GLOBAL ECONOMY WORKSHEET Open the spreadsheet to explore information about the s
ID: 1165096 • Letter: G
Question
GLOBAL ECONOMY WORKSHEET
Open the spreadsheet to explore information about the size of the world’s economies. Most of the data is organized by country, although it’s also interesting to consider the European Union as a whole, since the EU is the most integrated economic institution across national borders.
1. Since you may not spend a lot of time thinking about the European Union, let’s take a moment to find out who’s in and who’s not in the EU at the moment. What countries are currently in the EU? List all of them and put an asterisk by any member countries who do not use the euro as their currency:
2. Not every European country is part of the EU. List at least 5 European countries that are not part of the European Union:
By far the largest national economies (measured by GDP) are those of China and the U.S., so let’s begin with a comparison of these two giants. Look at the first tab on the spreadsheet.
Note: Since countries use different currencies, some conversion has to be done to be able to make meaningful comparisons. There are two basic methods: we can either use the “official exchange rate” method or the “purchasing power parity” method (PPP for short). Exchange rates are easy and appropriate for some situations, but can also be misleading. For example, a “strong dollar” might tend to overstate the GDP of the U.S. relative to other countries, especially in the developing world. Instead, most economists would recommend using the PPP method, where we ask, “if the goods and services in country X were sold in the U.S. at American market prices, what would be their value?” We will generally follow this method, although the calculations have all been done for us already by the World Factbook.
Based on official exchange rates, U.S. GDP is considerably larger than China’s, but based on purchasing power parity, the Chinese economy is already larger than the U.S., and is continuing to grow more quickly than the U.S. economy. The first tab on the spreadsheet gives you information comparing the U.S. and China on the left, and then uses this information in the columns to the right, where you can project what GDP, population, and GDP per capita (or per person) in each country will be year by year. Wherever you see highlighted figures, you can change the assumed rates to see the impact over time in the tables, in each tab in the spreadsheet. You can use this feature to see the results, for example, of assuming different rates of GDP growth. The initial assumptions are based on the most recent growth rates.
3.
If China and the U.S. continue to grow at current rates, when will the Chinese economy be twice the size of the U.S.?
If China and the U.S. continue to grow at current rates, when will the Chinese economy be three times the size of the U.S.?
Do you think the Chinese economy will in fact become two or three times larger than the American economy? Why?
If U.S. growth increases to 3% and Chinese growth slows to 5%, does that significantly alter your forecasts?
The U.S. would be generally considered a “rich” country. Is China also a rich country? Why or why not?
If and when the Chinese economy becomes significantly larger than the U.S. economy, how do you think that will impact the overall global economic and political environment, if at all?
Do you think the growing Chinese economy presents more threats or opportunities to American businesses? Why?
Just a few years ago (around 2012, as I recall), many global investors were very excited about the prospects for excellent returns from investing in the BRIC countries – Brazil, Russia, India, and China. Go to the World Factbook website, find each country’s entry, and read the overview provided under the “Economy” section for each country. Then look at the BRICs tab on the spreadsheet as well. Which of these countries have lived up to the hype about rapid economic growth and investment potential? Which have not? How would you assess the potential for each of these countries today?
Now take a look at the World Economies and Charts tab – one of my favorites! I’ve used three year average growth rates and projected out to 2030 for the major economies of the world, and the world as a whole. The charts show the fraction of global output produced by each country (and the EU as a whole). Note a couple of things: (1) Half of all global production occurs in the U.S., China, and the European Union currently – these three entities dominate the global economy; (2) given recent growth rates, the U.S. and the EU will continue to represent similar shares of global GDP, but both will shrink relative to China; and (3) India will eventually rise to become a fourth dominant influence in the global economy. You can extend the projections out further by changing the year, and you can also try different growth rates for different countries to see the impact that changing trends could bring.
Using these data and your best forecasting imagination, what significant changes do you see coming to the global balance of economic power in the next few decades? Identify and briefly explain at least three changes or trends you expect to see.
Explanation / Answer
1) MEMBERS OF EUROPEAN COUNTRIES -
2) EUROPEAN COUNTRIES WHICH ARE NOT PART OF EUROPEAN UNION -
Albania; Armenia; Belarus; Gibraltar; Iceland
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