Balance of Payments

Question 1

how do you calculate a country’s trade balance

Answer 1

Exports of goods & services – imports of goods & services

Question 2

Explain the effect of the increase in the trade balance on Australia’s current account and capital and financial account in the balance of payments

Answer 2

It will cause the current account deficit to decrease (the current acct = trade balance + income balance)
It will cause the capital/financial account surplus to decrease (since the current & cap/financial accounts sum to zero)

Question 3

what are the 3 top countries (and percentages) australia exports to

Answer 3

1. china (34.3%)
2. Japan (12.3%)
3. Korea (5.7%)

Question 4

what are the 3 top countries (and percentages) australia imports from

Answer 4

1. China (19.5%)
2. USA (13.1%)
3. Japan (6.2%)

Question 5

what are the 3 mains exports (and price in billions) australia exports

Answer 5

1. iron ore (102.1)
2. Coal (54.6)
   3/ Natural Gas (47.8)

Question 6

what are the 3 mains imports (and price in billions) australia imports

Answer 6

1. Travel (33.3)
2. refined petrol (21.8)
3. cars (19.1)

Question 7

what are 2 factors determining direction of trade (who)

Answer 7

geographical proximity

free trade agreements

Question 8

what are 2 factors determining composition of trade (what)

Answer 8

primary sectors

land for use

Question 9

who benefits from 1. exports, 2. imports and what meakes a trade surplus and trade deficit

Answer 9

exports - foreign exchange + production side
imports - consumption side of economy
trade surplus - exports > imports
trade deficit - imports > exports

Question 10

what are the 3 determinants of the final state (deficit or suplus) of our trade balance

Answer 10

1. price recieved for commodity exports
2. demand for our exports
3. domestic growth boosts imports

Question 11

what is a balance of payments

Answer 11

recors of all economic transaction between residents of australia and rest of world

Question 12

briefly explain what 3 things make up the current account and how big is each in terms of billions

Answer 12

transaction involving trade in goods ($373), trade in services ($93.25) and income($-5)

Question 13

what is primary income and why is it deficit

Answer 13

income earnt by aus residents from non residents (credit)
income paid overseas (debit)
deficit because there are large amounts of foreign investment

Question 14

what are the 2 types of primary income

Answer 14

10% compensation of employees: for use of labour (wages/salary)
90% investment income: for use of capital (foreign investment, capital)

Question 15

what is secondary income

Answer 15

transaction where real or financial resources are provided by nothing of value is returned (foreign aid, gifts)

Question 16

what makes up the capital account

Answer 16

Non financial/non produced assets (brand names, migrant knowledge)

Question 17

what is the financial account

Answer 17

records transaction between parties that involve a chnage of ownership of Aus assets and liabilities

Question 18

what are the 4 types of financial account investment

Answer 18

1. direct investment (foreign resident invests in aus)
2. portfolio investment (internation shares in business)
3. other investment (currency/deposits)
4. reserve assets (financial assets controlled by RBA)

Question 19

what happens were the financial/capital account is in surplus

Answer 19

country draws on savings (foreign investment from rest of world

Question 20

compare australia and japans BOP

Answer 20

Jap recors CAS and FAD becaue excess savings which it lends to aus
aus recordsCAD and FAS - shortage of savings to fund investment

Question 21

what are the 5 factors affecting current account deficit

Answer 21

1. changes in consumption
2. changes in savings
3. changes in exchange rate
4. changes investment
5. changes in interest rate

Question 22

how is CAD a positive indictor (2 point) and a negative indictor (2 point)

Answer 22

pos: domestic eocnomy is growing, increase in capital improts
neg: foreign investment increases CAD increases to pay the wages to those innvestors, weak economy = investment falls

Question 23

why does CAD increas

Answer 23

fall in comp due to high product cost/ rate of inflation