Welcome to our Lesson 2!

In this lesson we will discover how the field of Economics contributes to globalization. But
before we proceed to our discussion, let us have a review on the basic concepts of economics.
Let us test our prior knowledge about economics by answering the following true or false
questions.
 
Now if you are ready, you may proceed for our short quiz. Good luck!

ENGAGE – Economics True or False?

1. Scarcity means the abundance of resources. FALSE

2. Law of demand states that as prices increase the quantity demanded decreases, all
other things held constant. TRUE
3. Satisfying our wants and needs is the ultimate goal of economic activity. TRUE
4. Supply and price has an inverse relationship. FALSE
5. Karl Marx is the father of Economics. FALSE
6. Macroeconomics and Microeconomics are the two branches of economics. TRUE
7. Money functions as medium of exchange. TRUE
8. Net exports = exports – imports. TRUE
9. Money functions as unit of value or a standard of value. TRUE
10. Economics comes from the French word oikonomia. FALSE

EXPLORE: Economics and Globalization

Instructions: Please watch these two videos about global economy and prepare for the
discussion.

WHAT IS GLOBAL ECONOMY?

The Global Economy is the world economy or the worldwide economy. It is all the economies
of the world – the economy of every country – which we consider together as one giant
economic system. It includes everything we all buy, sell and own on this planet. Put simply; the
Global Economy is one giant entity.

The term Global Economy has two (2) meanings:

1. The economy of the whole plant, I.e., global GDP or also known as Gross Domestic
Product.
2. The way the world is today, with countries’ economies so intertwined and
interdependent that they all seem like parts of one whole. We call that whole the Global
Economy.

When people say “We live in a GLOBAL ECONOMY”, they are talking about the
interdependence of nations. Some people use the term to refer to, for example, banking and
finance, which today has no national boundaries.

If a giant bank in one country collapses, banks in other countries also suffer. In fact, whole
economies might suffer. When we talk about the GLOBAL ECONOMY in this context, we are
referring to Globalization.

In todays’ GLOBAL ECONOMY, more and more businesses are selling beyond their borders. The
need for effective Global Marketing strategies has increased significantly.
Global Marketing refers to planning, producing or creating, placing and promoting a
company’s products or services in the global market.

Since the advent of the internet, the GLOBAL ECONOMY has become relevant for many more
businesses than before. In the past, only large corporations could call themselves
multinationals. Today, even small online businesses can trade with other companies and
individuals from anywhere in the world.

The internet has changed many of basic features of the GLOBAL ECONOMY.

GLOBAL ECONOMY: EXPLAINED WITH TWO COWS MODEL

Communism that’s where you have two (2) cows, the state takes both and gives you some
milk.
Socialism you have two (2) cows, you give one to your neighbor.
Fascism you have two (2) cows, the state takes both and sells you some milk.
Bureaucratism you have two (2) cows, the state takes both, shoots one milks the other and
then throws the milk away.
Traditional Capitalism you have two (2) cows, you sell one and buy a bull your herd multiplies
and the economy grows you sell them and retire on the income.
Venture Capitalism you have two (2) cows, you sell three of them to your publicly listed
company using letters of credit opened by your brother-in-law at the bank then executes a
debt equity swap with an associated general offer so that you get all four cows back with a tax
exemption. For five cows, the milk rights of the six cows are then transferred via an
intermediary to a Cayman Island Company secretly owned by the majority shareholder who
sells the rights to all seven cows back to your listed company. The annual report says the
company owns eight cows with an option to buy one more.
An Italian Corporation you have two (2) cows, your do not know where they are. you go on
strike organizer right and block the roads because you want three cows.
American Corporation you have two (2) cows, you sell one and force the other to produce the
milk of four cows. Later you are a consultant to analyze why the cow has died.
Swiss Corporation you have 5000 cows, none of them belong to you. You charge the owners
for storing them.
Irish Corporation you have two (2) cows but one of them is a horse.
Australian Corporation you have two (2) cows, businesses pretty good so you close the office
and go for a few beers to celebrate.
Chinese Corporation you have two (2) cows, you have 300 people milking them. You claim that
you have full employment and high bovine productivity. You arrest the newsmen who reported
the real situation.
Indian Corporation you have two (2) cows, you worship them.
Iraqi Corporation everyone think you have lots of cows; you tell them you have none. Nobody
believes you so they bomb the crap out of you and invade your country. You still have no cows
but at least you’re now a democracy.
British Corporation you have two (2) cows, both are mad.
Greek Corporation you have two (2) cows borrowed from the French and German banks. You
eat both of them. The banks call to collect their milk but you cannot deliver so you call the IMF.
The IMF loans you two more cows you eat both of them. The banks and the IMF call you to
collect their cows and their milk you and you are out getting a haircut.

Activity: After watching the video, what do you think the role of economics in the
emergence of globalization?

