BOP 4 PPT Flashcards
What major shift occurred in Australia’s current account balance in 2019/20?
It changed from a deficit to a surplus.
What two key factors caused the current account surplus from 2020 to 2024?
A rising trade surplus and a lower primary income deficit.
What is the trade balance?
The difference between a country’s exports and imports.
How did COVID-19 and inflation impact imports?
Global supply chain issues, higher costs of living, and weaker domestic consumption led to lower imports, improving the trade balance.
How did Australia’s trade balance contribute to the current account surplus?
High demand for commodities (iron ore, coal) increased exports, and a weaker AUD made imports more expensive, reducing import spending.
Why does Australia usually have a primary income deficit?
Due to foreign investment, leading to large dividend and interest outflows
Why did the primary income deficit shrink from 2020 to 2024?
Lower global interest rates reduced interest payments, and higher Australian foreign investment increased income credits.
How did rising global interest rates affect the income balance?
Higher interest rates increased interest payments (debits), worsening the income balance.
What is the income balance?
The net flow of interest, dividends, and profits between Australia and the world.
Why did Australia move back into a current account deficit?
Falling commodity prices, rising import spending, and higher interest payments on foreign debt.
How did foreign ownership of Australian companies contribute to the income deficit?
Higher company profits led to larger dividend outflows to foreign investors.
How does Australia’s domestic business cycle affect the trade balance?
A booming economy increases import spending, reducing the trade balance, while a slowing economy reduces imports, improving the trade balance.
How does the world business cycle impact Australia’s trade balance?
: If trading partners’ economies grow, demand for Australian commodities rises, increasing exports.
How does exchange rate movement affect trade?
A weaker AUD makes exports cheaper, boosting trade balance, while making imports more expensive, reducing import spending.
Why has Australia historically had a primary income deficit?
Due to foreign investment, leading to large interest and dividend outflows.
How does the Investment-Savings Gap impact the income balance?
High foreign investment means higher income payments outflows, increasing the income deficit.
How does an increase in Australian investment abroad affect the current account?
increases income credits from dividends and interest, improving the income balance.
How do interest rates affect the income balance?
Higher interest rates increase debt payments, worsening the income balance.
