AOS 3- Australia and the world

Question 1

benefits of trade–> lower prices

Answer 1

cheaper suppliers,
increased comp for local P’ers
reduced dom market power
increased wage comp
economies of large-scale production

all–> decreased prices

Question 2

benefits of trade–> greater choice

Answer 2

can purchase greater variety of goods and services from over seas, and have more choices of brands etc

Question 3

benefits of trade–> economies of scale

Answer 3

increased customer base, means can increase production, hence decreasing average fixed costs per unit–> greater profit/ cheaper prices

Question 4

benefits of trade–>access to more resources for buss+ govt

Answer 4

greater access to physical resources, machinery etc. greater foreign human capital such as skill shortages in Aust, access to foreign financial capital to help expansion etc

Question 5

Credits vs debits

Answer 5

credits–> money coming into Australia (exports)

Debits–> money going out of Australia (imports)

Question 6

CAD/CAS

Answer 6

CAD–> debits exceed credits
CAS–> credits exceed debits

Question 7

Current account

Answer 7

Split into
Balance of merchandise trade,
Net services
Primary income
secondary income

Question 8

Capital and financial account (CAFA)

Answer 8

–> capital account and financial account

Financial account–> Net direct investment, net portfolio investment, financial derivatives, other investments, Net reserve assets.

Question 9

Relationship between CAFA and CA

Answer 9

Typically, on effect in cafa has an inverse effect on the CA

Question 10

cyclical

Answer 10

Savings/ investment, as if savings is less than needed investment, need to borrow overseas, which costs money on interest–> increase debits–> worsen CAD

2) Low international competitiveness b?c low productivity/ high COP (AS factors) –> structural constraints on CAD

Question 11

Cyclical component of CAD

Answer 11

AD driven, strong spending means more imports,–> further into a deficit

Question 12

Net international investment position (NIIP)

Answer 12

describes degree to which Australia is financially obligated to the rest of the world.

Comprised of Net foreign liabilities.

Question 13

NFD

Answer 13

Net foreign debt is the net obligations from total borrowings from overseas minus overseas borrowing in Australia

Question 14

NFE

Answer 14

Net foreign equity is the net equity obligation that results from foreign overseas ownership of Asutralian assets minus Australian ownership of foreign assets.

Question 15

Terms of trade (tot)

Answer 15

TOT is a ratio of the average prices received for Australian exports and the average prices paid for imports

Question 16

TOT formula

Answer 16

export price index/import price index

Question 17

Factors –> change in TOT

Answer 17

Decrease global demand for Aust exports=decrease price= lower TOT

anything that –> change in price of Aust imports or exports.