How Do USA and CHINA Economies Influence and Affect EU UK and World Economy

Document Type:Essay

Subject Area:Finance

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This is because value is not prone to price changes. This is according to theory of value that it is realized within the lines of consumer and it is considered a more better approach to the wellbeing nowadays in the society than utility (Trinh, 2014). Global gross domestic product is a product of summing up output of all nations. Income can be used as a measure; nonetheless it has several shortfalls such as remuneration to work force may not be always executed through monetary means, informal sectors may not be recognized during computations. Income is an ex post situation and reports end results of an economic activity whereas on ex ante basis can comprise methods through which income is generated by nations. According to exogenous growth theory gross domestic product is a function of capital accumulation (physical capital and human capital) and technological innovation (technology change and market call) that are presumed exogenous. This fails in the sense that it is pegged on unrealistic assumptions of equal population growth and technology progress. It is not possible for nations to control population so as to achieve equal growth as well as nations are endowed in varying degree by human capabilities that influence technology advancements at varying rates. This has led to emergence of endogenous growth model to build on flaws of its predecessor where economic growth is a function of inputs in human capital, innovation and knowledge Gross domestic product is perceived as the best metric of economic growth but has unethical shortfall; at times growth might be a result of additional labor working resulting from cutting down on activities like leisure and leaves.

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This has ethically compromised the wellbeing of a work force. Additionally huge debts by majority of developed nations brought into light the unprudentiality of prolonged budgetary deficits steered by large government spending. US was the main source of the crisis due to its low interest rate pursuant that lead to speculation in the mortgage sector resulting to a boom in the housing sector and eventually into a burst. This saw shrinking of the economy coupled with enormous state spending in billing out distressed institutions so as to shield collapse of global monetary system. Its spillover effects spread through the globe witnessed by declining stock marketplace to lowest ever since the great depression, investor wealth erosion and unavailability of credit as a result of wealth loss as well reduced spending and investment due to market perceived risks.

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The housing market was affected globally; resulting in evictions, foreclosure, and extended unemployment (Ammer et al. The global economic system is vital for the USA also. Affiliates of U. S. multinationals operating overseas and affiliates of overseas companies positioned inside the United States account for a great share of output, employment, cross-border alternate and financial flows. One-6th of customer items purchases by U. US monetary system is highly integrated with global system rapid growth spanning more than three centenaries in 2010-2014 its monetary exchanges were above threefold gross domestic products (see attached appendices figure 2). It is the biggest destiny of investments in foreign alternate markets totaling to around 20% of global inflows and outflows by 2015. EU, Japan, Switzerland together with Canada account for over 90 per cent of alternate property while Canada and EU are hugest beneficiaries of US investment in alternate markets.

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Due to its global influence and presence of its financial system US totals for more than 33% of assets in emerging markets and developed economies. US is a huge processor as well as user of commodities (see attached appendices figure 6). This has seen other nations rely on it for cheap materials since it is enjoying relative economies of scale. China’s growth is contributing to rising costs of raw substances e. g. oil. The financial growth in China is pushing up call for and consequently fee of oil that is having an effect on Western inflation. This was the situation in Copenhagen climate summit where EU had bounding committals whereas US and China had diverging goals and were not willing to commit. Change of world governance system to reflect emerging economic situations is a contentious journey that will spurn present decade.

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Its development is significant to EU-China mutual exchanges. Dysfunctional European labor markets add to adjustment costs: china through its global influence has been an advocate of changes to the manner in which world organizations are run, for instance through its influence on emerging nations especially in Africa has seen it voted into seats of these world organizations. This has not augured well with EU since as parties holing power have not been willing to let go. It also spurs up the idea of likely multicurrency where euro and RMB or an Asian payment system where they will have shared global functions with the dollar. The nation trade role within the zone has been on a steady increase and has become a key player compared to previous years; total exports and imports between china and European Union 10 % 2006-15% 2014.

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Europe is a key player in foreign direct investment in china as well as Taiwan, hong kong, japan and us. From trade exchange viewpoint, slowdown in Chinese would have primary effect on Asia due to their direct relationship collectively with raw materials producing nations due to the fact china is their most important associate. The nation has accounted for greater than 73% of Asia boom for almost two decades now. This is attributable to free trade areas and red tapes towards trade in services which is UK main strengths. This implies that it is easier to export manufactured items to UK and expensive for UK to export services to Europe. Uk performance with the rest of the global nations has been good seeing a balance up to 2011 and a fivefold surplus from 2012-2016 (attached see appendices chart 1).

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These deficits are of worry because this could trigger rise in interest quotes due to the need to finance them, low productivity due to effects on manufacturing sector. This could also mean job losses  (Elliott, 2018). Part of that is the converting comparative advantage between UK and China (see attached appendices chart 2). Conclusion US and china remains the global largest and second largest economies in terms of gross domestic product respectively. Europe is the largest economic area. An evaluation of their investments in foreign alternate markets, financial and commodity system and trade coupled with their political ideologies shows that this pattern will go on for unforeseeable future as of now. Their success is in support of neoclassical view that if a nation enhances its internal elements cumulative effect will drive economic growth as well as economic development; presence of political goodwill of strong ethical together with market friendly policies economic enhancement is inevitable.

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Erceg, C. and Kamin, S. International Spillovers of Monetary Policy.  IFDP Notes, 2016(15). Arteta, C.  SSRN Electronic Journal.  Bayoumi, T. and Swiston, A. Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries.  SSRN Electronic Journal. Elliott, L.  Why the UK trade deficit with the EU is woeful and widening | Larry Elliott. online] the Guardian. Available at: https://www. theguardian. Montes, G. and Antunes, J. How does capital regulation react to monetary policy? New evidence on the risk-taking channel.  Economic Modelling, 56, pp. World Bank.

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