U2 extension Flashcards
What is an open economy
= one that interacts freely with other economies in the world in the form of trade and finance
What is a closed economy
= one that does x interact freely with other economies in the world in the form of trade + finance
What are exports
= transactions b/n eco agents in AUS + the rest of the world in the process of purchasing g/s produced in AUS
What are imports
= transactions b/n eco agents in AUS + the rest of the world in the process of purchasing g/s produced by another nation
What are trade barriers
= impediments 2 free trade in the form of tariffs, subsidies, quotas, etc
What is trade liberalisation
= removal of trade barriers / reduction in trade protection
Why do countries engage in trade
1) lower prices 4 c’ers
2) greater choices 4 c’ers
3) ability 4 bus 2 increase economies of scale
4) access 2 more resources 4 bus + gov.t
What is economies of scale
= volume that a firm needs 2 produce so that it is able to effectively cover fixed costs + operate in a market at a competitive level
Consequences of international trade regarding access 2 more resources 4 bus + gov.t
-> AUS bus have inc access 2 physical, foreign human + foreign finance capital
-> inc qty + qual of resources inc ability of gov.t 2 inc L.S
How material living standards are impacted by international trade
- bus have access 2 g/s allowing 2 inc production that inc jobs + dec prices = inc access 2 g/s via inc disposable income + purchasing power
- gov.t have access 2 g/s allowing 2 inc infrastructure -> dec costs 4 bus b/c dec bottlenecks = dec prices = inc access 2 g/s
How non material living standards are impacted by international trade
- inc jobs = dec financial stress + dec crime rates, etc
- inc infrastructure = inc access 2 public transport = inc air quality = better quality of life
- improved access 2 health + edu = inc quality of life through inc mental + physical health + literacy rates
What are the ultimate benefits of trade
1) boosts lvls of gdp growth
2) creates jobs t/f dec lvls of unemployment (h/r in S.T can -> structural unemployment)
3) ensures low prices
What is the structural component of current account deficit
= relates to aggregate supply side of economy
What are the structural component factors of the current account deficit and describe
1) saving /investment imbalance = due 2 being young + small country Aus x have lvl of savings required 2 fund investment in our economy that is required 2 max potential growth
2) Low lvl of international competitiveness relatively = due 2 low lvls of efficiency / productivity + high production costs (high min wage)
What is the cyclical component of Current account deficit
= movement in the CAD that is tied 2 changes in the economic cycle / lvls of economic activity in Australian economy
(AD side of economy)
What are the cyclical component factors of current account deficit
1) Lvls of disposable income impact spending on imports
2) Interest rates impact lvls of borrowing + spending on imports
3) C’er + bus confidence impacts spending on imports
4) The exchange rate impacts lvls of net exports (spending on both exports + imports)
5) Rates of economic growth overseas impacts spending on net exports (X-M)
What is the consequence of strong economic activity related to current account deficit
-> due 2 strong AD = gap b/n savings + investment grows + strong spending includes greater imports
- Net primary income = inc debits as we borrow more over seas
- Trade balance moves further into deficit (inc debits in BoGS)
What is the consequence of weak economic activity related to current account deficit
-> due 2 weak AD = gap b/n savings + investment shrinks + weak spending inc less imports
- Net primary income = dec debits as we borrow less from over seas
- Trade balance moves closer to surplus (dec debits in BoGS)
Exam tip-> Non negotiables when talking about the current account deficit
1) Define CAD
2) must reference whether there is an inc/dec in credits/debits in that account
3) subaccount that is likely to be affected
What can is a credit
= whenever money is received
(positive in the account)
What is a debit
= whenever money is paid
(negative in the account)
What is the balance of payments
= record of the financial transaction between residents of Australia and residents of the rest of the world
What is the current account
= records all receipts + payments of a “current nature”
current -> x creating any future obligations
What is the capital and financial account
= records all receipts +payments of a capital nature
capital- > creates future obligations from transactions
