ECN Flashcards
What do the following letters represent in the Five-Sector Circular Flow Model of Income?
Y
C
S
T
M
O
I
G
X
Y = Income
C = Consumer Expenditure
S = Savings
T = Taxation
M = Imports
O = Value of Output Production
I = Investment Expenditure
G = Government Expenditure
X = Exports
X - M = Net Exports
What is the formula for GDP and what else can it be used for?
GDP = C+ I + G + (X - M). It is also used to measure Aggregate Supply and Demand
What is the difference between Aggregate S/D and regular S/D.
Aggregate S/D refers to the Supply and Demand of an entire economy, rather than just for a specific Good or Service
What is a MNC?
MNCs, or Multinational Corporations, are companies that operate in several countries, but are managed from one country.
How is Standard of Living impacted by the foreign sector?
When a country has more imports, there SoL increases. When they reduce their SoL decreases. This is for any non self-sufficient economy.
What is Intra-Company Trade?
Trade between affliates of one large organisation. Eg Trade between a MNC’s subsidaries.
What are economies of scale?
Cost efficiencies that are derived by producing a large volume of standarised products.
Define External Stability
External Stability is the situation in which there are no unwanted movements of foreign reserves in the balance of payments.
Define Absolute Advantage
Absolute Advantage is the ability of a nation to produce commodities more efficiently than another nation.
What is Specialisation?
Specialisation is the specific use of a resource in narrowly defined economic activities.
Define Comparative Advantage
The Ability of a nation to produce a product at a lower opportunity cost of production than another nation.
Define Competitive Advantage
The trade advantage obtained through the capacity of a nation’s industries to innovate and upgrade
What is the Law of One Price?
It is a measure of economic integration, based on the theory that prices of similar products traded in linked markets should converge to one price.
What are the two types of the TWI, and what is the difference.
Nominal - focuses on trading currency per unit
Real - focuses on trading G&Ss per unit. Considered more accurate as it can measure inflation.
What are Bilateral Exchange Rates
Average currency between 2 countries relative to trading.
What are the types of Exchange Rates
Fixed / Pegged and Floating
When is a fixed Exchange Rate better?
If the country believes their government or economic processes may fail.
What can be the advantages of a floating exchange rate?
Changes in the global economic situation can make an individual economy more valuable and hence, gain significant value from a change in exchange rate.
Define Internal Stability?
A state of the economy in which there is full employment and acceptable levels of inflation
Define External Stability
There are no unwanted movements of foreign reserves in the balance of payments
Define Balance of Payments:
A summary of a nation’s payments to, and receipts from, the rest of the world over a year
Define Factor Endowment
The supply of the factors of production that exists in a country
What are the 5 globalisation markets?
Consumer Markets, Production Markets, Labour Markets, Capital Mobility, Technology Transfers
Define Capital Mobility?
Capital mobility refers to the ease with which financial assets or investments move across borders, allowing countries to attract foreign direct investment (FDI) and financial flows.
Define exchange rate?
Exchange rate is the price of one currency in terms of another
What is Terms of Trade?
TOT = Index of AVG Export Prices / Index of AVG Import Prices x 100
What happens when TOT falls?
Exports become cheaper, imports more expensive (lower standard of living)
What happens when TOT rises?
Exports more expensive, imports cheaper (higher standard of living)
What is the TWI?
The Trade-Weighted Index (TWI), is the price of the Australian dollar in terms of a group (or ‘basket’) of foreign currencies based on their share of trade with Australia.
What is the benefit of the TWI, over bilateral exchange rates?
While bilateral exchange rates are the most frequently quoted exchange rates, the TWI provides a broader measure of whether the Australian dollar is appreciating or depreciating against the currencies of its trading partners.
What is the difference between Patterns vs Trends vs Relationships.
Patterns: data re-occurring or an ‘exception’ (out of the ordinary).
Trends: expected outcomes or predictions based on current sequence of events (increase, decrease, fluctuations, constant
Relationships: Why is the data like this? What happened in an economy to make this effect or what will happen based on this effect?
What are the differences between direct and indirect effects on changes in exchange rate?
Direct Effect is the immediate change to the price of goods.
Indirect Effects are the changes due to inflation and changes in economic activity.
What will happen if Demand for AUD increases?
Appreciation of AUD
What will happen if Demand for AUD decreases?
Depreciation of AUD
What will happen if supply of AUD decreases?
Appreciation of AUD
What will happen if supply of AUD increases?
Depreciation of AUD
What is the Export/Import price index?
A statistical measurement used by economists to proudice an index number used to monitor fluctuations in Export/Import prices.
