Balance of payments, distribution of income and taxation

Question 1

Balance of payments dfn

Answer 1

The record of all economic transactions between Australian residents and the rest of the world.

Question 2

Current account

Answer 2

Net goods (eg. Washing machines)
Net services (eg. Ability to download music)
Net income 
   Primary income (Profit, Dividends, Interest Payments), 
   Secondary income (Payments without getting anything in return- eg. Aid money, Samoa and China, fees to belong to UN)

Question 3

Credits

Answer 3

Exports of G+S
Income receivable
Increase in foreign liability
Export of currency

Question 4

Debit

Answer 4

Imports of g+s
Income payable
Increase in foreign assets
Import of currency

Question 5

Capital and financial account-

Answer 5

Cap. -
Net capital transfer (eg. Bank accounts from migrants)
Net non-produced, non-financial assets (eg. Copywriters, patents and TMs)
Financial-
Direct investment (eg. Purchase/expansion of companies)
Portfolio investment (eg. Shares, debt, securities)
Other investment (eg. Loan, deposits, special transactions)
Net reserve assets (eg. RBA and govt transactions in foreign currency also IMF and UN)
Net errors and omissions- reflects any inaccuracy

Question 6

Net x calculated

Answer 6

Credits- debits

Question 7

Current account deficit CAD

Answer 7

Occurs when the total value of all current account debits exceeds the total value of all current credits for goods, services, primary and secondary income measured over a period of time

Question 8

Effect of CAD

Answer 8

Weaken exchange rate
Increase foreign debt
Require govt policies to slow AD and ec activity
Increased local interest rates

Question 9

Private income

Answer 9

Wages and salaries, income from investment

Question 10

Gross income

Answer 10

Adding any transfer payments a household receives from the govt (before taxes)

Question 11

Disposable income

Answer 11

Income left after taxes are deducted

Question 12

Wealth

Answer 12

Is the current account value of assets a household has accumulated over time through savings, financial investments, business profits and inheritance
Wealth refers to the value of assets owned minus the value of liabilities owed.
Eg. Ownership of money
Etc.

Question 13

Income

Answer 13

Households and individuals
- sum of all wages, salaries, profits, interest payments, rents and other forms of earning received in a given period of time
Firms
Generally net profit
i.e. Remains of revenue after expenses have been subtracted

Question 14

Gini coefficient for income or wealth

Answer 14

A number between 0.0 and 1.0
Indicating the degree of inequality in the distribution of income or wealth
0 is absolute equality
1 is absolute inequality
It is the area under the line of equality between the Lorenz curve

Question 15

Lorenz curve

Answer 15

Graphical representation of wealth distribution

Question 16

Australias distribution of wealth

Answer 16

Much more uneven than lone of equality
Bottom quartile poorest 20% hold 1% of wealth
Top quartile hold 62% of wealth

Question 17

Benefits of trade

Answer 17

Increase living standards bc consume outside PPF
Efficient Aus producers gain selling in world markets
Australian consumers gain purchasing products that were produced more efficiently overseas

Question 18

Composition of Aus trade

Answer 18

Exports - oil, ores, gems/precious metals, meat, cereals, inorganic chemicals, machines, aluminium, copper, medical/technical equipment

Imports- personal travel services, crude petroleum, refined petroleum, passenger motor vehicles, telecom equipment, freight transport services, medicaments, computers, passenger transport services, goods vehicles

Question 19

The direction of Australia’s trade

Answer 19

Exports- china, Japan, s. Korea

Import- china, US, Japan

Question 20

Income distribution

Answer 20

Income distribution is the smoothness or equality with which income is dealt out among members of a society. If everyone earns exactly the same amount of money, then the income distribution is perfectly equal

Question 21

Importance of Asia pacific region on Aus trade

Answer 21

Most of our trade partners are Asian. As China develops and industrialises they are reliant on our natural resources, our largest exports.
The importance of location is also relevant, trade partnerships are not only efficient but crucial for international relations and stability.

Question 22

Why balance of trade balances

Answer 22

Current account + cap and financial= 0
A deficit must be mirrored by a surplus 
This is due to our economies floating exchange rate
Ensuring supply (outflows on BoP)= demand (inflows on BoP)
Diagram?

Question 23

An increase in one account will

A decrease in one account will

Answer 23

Increase= decrease
Decrease= increase
Must equal 0
There is a cost to servicing debts despite it being a double account system

Question 24

Direct vs indirect

Answer 24

Direct- on income (i. Tax), profit (company tax), increased wealth (capital gains tax)
The burden of tax can not be transferred elsewhere

Indirect- consumption (GST), use (passenger transfer tax), production (excise)
Whilst a business is legally required to pay the government they may transfer most of the cost to consumers

Question 25

Progressive
Proportional
Regressive

Answer 25

Progressive= rises (eg. Income tax)
Proportional= constant (eg company tax and flat income tax)
Regressive= falls (GST and excise tax)

Question 26

Main govt taxes

Answer 26

Personal income tax
(levied on all wage and salary income at a specific rate,direct, progressive burden)
Company tax
(Proportional, falls on individual company, in reality likely passed to consumers since ‘01 for turnover + $2mil 30c on $)
Fringe benefits tax
(Levied on non-cash benefits given to employees eg. Cars, children’s school fees ect, highest marginal rate, intro mid 80s for vertical and horizontal equity)
GST
(10% on price of most goods, state tax in Aus)
Excise duties
(Flat rate on domestically produced goods eg alcohol, cigarettes, oil, LPG, raises large amount for govt as inelastic goods)

Question 27

Tax system assessed on

Answer 27

Equity h,v- taxpayers who earn the same amount pay same amount of tax, higher can pay more

Efficiency- benefits must outweigh costs of collection. Must minimise excise burden (occurs when distorts decision making of producers)/acts in a discriminatory manner)

Simplicity and certainty- can understand tax liability without much effort or cost and should be as convenient as possible for both parties