They say that economics is all about meeting our needs and wants by allocating scarce
resources to other uses. This is something I learned from watching the video provided to us a
while ago. The "Global Economy" is the word we use to describe this phenomenon. It's a way
of referring to the global economic system as a whole, which includes all of the countries and
economies that we all use. Economics' job is to find new uses for limited resources, that will
lead us to greater global marketing efficiency and, ultimately, a larger global economy.
Economics is the driving force behind the movement of goods in every country. That, I believe,
is economics’ role in the creation of globalization.

EXPLAIN: GLOBAL ECONOMIC CRISES

Now let us understand what is Economic Globalization through the discussion of Mr. Joseph El
Roy B. Cassion II, one of the economics instructor of our university.

Trading among countries has started the phenomenon of globalization. According to IMF,
economic globalization is a historical process representing the result of human innovation and
technological progress. It is characterized by increasing integration of economies around the
world through the movement of goods, services and capital across the border.

The History of International Trading System

1. SILK ROAD (HAN DYNASTY)

 Oldest known international trade.
 A network of pathways in ancient world from China to Middle East and Europe.
 It was called silk road because the silk was traded in this network. Silk was the
most profitable product during this time.
 Traders used the silk road regularly from 130 BCE when the Han shining a Chinese
hand dynasty opens the trade to the west until 1453 BCE.
 However, it was not considered as full economic globalization since it has no
routes that could reach the American continents.

2. GALLEON TRADE (1571)

 Considered as the Full Globalization
 According to historians Dennis O. Flynn and Arturo Geraldes full economic
globalization can be traced in 1571 with the establishment of the Galleon trade
that connected manila to Acapulco Mexico.
 This was the first time that America was directly connected to Asian trading
routes and it is crucial to note that as Filipinos economic globalization began in
the country shore.

3. GOLD STANDARDS (1867)

 Countries establishes a common basis for currency. Prices and a fixed changed
rate system all based on the value of gold.
 Which is a more open trade system that emerged in 1867.
 It is where the United Kingdom, USA and other European countries adopted the
gold standard at an International Monetary conference in Paris.
 The goal was to create a common system that would allow for more efficient
trade and prevent isolationism in the mercantilist era.
 However, during world war one countries depleted their gold reserve to fund their
armies, many countries abandoned the gold standards. Since European countries
had low gold reserve they adapted floating currency that were no longer
redeemable to gold. Hence, gold standard was proven very restrictive form of
globalizing trade.
 Moreover, the great depression in United States which started in 1920s and
extended up to 1930s was tagged as the labelled and longest recession
experienced by the western world.
  Some economist argues that it was largely caused by the gold standard since it
limits the amount of money in the circulation. Therefore, reduced demand and
consumption.
 Economic historian Barry Eichengreen argues that the recovery of United States
really began when they abandoned the gold standards. At the height of the world
war II, other major industrialized countries followed suit.
 More indirect versions of the gold standard were used as late as 1970s. The world
never returned to Gold Standards of the early 20th century.

4. FLAT CURRENCIES
 Values are determined by their cost relative to other currencies.
 Today the world operates through flat currencies. It is the currencies that are not
backed up with precious metals whose values are determined by their cost relative
to other currency.
 This system allows the government to freely and actively manage their economies
by increasing or decreasing the amount of money in the circulation.

BRETTON WOODS SYSTEM

It was inaugurated in 1944 during the United Nations Monetary and financial conference. It is
actually encored by the Global Keynesianism.

Here are some of the Bretton Wood agreements:

 Set the gold standard at 35.00 dollars an ounce.

 American dollar as the backbone of international exchange.
 Post war currency stability.

And because of the Bretton Woods agreements, two (2) financial institutions were organized:

1. International Bank for Reconstruction and Development (IBRD or World Bank)

- Responsible for funding postwar reconstruction projects.

2. International Monetary Fund (IMF)

- Global lender of last resort to prevent countries from spiraling into credit crises.

GLOBAL KEYNESIANISM

Largely influenced by the ideas of British Economists John Maynard Keynes. Believed that
economic crises occur not when a country does not have money, but when money is not being
spent, and thereby not moving. Government should have reinvigorated the market during
economic slowdowns.

Examples:

 A city’s unpaved roads discourage businessman to open or invest businesses. Once the
government paved the road and make it a national highway, businessman will be
enticed to open up businesses thus the intervention of the government through
infrastructure projects is an example of Keynesianism and stimulates economic activity.
 The COVID 19 pandemic. It shutdowns a lot of businesses because of lockdowns.
Because of this the government released amelioration and other projects to keep the
economy going.

