Trade/BoP Flashcards
How many jobs in Australia are export related?
⅕
What is the Australian economy ranked?
12th largest
What does Australia specialise in?
Primary goods/natural resources (agriculture/minerals: coal, iron ore,natural gas)
Why did specialisation develop?
Different natural resource endowments around the world
Why does Australia specialise in what it does?
Vast mineral deposits/energy resources, large areas of arable land for crops/livestock
Endowment of natural resources
The resources possessed by a region
When will a country export or import?
Import if world price is cheaper than domestic, export if domestic price is cheaper than world.
Are imports or exports more important?
Neither; equal importance
Why is trade worth it if one group loses?
Gains exceed the losses
Why do imports increase economic welfare?
Consumer gain outweighs producer loss, overall welfare increases
How can countries consume outside their PPF?
Specialisation and trade
What are Australia’s 3 largest trading partners?
USA, Japan, China
Australia’s largest export partners
Japan, China, Korea
Australia’s largest import partners
China, US, Japan
How much of 2-way trade do the 3 largest trade partners account for?
43%
How much of exports do the 5 largest partners account for?
62%
What factors affect trading partners?
Geography, political/historical links,
What is Australia’s 4th largest export?
Education
Largest imports
Personal travel, petroleum, passenger vehicles
What does trade do to an economy?
Boost economic development/growth, raise living standards
Trade surplus
Exports exceed imports
Trade deficit
Imports exceed exports, negative net exports
In the past 10 years, how many recorded a trade surplus?
2
Which side do exports benefit?
Production
Which side do imports benefit?
Consumption
Balance of goods
Record of all transactions between Australia and the world
Which parts of the balance of payments must be equal?
Credit & debit, current & capital/financial
What do exports depend on?
Relative competitiveness, conditions in other countries
Exchange rates
Price of one currency in terms of another
How is the value of a currency determined?
Demand/supply
How is the demand for a currency determined?
Demand for exports/foreign investment inflows
How is the supply for a currency determined?
Demand for imports, investment outflows
Why is natural gas becoming increasingly more popular than coal?
Cleaner, less negative externalities
Parity with the greenback
Equal to the USD
Why is it a “balance”?
Credits offset debits, current offsets financial/capital, =0
Trade balance
Difference between goods and services exports and imports (net exports)
Primary income
Income earned by residents from non-residents/paid to overseas residents
Categories of primary income
Compensation of employees, investment income
Categories of investment income
Dividends, reinvested earnings, interest
Why is Australia an attractive economy to the rest of the world?
Stable political environment, skilled/educated workforce, vast natural resources, close to fast growing east Asia
Secondary income
One-sided, nothing of economic value received in return
Balance on current account
Goods and services + net income (primary + secondary)
Capital account
Records non-produced, non-financial assets, flows of migrants’ assets, intangible asset exchange
Financial account
Financial assets, liabilities
Liabilities
Money owed; debt
Direct investment
Share of 10%+ of foreign enterprise owned, significant shareholding
Why does Japan record a current account surplus and financial account deficit?
Excess savings
Cyclical factors
Related to business cycle
Examples of cyclical factors
Domestic/world business cycles, exchange rate, commodity prices
Structural factors
Setup of the economy
Examples of structural factors
S-I gap, foreign investment/debt
How are commodity prices set?
Internationally
What changes the CAB?
Response to world economy
Function of BOP
Summarise economic transactions between domestic/foreign entities
How is it recorded?
Double entry booking system
Ceteris paribus
All other factors held constant
Investment
Importing foreign savings
Current account balance =
Savings - investment
When does a current account deficit occur?
Imports and debits exceed exports and credits
Trade balance
Goods + services
Transfers
Unrequited
BoP
A country’s record of overseas economic transactions
