Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

HSC Economics > Topic 2: Australia's Place in the Global Economy > Flashcards

Topic 2: Australia's Place in the Global Economy Flashcards

1
Q

Trends in Australia’s Trade Pattern

A

Trade balance is the difference between exports and imports and is currently positive
Australia has a comparative advantage in
-Commodities
-Agricultural products
-Services
Trade as a percentage of GDP increased from 12% in 1980s to 22% in 2018

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Trends in financial flows - debt and equity

A

The adoption of the floating exchange rate in 1983 allowed for greater accessibility of Australian firms to world capital market and FDI into Aus
FDI into Aus and investment overseas by Australians has doubled in the past decade
Equity: The ownership of money or the money of other owners/investors
Net Foreign Equity: The difference between foreign investment and Australian-owned foreign investment
Net Foreign Debt: difference between loans

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Balance of payments

A

Summarises the economic transactions of an economy with the rest of the world

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Structure of BoP

A

Current Account

Capital and Financial Account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Current Account

A

Trade Balance - value of goods and services that we export minus the ones we import
Net Primary Income (NPY) - rent, return, dividend
Net Secondary Income - pension, foreign aid, tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Capital and Financial Account

A 
Capital Account
Capital transfers - involves the net inflow of funds to Australia by permanent migrants
Acquisition/disposal of non-produced, non-financial assets
Financial Account
Direct Investment
Portfolio Investment
Financial Derivative
Reserve Assets
Other Investment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

trends in size and composition

A 
-International Competitiveness
Competitiveness affects export volumes
-Protection policies also impact
-Exchange rate + productivity
-Terms of Trade
Higher ToT will help achieve a CAS
Refers only to price, not quantity
-International Borrowing
The more we borrow from international sources
The more of a capital/financial account surplus
Increase in debits in the current account
-Foreign Investment in Australia
8% increase
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

terms of trade

A

Represent the ratio between export prices and import prices

Favourable ToT: when export prices rise faster than import prices or when export prices fall less than import price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

factors that affect the BOGS

A 
Domestic growth
Overseas growth
Exchange rate
Terms of trade
Narrow Export Base
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

exchange rate

A

the value of a currency in comparison to another currency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

floating exchange rate

A

when the value of a currency is determined by demand and supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

trade weighted index (TWI)

A

The average value of the AUD compared to Australia’s major trading partners currencies, weighted according to their significance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Factors affecting the demand for and supply of AUD

A
  • financial flows
  • trade flows
  • economic conditions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Factors affecting the demand for and supply of AUD - Financial flows

A

Level of Australian interest rates relative to overseas interest rates
- High domestic rates attract foreign investment,
creating higher demand for AUD
- Low domestic rates incentivise saving funds in
overseas banks, creating a high supply of AUD
Investment opportunities
- High opportunities domestically support high demand
for AUD
- High foreign opportunities create a high supply of
AUD
Speculation
- If there is an expectation of future appreciation, there
may be high demand for AUD
- If there is an expectation of a future depreciation
investors may sell AUD, increasing supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Factors affecting the demand for and supply of AUD - trade flows

A

Exports
- High demand for domestic exports leads to high
demand for AUD
Imports
- High demand for imports results in high supply of AUD
Commodity prices and terms of trade
- Improvements in commodity prices and terms of trade
increase the value of exports, causing high demand
for AUD
- A decrease in commodity prices and terms of trade
decreases the value of exports, causing high supply of
AUD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Factors affecting the demand for and supply of AUD - economic conditions

A

Expansionary period
- Upturn in domestic and/or international business cycle
may increase demand for Australia’s exports, creating
high demand for AUD
Contractionary period
- A downturn in the domestic and/or international
business cycle may decrease demand for Australia’s
exports, creating a high supply of AUD
Tastes and preferences
- Affect demand of Aus exports and imports, and
therefore the demand and supply of the AUD

17
Q

Changes in exchange rate - appreciation

A

An increase in the exchange rate of one currency in terms of another
Occurs when demand increases and/or supply decreases

18
Q

changes in exchange rate - depreciation

A

A decrease in the exchange rate of one currency in terms of another
Occurs when demand decreases and/or supply increases

19
Q

fixed exchange rate

A

When the government or RBA officially sets the exchange rate for an economy

20
Q

clean float

A

pure demand-supply model with no central bank intervention (only exists in theory)

21
Q

dirty float

A

a flexible exchange rate but managed to a certain extent

22
Q

managed exchange rate

A

Any official intervention by a government in setting the exchange rate

23
Q

Advantages of a flexible over fixed rate

A

More accurately reflects international competitiveness which encourages free trade
Dutch disease: a boom in one export causes an appreciation in exchange rates making other industries less competitive

