Unit 2 AOS2 Part B

Question 1

Definition of International trade

Answer 1

The two way exchange of goods and services across international borders

Question 2

Exports definition

Answer 2

A nation selling the G+S it produced to another nation

Question 3

Imports definition

Answer 3

A nation buying the G+S another nation produced

Question 4

Australia’s top 5 imports

Answer 4

1. Intermediate and other raw materials
2. Consumption goods (cars)
3. Services
4. Finished capital goods
5. Gold

Question 5

Direction of Trade definition and top 3 trading partners

Answer 5

Direction of trade identifies the the countries with whom we trade.
1. China 2. Japan 3. Korea

Question 6

Composition of Trade definition

Answer 6

Structure of a country’s exports and imports, typically categorized by types of goods and services.

Question 7

What is BOGS

Answer 7

Balance on Goods and Services:
The total value of exports of goods and services minus the total value of imports of goods and services measured over a 3 month or a 1 year period.

Question 8

Credits vs Debits in BOGS

Answer 8

Credits are the value of exports whilst debits are the value of our imports

Question 9

BOGS outcomes:
Trade surplus, Trade deficit, Trade balance

Answer 9

Surplus: Credits larger than debits
Deficit: Credits lower than debits
Balance: Credits equal to debits

Question 10

Australia’s top 5 exports

Answer 10

1. Mineral fuels (Oil but not gold)
2. Services (education, transport etc)
3. Manufactures (Machines, mineral concretes)
4. Rural (Meat, wool, grain)
5. Gold

Question 11

The benefits of trade & capital flow

Answer 11

• Improves access to G+S through imports (Increases MLS)
• Exporting improves Material Living Standards as in increases markets to produce to, raising GDP
• Encourages efficiency and innovation through increased competition
• Allows countries to focus on production of goods and services where they have a comparative advantage (Comparative advantage)
• Lowers prices due to higher production for a larger market (Economies of scale)

Question 12

Comparative advantage definition

Answer 12

A nations ability to produce goods and services at a lower opportunity cost than other nations.

Question 13

Economies of scale definition

Answer 13

The decrease in cost per unit of production when producing at a high volume (because fixed costs are spread over a greater number of goods produced).

Question 14

Exchange rates definition

Answer 14

The price of one currency in comparison to another currency

Question 15

Supply and demand of currency

Answer 15

When Australian Dollars are converted to another currency, the AUD is being sold, and thus the supplyof $AUD is raised.

When other countries are converting currency to AUD, the AUD is being bought, and the demand for $AUD is raised

Question 16

Factors affecting supply/demand of a currency

Answer 16

1. Changes in other countries and Australias economic growth
2. Changes in other countries and Australias consumer confidence
3. Changes in selling price of Australian made G+S
4. Changes in Australia’s spending on imported defence and foreign aid

Question 17

Effects of exchange rates on importers

Answer 17

Lower exchange rates makes imports more expensive.
And vice versa.

Question 18

Effect of exchange rates on Balance of Trade & AD

Answer 18

Lower exchange rates cuts spending on foreign G+S, reduces leakages, and can boost AD, GDP, employment, and incomes.
And vice versa.

Question 19

Impact of international economic activity domestically

Answer 19

When economic activity is stronger abroad and their output and inflation rate is rising, overseas consumers tend to buy more Australian exports of commodities and services. This causes our trade balance to strengthen.

Question 20

Definition of commodity

Answer 20

A commodity is a good sold for production or consumption just as it was found in nature.

Question 21

Australia exports commodities (examples)

Answer 21

Crude oil, coal, copper or iron ore, rough diamonds, and agricultural products such as wheat, coffee beans or cotton.
Australia is a large exporter of commodities including minerals and rural products.

Question 22

What does increased commodities mean?

Answer 22

Higher commodity prices = higher value of exports = better trade balance / AD

Question 23

Definition of Trade protection

Answer 23

The effort by governments to protect local import-competing producers from the threat of imports.

Question 24

Definition of Tariffs

Answer 24

Taxes imposed on imports entering the domestic market

Question 25

Definition of Subsidies

Answer 25

Governments giving local producers financial and other forms of assistance.

Extra:
Can involve cash grants or loans at concessional rates.
Works to artificially lower the price of import-competing locally produced products, but adds to the cost structure of the economy.

Question 26

Definition of Quotas

Answer 26

Limiting the volume of imports entering the country.

Question 27

Arguments for Trade Protection

Answer 27

Protect infant industries
Strengthens independence/self sufficiency
Retaliation against trade barriers in foreign markets/ political reasons
Improves economic stability
Short term job creation/protection

Question 28

Arguments against protection

Answer 28

Reduces efficiency
Raises input costs
Contributes to inflation
Depreciates inflation rate

Question 29

Define Trade Liberalisation

Answer 29

And initiative designed to promote free trade and reduce barriers to free trade with other countries.

Question 30

Define free trade

Answer 30

Free trade is a trade policy that does not restrict imports or exports.

Question 31

Describe Australia’s movement towards trade liberalisation

Answer 31

Australia current has no quotas and been lowering tariffs through bilateral FTAs.

Question 32

Benefits of Trade Liberalisation

Answer 32

Improves efficiency and international competitiveness
Bigger markets for Australian exporters
Creates jobs, employments and income
Lowers inflationary pressures all = improves living standards

Question 33

Free Trade Agreements definition

Answer 33

A free trade agreement or treaty is an agreement according to international law to form a free-trade area between the cooperating states.

Question 34

The ‘turn away’ from Trade Liberalisation

Answer 34

Australia’s trading partners have been moving away from trade liberalization.
China-US, BREXIT, withdrawal due to covid.
Australia would be a genuine loser overall.

Question 35

Australia’s policy approach to the issue of trade

Answer 35

Removal of quotas
Reduction of subsidies and tariffs
(More)

Question 36

Example of Australia’s establishment of bilateral free trade agreements

Answer 36

Peru and Australia (PAFTA)
Value: $625 Million
Receive: Beef, sugar, dairy, rice and wine.
Give: Wine, sheep meat, horticulture products, pharmaceuticals, education and wheat

Question 37

Examples of Australia’s involvement in multilateral free trade agreements

Answer 37

The Asia–Pacific Economic Cooperation (APEC)
PromotES freer trade among 21 member countries. Currently, these countries buy about 70 per cent of Australia’s exports

Question 38

Describe the global movement towards trade liberalisation

Answer 38

Most governments believe that freer trade is beneficial.
In 1990 Global tariff rate was 34 per cent, but by 2022 this had fallen to less than 3 per cent.

Question 39

Absolute cost advantage Vs Comparative cost advantage

Answer 39

Absolute advantage refers to the ability to produce more or better goods and services than somebody else.
Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost.

Question 40

Supply/demand graph questions answer structure

Answer 40

Define cause of change - china will need to exhange for aud due to buying iron ore
Link to increase/decrease in supply/demand
Describe favourable/unfavourable shift of supply or demand line
Outcome, equillibriam price, depreciating appreciating etc

Question 41

Cause and effect questions (3 marks)

Answer 41

Define cause of change
Link to supply and demandd because …
Outcome - what happens to balance of trade