: evidence from nonlinear ARDL approach.
Australian Economic Papers. 55(3). pp.181-191.
Cumming, D. and Johan, S., 2016. Venture’s economic impact in Australia. The Journal of
Technology Transfer. 41(1). pp.25-59.
Harding, A. J. and Pritchard, C., 2016. UK and twenty comparable countries GDP-
expenditure-on-health 1980-2013: the historic and continued low priority of UK
health-related expenditure. International journal of health policy and management.
5(9). p.519.
Pham, T. D., Nghiem, S. and Dwyer, L., 2017. The determinants of Chinese visitors to
Australia: A dynamic demand analysis. Tourism Management. 63(1). pp.268-276.
Online
Investment and economic growth. 2017. [Online]. Available through:
<https://www.economicshelp.org/blog/495/economics/investment-and-economic-
growth/>. [Accessed on 11h October 2017].
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