everything your dumbarse needs to know

Question 1

Impacts of Boom

Answer 1

High confidence
high consumption (durables and luxuries)
high profit
high utlaisation of productive capacity (bottlenecks)
low unemployment
high labour market participation
high borrowing
high spending low savings

Question 2

Leading, coincident, lagging indicator

Answer 2

Leading - share prices, building approvals, confidence
coincident - gdp, retail sales, job advertisements
lagging - interest rates, unemployment, inflation (CPI)

Question 3

Factors facilitating globalisation

Answer 3

gov policy changes (ChAFTA, WTO, unliateral)

advances in transportation and communication

Question 4

Effects of globalisation

Answer 4

Higher living standards, low inflation, high employment, economic cooperation and multiculturalism
loss of economic sovereignity, structural change and bad behaviour by MNCs

Question 5

Arguments for and against trade liberalisation

Answer 5

AGAISNT :
infant industry
national security
cheap foreign labour
anti dumping

FOR:
high income and living standards
efficiency
consumer gain and specialisation

Question 6

WTO

Answer 6

promotes trade iberalisation through negotiations
must-favoured nation principle
settles trade disputes

Question 7

Multiplier definition and formula

Answer 7

Factor that measures increase in consumption as result of increased investment
1/(1-MPC) = k

Question 8

What makes up AE

Answer 8

Consumption - 56% (expectations, stock of wealth, interest rates, disposable income and gov policies)
Investment - 20% (expectations, interest rates, profitability, gov policies, stability)
Gov spending - 25% (dom growth)
Net Exports - -1% (economic growth, ToT, ER)

Question 9

Causes of CAD

+ structural and cyclical reasons

Answer 9

Savings-investment gap
Aggregate expenditure > aggregate production
Cyclical - after 08 import of consumer goods fell but exports steady from Asia
Structural - level of commodity prices and ToT, change in exchange rate AUD, end of mining boom = reduction imports, new trade agreements, international competitiveness, natural shocks

Question 10

Effects of movement on ToT economy

Answer 10

producer and consumer surplus, living standards and national income, purchasing power (20% GDP from exports), consumption outside of PPF and employment
Trade balance, national income, aggregate demand, investment, AUD, CPI

Question 11

Top 4 Trading Partners (direction)

Answer 11

China, USA, Korea, Japan

Question 12

Main exports (composition)

Answer 12

Iron ore, coal, education, tourism

Question 13

Structure BOP

Answer 13

Current Account - goods, services, primary income, seconadary income
Financial account - flow of foreign investment (portfolio, direct and RBA flows)
Capital account - foreign aid made of capital

Question 14

Return to LRE

Answer 14

1) cost of labour causes first shift
2) business and consumer confidence
3) economy can fix itself but speeds up with monetary policy and discretional fiscal

Question 15

Compatible and conflicting EPOs

Answer 15

Compatible:
economic growth and full employment
full employment and equitable income distribution
price stability and economic growth
efficient resource allocation and productivity
Conflicting:
price stability and full employment
price stability and economic growth
economic growth and structural unemployment
economic growth and equitable income distribution

Question 16

Benefits and costs FI

Answer 16

Benefits:
closes savings-investment gap, growth and employment, increase international competitiveness, knowledge transfer from MNCs
Costs:
loss of sovereignity, outflow of primary income, vulnerability in future economic crisis, speculative behaviour

Question 17

How FIA impacts BoP

Answer 17

• financial inflows from borrowing and sale of assets recorded in financial account
• increase FIA increase CAD

Question 18

Factors influencing amount of FIA

Answer 18

Profit expectations, interest rate differentials, political stability (commodity prices, exchange rate)

Question 19

Factors affecting ER

Answer 19

relative interest rates, relative inflation rates, change in ToT, domestic and world economic growth, international capital flow
speculative activity

Question 20

Impact of increased ER economy

Answer 20

contractionary effect Aus macro
increased imports, less exports, trade balance deficit increases, deflationary
Exports in manufacturing and rural industries less competitive
reduced level of foreign debt
potential for two speed economy + dutch disease

Question 21

Strengths and weaknesses fiscal

Answer 21

Strengths: Direct (short outside lag), spending tap and multiplier effect, compliments auto stabilisers
Weaknesses: Recognition and decision lag, inflexible, not effective in boom and political constraints

Question 22

How to fund government deficit

Answer 22

Sell gov. bonds = crowding out
Borrowing RBA = inflation
Borrowing overseas = increased AUD, less exports more imports

Question 23

Strengths weaknesses monetary

Answer 23

Strengths: flexible, politically neutral, effective during boom (direct impact due to transmission mechanism and floating exchange rate)
Weaknesses: less effective in trough (liquidity trap), timelags (effect) and blunt instrument

Question 24

transmission mechanism

Answer 24

cost of borrowing - price and return on savings
cash flow - price of servicing loans and impact on disposable income
asset prices and wealth - share attractiveness and wealth effect
exchange rate - demand for AUD, FI, X and M

Question 25

Endogenous and exogenous factors structural change

Answer 25

ENDOGENOUS - businesses seeking to gain comparative advantage, r+d, innovation for products and competitive forces
EXOGENOUS - drop in birthrate 70s+80s and increase in life expectancy = aging population, rapid growth in Asia = increased D commodities, environmental concern

Question 26

Causes of Productivity and two case studies

Answer 26

investment in capital and infrastructure, innovation, investment in human capital, enterprise and competition

Trade Liberalisation - inefficiency from 1980s slowly reduced as domestic economies forced to develop comparative advantage. WTO and ChAFTA. Resource flow more efficient
Research and Innovation - 2.1% of GDP spent on research - reduces cost of production and gain competitive advantage. Basic, applied and experimental