Part Three: Australia's Place in the Global Economy

Question 1

What is Australia’s rank in the HDI

Answer 1

2nd

Question 2

Where is Australia placed economy size wise

Answer 2

13th

Question 3

What reasons allowed financial flows to increase

Answer 3

1) International capital markets opened up
2) Exchange rates were floated
3) Technological changes

Question 4

What is a Net Capital Importer

Answer 4

In Australia, the level of foreign investment is constantly remaining above the level of Australian investment overseas

Question 5

What is the level of domestic savings in Australia

Answer 5

Australia has a low level of domestic savings, we just love to spend

Question 6

What are the benefits of foreign investment

Answer 6

1) Increased employment
2) Increased GDP/Economic growth
3) Increased capital (skill + knowledge)
4) Better Budget Outcome (Increased Govt. Revenue & Decrease in welfare payments)

Question 7

What are the disadvantages of Foreign Investments

Answer 7

1) Increased Real Estate investment —> Increased Prices
2) Selling nations assets/Productive capacity
3) Risk of failing investment (i.e. profit lower than investment)

Question 8

What is the Balance of Payments

Answer 8

Is the record of the transaction between Australia and the rest of the world during a given period, consisting of the current account and the capital and financial account

Question 9

What appears on the Current Account

Answer 9

Net Goods
Net Services 
Balance on Goods and Services (6.2)
Net Primary Income 
Net Secondary Income 
Balance on Current Account (-54.1)

Question 10

What appears on the Capital and Financial Account

Answer 10

Capital Account: 
- Foreign Aid 
- Intellectual Property 
Financial Account:
- Direct investment 
- Portfolio investment 
- Reserve investments 
- Other investments

Question 11

Relationship between Current Account and the Capital and Financial Account

Answer 11

An increase in the current account deficit (CAD) will result in a rise in the capital and a financial account surplus

Question 12

What is the Trend in CAD

Answer 12

Pre-GFC = 6%
Post-GFC = 3%
2007-08 - CAD improved because of cyclical factors —> a global boom in minerals & energy exports
Plus decreased global interest rates & increased savings domestically + decreased domestic growth

Question 13

What are the Cyclical Factors affecting Balance on Goods and Services

Answer 13

Exchange Rate
Terms of Trade
Domestic Growth
International Business Cycle

Question 14

What are the Structural Factors affecting Balance on Goods and Services

Answer 14

Narrow Export Base

International Competitiveness

Question 15

What are the Cyclical Factors affecting the Net Primary Income

Answer 15

Exchange Rate/Valuation Effect
Domestic &Global Interest Rates
Domestic Business Cycle/Company Profits

Question 16

What are the Structural Factors affecting the Net Primary Income

Answer 16

Savings-Investment Gap

Fiscal Consolidation

Question 17

The impact of a high Current Account Deficit

Answer 17

Increase the level of foreign liabilities
Foreigners will see this as a risk, cause depreciation
Government take a policy action ——> lower rates of economic growth

Question 18

What are the Terms of Trade

Answer 18

Represents the ratio between a country’s export prices and its import prices, in a given period of time

Question 19

What is a direct investment

Answer 19

Long term, more than 10% of the total value of a company

Question 20

What is portfolio investment

Answer 20

Short term, less than 10% of the total value of a company

Question 21

What is international competitiveness

Answer 21

The ability of an economy’s exports to compete in global markets

Question 22

What is the linkage between international competitiveness and the BoP

Answer 22

Increase in IC ——> rise in a country’s export revenues ——> less imports ——> improved CAD

Question 23

What factors affect international competitiveness

Answer 23

• Low inflation
• Increased productivity
• Appreciation of the AUD

Question 24

What are the effects of a fall in international competitiveness

Answer 24

Australia export less and import more, worsening the CAD

As production sinks, real wages will fall and unemployment will rise