After BRETTON WOODS

Various countries also committed themselves to further economic integration through General
Agreement on Tariffs and Trade (GATT) in 1947. Main purpose: reduce tariffs and other
hindrances to free trade. It has been amended and incorporated into the new WTO
agreements. (iatp.org)

However, there are also critic about the Global Keynesianism which is the NEOLIBERALISM
AND ITS DISCONTENENT:

 Friedrich Hayek and Milton Friedman challenged the Keynesian Orthodoxy.

 Keynesian economist could not predict:
o Stagflation – decline in economic growth
o Stagnation - decline in employment and
o Inflation – increase in prices
 This emerged the new form of economic thinking critics labelled as “neoliberalism”

For further understanding, please watch these videos and know some of the world’s worst
economic/ financial crises.

THE GREAT DEPRESSION (1929)

- https://www.youtube.com/watch?v=Sv7IP2qL0gg

THE OIL EMBARGO (1973)

- https://www.youtube.com/watch?v=l_DwduGupU0

ASIAN FINANCIAL CRISIS (1997)

- https://www.youtube.com/watch?v=7FL0Lz_UX68

THE GREAT RECESSION – MORTGAGE CRISIS (2008)

- https://www.youtube.com/watch?v=yM0uonkloXY

THE ECONOMIC IMPACT OF COVID 19 PANDEMIC

- https://www.youtube.com/watch?v=yFisxvUNfMs

PHILIPPINE RECESSION
- https://www.youtube.com/watch?v=AoL2VHMjDbc

ELABORATE

ECONOMIC GLOBALIZATION. 

The increasing interdependence of world economies  as a result of the growing scale of cross-
border trade of commodities and services, flow of international capital and wide and rapid
spread of technologies is referred to as Economic globalization.

It refers to the widespread international movement of goods, capital, services, technology and
information. It is the increasing economic integration and interdependence of national,
regional and local economies across the world through an intensification of cross-border
movement of goods, services, technologies and capital.

Economic Globalization primarily comprises the globalization of production, finance, markets,

technology, organizational regimes, institutions, corporations and people.
ECONOMIC GLOBALIZATION

Proposition

It is now time to elaborate our learning about Economic Globalization. Let us do some
research about free trade agreements and participate in the debate after
equipping ourselves with data and information that we can use to support our stand about
free trade. 

Activity: 
Motion: "This house believes that free trade is beneficial for the Philippines."
Do you agree or disagree with the motion?
Please justify your answer and cite some research or studies to support your stand.
 
note:
* It’s an essay type therefore No need to attach a file instead write your response right here.
* Copying of answers from the internet or any other sources are strictly prohibited. An
automatic zero score will be imposed once a copied answer are detected or spotted.
*Late Submission is allowed. However, a two (2) points deduction will be given per day of
delay. 

Answer: I agree with the motion. Despite the fact that the official poverty rate in the
Philippines grew to 23.7% last year, many Filipinos are still struggling to make ends meet
(PSA). Nearly 385 million children throughout the world are living in severe poverty, according
to a research by the World Bank and UNICEF. In my opinion, signing a trade agreement with
other countries will help our country diminished the poverty or at least compete more
effectively in the global market. Shopee is frequently used by retailers to procure wholesale
goods from other countries, such as China, to resale it to consumers. The economist at Ateneo
de Manila University, Ser Percival K. Pena-Reyes, said that FTAs, or Free Trade Agreements, are
mainly considered as measures to bring in more FDI, or Foreign Direct Investment in our
country.

EVAUATE: Economic Globalization Short Quiz

Time to evaluate your learnings about the Economic Globalization!

Please review all the videos and handouts. You may proceed with the short quiz once you are
ready. Good luck!

Note: For this quiz, late submission is allowed. However, a 2 points deduction will be given
each day of delay.  After taking the quiz, you may proceed to the next lesson.

LONG QUIZ

1. International Economic Integration is the central tenet of:

- Globalization

2. IMF stands for:

- International Monetary Fund

3. __________ regarded by the International Monetary Fund (IMF) as a historical process

representing the result of human innovation and technological progress.
 - Economic Globalization

4. Chinese __________ Dynasty opens the trade to the West until 1453 BCE.
- Han

5. Tagged as the worst and the longest recession experienced by the Western World.
- Great Depression

6. Fiat currencies are currencies that are not backed up by precious metals whose values
are determined by their cost relative to other:
- Currencies

7. British Economists John __________ Keynes believed that economic crises occur not
when a country does not have money, but when money is not being spent and
thereby not moving. Government have reinvigorated the market during economic
slowdowns:
- Maynard

8. In 1867, countries establish a common basis for currency prices and a fixed exchange
rate system, all based on the value of:
- Gold

9. Full globalization can be traced in __________ (year) with the establishment of the
Galleon Trade that connected Manila to Acapulco in Mexico.
- 1571

10. Friedrich Hayek and Milton Friedman that the government intervention in economies
distort the proper functioning of the market. This emerged the new form of economic
thinking critics labelled as:
- Neoliberalism