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Economics > AOS3 > Flashcards

AOS3 Flashcards

1
Q

Gain of international trade #1

A

Lower prices for consumers:
- increase of competition from overseas drives down prices of goods and services
- also access to cheaper international goods and services

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2
Q

Gain of international trade #2

A

Greater choice:
- Consumers get a wider variety of goods and services to choose from
-Australia relies heavily on imported goods such as clothes, technology and transportation

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3
Q

Gain of international trade #3

A

Access to resources:
- Australia is rich in land resources, but limited to others such as capital and skilled labour, which we import from overseas, benefitting Australian businesses

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4
Q

Gain of international trade #4

A

Economies of scale:
- local Australian businesses only have a limited market of consumers in Australia (26 million)
- economies of scale allows businesses to extend the reach of their goods and service to an international scale

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5
Q

Gain of international trade #5

A

Increased competition and efficiency:
- increased businesses in the market result in higher competition, forcing Australian businesses to become more efficient in order to remain profitable and competitive

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6
Q

Credit

A

Money coming into Australia

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7
Q

Debit

A

Money flowing out of Australia

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8
Q

Net

A

Credit minus debits

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9
Q

Current Account component #1

A

Net goods (Balance of Merchandise Trade):
- Goods are tangible
- Goods credit minus goods debit
- (coal, iron ore for exports and tv and cars for imports)

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10
Q

Current Account component #2

A

Net services:
- Service credit minus service debit
- (education and tourism for exports and tourism and entertainment for imports)

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11
Q

Current Account component #3

A

Net primary income:
-Payments of income flows that services net foreign liabilities + labour income

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12
Q

Current Account component #4

A

Net secondary income:
- transfer funds in one direction with no obligation (gifts)

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13
Q

Cyclical Influence #1

A

Movements in overseas economic growth

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14
Q

Cyclical Influence #2

A

Movements in AD factors in Australia (Imports) or AD factors overseas (exports)

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15
Q

Cyclical influence #3

A

Movements in Terms of Trade

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16
Q

Structural Influence #1

A

Australia’s Investment and Investment Cap:
- Young country
- Lack of savings for investment required for investment in infrastructure and capital equipment for finance investment opportunities

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17
Q

Structural Influence #2

A

Low level of Global competitiveness:
- Insufficient domestic savings, leading to borrowing money from overseas for infrastructure
-National foreign debt increases, leading to decrease in net primary income, (higher current account deficit)

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18
Q

Net Foreign Debt

A

The net financial obligations Australians have to the rest of the world that stems from Australia’s total borrowing overseas exceeding the total lending to overseas

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19
Q

Cause of NFD

A

Private sector contributes to 78% of NFD whilst the remaining 22% is held by the public sector

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20
Q

Cause of NFD #1

A

The savings and investment imbalance:
- increased stock of foreign debt over time in finance spending

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21
Q

Cause of NFD #2

A

Budget deficit:
- Spending more than earning

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22
Q

Net foreign Equity

A

Total stock of assets owned by overseas countries in Australia LESS total stock of assets owned by Australia in overseas countries (negative figure is good!)

23
Q

Cause of NFE

A

Australia’s mandatory superannuation system:
- over $3 trillion in super assets

24
Q

Exchange rate meaning

A

Measured by the value of the AUD compared to the USD or the Trade Weighted Index

25
Q

Trade Weighted Index

A

The average value of the AUD compared to a weighted basket of foreign currencies of Australia’s trading partners

26
Q

Factor affecting E.R #1

A

Relative Interest Rates:
- Increase in cash rate later return on capital inflow

27
Q

Factor affecting E.R #2

A

Commodity Prices (TOT):
- Increase in TOT leads to higher demand for $A on the foreign exchange market, therefore leading to an appreciation in the AUD

28
Q

Factor affecting E.R #3

A

Demand for Exports:
- Leads to an appreciation in the AUD

29
Q

Factor affecting E.R #4

A

Demand for Imports:
- leads to a depreciation in the AUD

30
Q

Factor affecting E.R #5

A

Foreign Investment (capital outflow)
- shifts supply of the aud to the left/ride

31
Q

Factor affecting E.R #6

A

Relative Rates of Inflation:
- inflation in Australia increasing at faster rate than overseas leads to

32
Q

Factor affecting E.R #7

A

Credit ratings + speculation

33
Q

Terms of Trade

A

The terms of trade is the ratio of Australia’s exports to Australia’s imports

34
Q

Effect of High TOT

A
  • Increased net value of exports
  • increase export income
  • increase AD
  • Increase economic growth
  • Lower unemployment
  • higher living standards
35
Q

Impact of high TOT on Current account

A
  • increase net exports
  • increase balance of merchandise trade
  • increase current account balance
36
Q

Impact of high TOT on Exchange Rate

A
  • increase in price of exports
  • increase demand for $A on the foreign exchange market
  • appreciation of $A
37
Q

Factor that influences TOT #1

A

Anything that affects export prices:
- increase in overseas economic activity
- increase in commodity prices

38
Q

Factor that influences TOT #2

A

production costs in trading partners

39
Q

International Competitiveness

A

Refers to a country’s ability to compete in global markets for goods and services, where this competition can be based on price or non-price factors

40
Q

Factors of IC #1

A

Productivity:
- output per unit of input
- decreases average cost of production
- businesses can reduce prices or increase quality

41
Q

Factors of IC #2

A

Production Costs:
- labour costs - lower cost of labour helps IC
- capital costs - tech/capital productivity helps IC
- raw material costs - rising has negative effect on IC

42
Q

Factors of IC #3

A

Exchange Rate:
- $A depreciating helps IC

43
Q

Factors of IC #4

A

Availability of natural resources:
- Australia has a comparitive advantage due to abundant natural resources
- can produce at relatively cheaper prices compared to most countries

44
Q

Factors of IC #5

A

Relative rates of inflation:
- Lower rates of inflation lead to net export demand, increase AD, EG and LS

45
Q

TOT on low inflation

A

Increased demand inflationary pressures due to increase in Exports, consumption and investment (X, C, I)

46
Q

TOT on strong and sustainable EG

A
  • Increase in X
  • Increase in AD
  • Increase production of g/s
  • Increase economic growth
47
Q

TOT on Full employment

A
  • Production of G/S
  • DDFL
  • Employment
    ALL INCREASE
48
Q

TOT on living standards

A

Increase MLS:
- Increase income
- Access to g/s
Increase NMLS:
- mental health

49
Q

E.R (appreciation) on Low Inflation

A
  • decrease in X
  • decrease on expenditure on G/S
  • decrease in AD
  • less demand inflationary pressures
50
Q

E.R (appreciation) on Strong and Sustainable EG

A
  • Decrease X
  • Decrease AD
  • Decrease EG
51
Q

E.R (appreciation) on Full employment

A
  • decrease in DDFL
  • Increase in unemployment
52
Q

IC on Low Inflation

A

Increase in production:
- decrease average cost of production
- less cost inflationary pressures

53
Q

IC on strong and sustainable EG

A
  • Increased output per unit of input
  • willingness to produce g/s
  • increase in E.G
54
Q

IC on full employment

A

Short term: may result in structural unemployment

Long term: will benefit employment

Economics (4 decks)

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