Trend In the Current Account

Question 1

what is the most dynamic balance in the CA and what causes these fluctuation

Answer 1

goods - as it is driven by changes in commodity prices and changes in domestic economic activity

Question 2

what happens to the trade balance if the world economy grows

Answer 2

commodity prices increases due to increased demand, boosting export value and increasing trade balance (surplus)

Question 3

what happens to the trade balance if the domestic economy grows

Answer 3

increased foreign investments increases demand for capital good imports, decreases trade balance
increased national income increases demand for consumer good imports, decreasing trade balance

Question 4

what is a relationship trend that can be said from the increase in domestic growth resulting in CAD

Answer 4

neg relationships between business cycle and BOP

dom econ contracts = surplus (2020)

Question 5

describe the services balance over the years

Answer 5

we are usually deficit because Aus imports travel and transport services (freight) are expensive as we are isolated

Question 6

why did Aus record a service surplus in 2020

Answer 6

there was no travel

Question 7

why do we usually record a primary income deicit

Answer 7

aus relies on foreign investment to fund investment/saving gaps: interest payments on foreign debt and payment of dividends to foreign investors is outbound flow

Question 8

what is the effect of an increase in dom econ growth and foreign investment on CAD (income)

Answer 8

when the dom econ is strong comapnies flourish so there is more foreign investment meaning more dividend and interest payments need to be made, this increases teh CAD

Question 9

what happened to income in 2020

Answer 9

AUs eocnomy contracted so FDI fell = CAD decreases = CAS