Australia's role in the global economy

Question 1

Globalisation

Answer 1

The process of increasing integration between economies across the world due to increased trade, capital flows and technological changes

Question 2

Advantages of international trade

Answer 2

1. Sustainable economic growth
   - contributes to AD = C + I + G + (X-M)
   - more production = more employment
   - specialisation and efficiency
2. Internal stability
   - economies of scale = lower inflation
   - access to cheaper imports
   - technological advancements
3. External stability
   - improved balance of payment
   - access to foreign capital
   - over dependence and volatility

Question 3

Benefits of international trade
- Economies of scale

Answer 3

Countries have better access to resources not available domestically
- Different in factor endowments, climate, labour force, will mean one country is relatively more efficient in production

Factor endowment: an abundance of factors of production

Economies of scale: the cost efficiencies that are dedicated by producing a large volume of standardised products

Question 4

Terms of trade (ToT)

Answer 4

An index that shows a country’s prices relative to its import prices

= (export price index/ import price index) x 100

A rise in the index implies an improvement in a country’s ToT, enabling it to purchase more imports for the same amount of exports.

Question 5

Positives of ToT

Answer 5

Increase in…
- Export income injected into the economy
- Standard of living
- Business confidence and investment = wage growth and consumer spending
- Tax revenue and budget surplus
- Investment, therefore, upgrade infrastructure and long-term productivity
- Economic growth

Question 6

Negatives of Tot

Answer 6

• Non-mining experts become less competitive due to AUD appreciation
• Two speed economy
• Increased uneven income distribution across different industries and religions
• Increase unemployment
• Repercussions on labour market (school retention)
• Housing prices soar and bubble