Part Three: Australia's Place in the Global Economy Flashcards
What is Australia’s rank in the HDI
2nd
Where is Australia placed economy size wise
13th
What reasons allowed financial flows to increase
1) International capital markets opened up
2) Exchange rates were floated
3) Technological changes
What is a Net Capital Importer
In Australia, the level of foreign investment is constantly remaining above the level of Australian investment overseas
What is the level of domestic savings in Australia
Australia has a low level of domestic savings, we just love to spend
What are the benefits of foreign investment
1) Increased employment
2) Increased GDP/Economic growth
3) Increased capital (skill + knowledge)
4) Better Budget Outcome (Increased Govt. Revenue & Decrease in welfare payments)
What are the disadvantages of Foreign Investments
1) Increased Real Estate investment —> Increased Prices
2) Selling nations assets/Productive capacity
3) Risk of failing investment (i.e. profit lower than investment)
What is the Balance of Payments
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
What appears on the Current Account
Net Goods Net Services Balance on Goods and Services (6.2) Net Primary Income Net Secondary Income Balance on Current Account (-54.1)
What appears on the Capital and Financial Account
Capital Account: - Foreign Aid - Intellectual Property Financial Account: - Direct investment - Portfolio investment - Reserve investments - Other investments
Relationship between Current Account and the Capital and Financial Account
An increase in the current account deficit (CAD) will result in a rise in the capital and a financial account surplus
What is the Trend in CAD
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
What are the Cyclical Factors affecting Balance on Goods and Services
Exchange Rate
Terms of Trade
Domestic Growth
International Business Cycle
What are the Structural Factors affecting Balance on Goods and Services
Narrow Export Base
International Competitiveness
What are the Cyclical Factors affecting the Net Primary Income
Exchange Rate/Valuation Effect
Domestic &Global Interest Rates
Domestic Business Cycle/Company Profits
What are the Structural Factors affecting the Net Primary Income
Savings-Investment Gap
Fiscal Consolidation
The impact of a high Current Account Deficit
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
What are the Terms of Trade
Represents the ratio between a country’s export prices and its import prices, in a given period of time
What is a direct investment
Long term, more than 10% of the total value of a company
What is portfolio investment
Short term, less than 10% of the total value of a company
What is international competitiveness
The ability of an economy’s exports to compete in global markets
What is the linkage between international competitiveness and the BoP
Increase in IC ——> rise in a country’s export revenues ——> less imports ——> improved CAD
What factors affect international competitiveness
- Low inflation
- Increased productivity
- Appreciation of the AUD
What are the effects of a fall in international competitiveness
Australia export less and import more, worsening the CAD
As production sinks, real wages will fall and unemployment will rise
