The Balance of Payments

Question 1

1. what are 3 parts of CA
2. what were their balances in 2021 (billions)
3. what was total 2021 CAB

Answer 1

trade in goods ($27)
trade in services ($1.69)
income (-$8.4)
CAB - 20.4

Question 2

describe the 2 categories of primary income in the CAB

Answer 2

1. compensation of employees (wages/salaries)
2. investment income
   a) equity investment - dividends
   b) interest income - loans

Question 3

what is a debit and a credit in the primary income account

Answer 3

credit - aus resident recives income from overseas investment
debit - income payments are made to foreign investors

Question 4

what is secondary income

Answer 4

involves transactions where real or financial resources are provided but nothing of economic value is returned (foreign aid/donations)

Question 5

CFA - what is the capital part of the capital and financial account

Answer 5

capital transfers (aid) and the aquisition/disposal of no produced, non financial assets (copyright, trademarks)

Question 6

when is a surplus recorded in the Financial Account

Answer 6

records surplus when an increase in foreign investment into Aus (capital inflow) exceeds capital outflow

Question 7

what are the 4 types of invetsment in teh FA

Answer 7

1. direct investment + (if resident obtains >10% of equity)
2. portfolio invetsment - (<10%)
3. reservice assetts (financial assets controlled by RBA gold)
4. other

Question 8

what 3 factors cause change in the balance of goods

Answer 8

1. commodity prices
2. domestic economic activity
3. inflation rates

Question 9

what causes change in the balance of services

Answer 9

income level/living standard (travel and transport services)

Question 10

what causes change for income balance

Answer 10

interest payments on foreign debit (nterest rates)

Question 11

what are cyclical causes of CAD

Answer 11

temporary and frequently changed

Question 12

what are the 5 cyclical cause of CAD

Answer 12

1. domestic business cycle
2. world business cycle
3. exchange rate
4. commodity prices.TOT
5. relative inflation

Question 13

what are structural causes of CAD

Answer 13

permanent and changes gradually

Question 14

what are 3 structural causes of CAD

Answer 14

1. foreign investment
2. foreign liability
3. invetsment/savings gap

Question 15

what is the investment savings gap

Answer 15

CAB = S - I

we dont have enough savings to fund sectors of economy so we rely on investment which increases CAD

Question 16

what 6 factors cause a decrease in CAB

Answer 16

1. fall in ToT
2. decline in international comp
3. higher rate of econ growth
4. increased foriegn ivnestment
5. decline in national savings
6. increase in investment