Balance of Payments Flashcards
how do you calculate a country’s trade balance
Exports of goods & services – imports of goods & services
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
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)
what are the 3 top countries (and percentages) australia exports to
- china (34.3%)
- Japan (12.3%)
- Korea (5.7%)
what are the 3 top countries (and percentages) australia imports from
- China (19.5%)
- USA (13.1%)
- Japan (6.2%)
what are the 3 mains exports (and price in billions) australia exports
- iron ore (102.1)
- Coal (54.6)
3/ Natural Gas (47.8)
what are the 3 mains imports (and price in billions) australia imports
- Travel (33.3)
- refined petrol (21.8)
- cars (19.1)
what are 2 factors determining direction of trade (who)
geographical proximity
free trade agreements
what are 2 factors determining composition of trade (what)
primary sectors
land for use
who benefits from 1. exports, 2. imports and what meakes a trade surplus and trade deficit
exports - foreign exchange + production side
imports - consumption side of economy
trade surplus - exports > imports
trade deficit - imports > exports
what are the 3 determinants of the final state (deficit or suplus) of our trade balance
- price recieved for commodity exports
- demand for our exports
- domestic growth boosts imports
what is a balance of payments
recors of all economic transaction between residents of australia and rest of world
briefly explain what 3 things make up the current account and how big is each in terms of billions
transaction involving trade in goods ($373), trade in services ($93.25) and income($-5)
what is primary income and why is it deficit
income earnt by aus residents from non residents (credit)
income paid overseas (debit)
deficit because there are large amounts of foreign investment
what are the 2 types of primary income
10% compensation of employees: for use of labour (wages/salary)
90% investment income: for use of capital (foreign investment, capital)
what is secondary income
transaction where real or financial resources are provided by nothing of value is returned (foreign aid, gifts)
what makes up the capital account
Non financial/non produced assets (brand names, migrant knowledge)
what is the financial account
records transaction between parties that involve a chnage of ownership of Aus assets and liabilities
what are the 4 types of financial account investment
- direct investment (foreign resident invests in aus)
- portfolio investment (internation shares in business)
- other investment (currency/deposits)
- reserve assets (financial assets controlled by RBA)
what happens were the financial/capital account is in surplus
country draws on savings (foreign investment from rest of world
compare australia and japans BOP
Jap recors CAS and FAD becaue excess savings which it lends to aus
aus recordsCAD and FAS - shortage of savings to fund investment
what are the 5 factors affecting current account deficit
- changes in consumption
- changes in savings
- changes in exchange rate
- changes investment
- changes in interest rate
how is CAD a positive indictor (2 point) and a negative indictor (2 point)
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
why does CAD increas
fall in comp due to high product cost/ rate of inflation
