outcome three Flashcards
gains from international trade
-lower prices: access to cheaper suppliers
-greater choice: more markets (imports provide consumers with greater choice)
-access to resources: businesses can access resources from overseas
-increased competition and efficiency: encourage businesses to be more productive in areas they specialise in
credits/inflows (positive entries)
debit/outflows (negative entries)
money received by australia
money sent from australia
what is the Balance of Payments
+ 2 components
record of the financial transactions between Australia and the rest of the world — must always be 0
current account
capital and financial account
what is the current account (CA) + components
records all current transactions
components:
balance on merchandise table: records exports and imports of goods (credits: iron ore, coal, wine, beef, medicines) (debits: tvs, cars, furniture)
net services: records exports and imports of services (credits: education, tourism. debits: entertainment)
net primary incomes: records payment of income flows that service net foreign liabilities or reflect payment for foreign labour (credits: money received on foreign shareholdings. debits: money paid to foreign owners of australian assets)
net secondary incomes: records the transfer of funds in one direction {credits: gifts sent from oversease. debit: foreign aid to Low income countries)
what is the CAD and CAS
deficit : debit exceed credit
surplus : credit exceed debit
financial account (CAFA)
records how australia finances a current account deficit
structural causes for CAD:
→ australia has a small population that cannot quickly maximise growth, so we must borrow to invest
cyclical causes for CAD:
→ when growth is stronger, the gap between savings and investment grows which means we need to borrow money
net foreign debt equation and cause
australias total borrowing - australias total lending
-lack of domestic savings: cannot finance our high levels of investment
-lower value for australian dollar: our assets are cheaper for other countries
exchange rate: meaning, measurement
value of one currency in terms of another
measurement: compared against the US dollar
exchange rate factors that affect its value
relative interest rates: IR goes up then ER goes up
demand and supply factors
foreign investment
relative rates of inflation: if high, then ER goes down
ratings and speculation: investors perception of a currencies true value
net foreign equity
value of australian owned foreign assets - value of foreign owned australian assets
exchange rate impact on goals
eco growth: if AUD depreciates, then eco growth increases
inflation: depreciating AUD = increase inflation
terms of trade: meaning, if increase/decrease, measurement, factor that affects it
terms of trade: ratio of the prices received for australian exports relative to the prices paid for imports
if TOT increases: nation can buy more imports (favourable)
if TOT decreases: nation can buy less imports (unfavourable)
measurement: terms of trade index
factor that affect TOT:
-production costs
TOT impact on goals, CA, Living standards:
eco growth - higher TOT means higher eco growth
full employment - high tot means higher demand for labour so goal is positive
low inflation - high tot means higher demand so higher inflation
CA - high TOT higher BOMT
living standards - high TOT high LS
