Just the Others Flashcards
Sustainability of Australia’s Foreign Liabilities
Dept Trap Theory
Like the Euro Sovereign Debt Crisis, most debts are by private industries and won’t affect the economy
What are the main changes implemented by the Australian Government in terms of protection
- In 1973 the Whitlam government introduced a 25% across the board cut in protection
- Early 1980s saw tariff protection rise again to 25% due to intense lobbying of government by PMV and TCF industries.
- To around 2% now
Why has Australia’s Terms of Trade deteriorated in recent times
Australia’s ER has fallen in recent times from a high of $1.11 US in Sept 2011 to around $0.70US at present. Consequently, imports are more expensive to purchase leading to an increase in the Import Price Index.
What is the relationship between the Current Account Deficit and Capital and Financial Account
The balances on the current account and the capital and financial account are closely related because in every year they add up to zero. In other words, a deficit on the current account will be equal to the surplus on the capital and financial account (although there is usually a small difference explained by statistical errors and omissions). This means that an increase in the capital and financial account surplus will result in an increase in the current account deficit and vice versa. A long-term relationship also exists between the two accounts, because over time, surpluses on the capital and financial account will increase foreign liabilities, which in turn will increase the current account deficit (through servicing costs for foreign liabilities on the net primary income account).
What are the effects of protectionist policies on a domestic economy
Short Term:
- higher domestic production
- job creation
- allow infant industries to reach economies of scale
Long Term:
- inflation
- lower levels of productivity and exports
- higher unemployment
- reduce living standards