24
Q

Disadvantages of flexible over fixed rate

A

volatile or sudden changes cause future transactions to become uncertain, which heavily influences speculative investment
Depreciations may cause inflation, as imports are more expensive and this price increase can be reflected in the domestic interest rate

25
Q

Direct intervention by RBA on exchange rates

A

The RBA buys/sells foreign exchange when the AUD goes either too high or too low
If AUD is too high the RBA sells AUD reserves to increase supply, and decreases its value
If the AUD is too low, the RBA buys AUD reserves to increase demand and increase its value

26
Q

Indirect Intervention by RBA on exchange rates

A

Monetary policy: Interest rates set by the RBA have a secondary function of changing the interest rate between Australia and overseas

27
Q

Effects of fluctuations in exchange rates on the economy - Positive Impacts of Appreciation

A

Cheaper imports may cause lower import inflation as prices are lower
Cheaper imports encourage allocative efficiency of resources resulting in a long term shift to more competitive industries
Cheaper imports mean consumers and firms can buy a greater quantity of products due to increased purchasing power, therefore improving living standards and lowering input costs
Valuation effect on debt decreases interest servicing costs on foreign debt and the overall AUD value of foreign debt

28
Q

Effects of fluctuations in exchange rates on the economy - Negative Impacts of Appreciation

A

Exports are more expensive, and we expect a fall in the quantity demanded, leading to a long term loss of investors, causing slower economic growth
Cheaper imports may cause domestic firms to lose competitiveness which may increase unemployment
Valuation effect on assets

29
Q

Effects of fluctuations in exchange rates on the economy - Positive Impacts of Depreciation

A

exports are cheaper, so we expect an increase in quantity demanded causing a long term increase in investment and economic growth
More expensive imports may cause domestic firms to increase competitiveness which may increase employment
Valuation effect on assets

30
Q

Effects of fluctuations in exchange rates on the economy - negative Impacts of Depreciation

A

Imports are more expensive, which may cause imported inflation
More expensive imports decreases living standards and increases input costs due to decreased purchasing power
Valuation effect on debt

31
Q

australia’s policies regarding free trade

A

Since 1988 the government has reduced protection on manufacturing industry
2011 the government released a Trade Policy statement outlining its commitment to free trade
Became a member of GAT in 1947 and WTO in 1994
Heavily protected between WW2 and 1970
Average tariff rate of 25% in 1970
APEC
AANZFTA
TPP
RCEP

32
Q

JAEPA

A

Around 98% of Australian merchandise exports to Japan will receive preferential access or enter duty free
Reduction or elimination of tariffs on agricultural commodities - 38.5% tariff on Aus beef will be halved over 15 years
Elimination of 15% tariff on Australian wine by April 2021
Removal of tariffs om Japanese goods such as cars, electronics and whitegoods
Aus law firms have greater access to Japanese legal market
13% of exports go to Japan
Japan previously had a very protected agricultural industry

33
Q

ASEAN

A

Regional intergovernmental organisation made up of 10 southeast asian countries which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational and socio cultural integration among its members
Aus and NZ joined in 2010 (ASEAN-Australia-New Zealand Free Trade Area) - ASEAN nations committing to eliminating tariffs on 96% of Australian exports to the region
This is the largest preferential trade agreement that Australia has concluded representing 20% of Australia’s trade in goods/services.

34
Q

CHAFTA

A

China is Australia’s top export destination - 30%
Tariffs to be eliminated in ag and resources
More opportunities for foreign investment
Reduced barriers to labour mobility
Work and holiday arrangements
Exports to China nearly doubled from 87 billion in 2015 to 169 billion in 2019

35
Q

CPTPP

A

11 countries around the pacific
Eliminates 98% of tariffs
New trade agreements with Canada and Mexico
No foreign equity limits on foreign ownership of uranium mines

36
Q

implications of Aus FTA for individuals

A

Reduction in prices
More choice in products
More employment opportunities
Likely to cause more structural unemployment

37
Q

implications of Aus FTA for firms

A

Must become more competitive
Lower costs through cheaper inputs
Larger export markets

38
Q

implications of Aus FTA on government

A

Less expenditure on protection

More tax revenue from businesses making profits due to more exports

39
Q

Implications for Australia of protectionist policies of other countries and trading blocs

A

Weakens world growth
Reduced exports and foreign investment
Rising prices

HSC Economics (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions