UNIT 3 AOS 3 - part 2 - TOT/IC Flashcards
def
Exchange rate
+ factors influencing + TOT
The value of the Australian dollar when compared to another currency, or a basket of currencies of our majour trading partners (bold part is just TWI (whole thing is exchange rate))
Factors:
Relative interest rates (cost of borrowing money from banks as well as return on savings)
* interest rate > than trading partner interest rate
* (attract overseas investment opporunities)
* ↑capital inflow (↑payments in AUD = ↑money in AUST)
* ↑demand for AUD on the foreign exchange market
↑AUD (appreciate)
TOT
* ↑TOT (world commodity prices - since exports increase in the TOT ratio)
* ↑demand for AUD on the foreign exchange market
* ↑AUD (appreciate)
demand for exports
* ↑demand for X
* ↑demand for AUD on the foreign exchange market
↑AUD (appreciate)
demand for imports
* ↑demand for M
* ↑supply for AUD on the foreign exchange market (put AUD in international markets to buy imports)
* ↓AUD (depreciate)
foreign investment
* ↑foreign investment (mining)
* ↑capital inflow
* ↑demand for AUD on the foreign exchange market
↑AUD (appreciate)
relative rates of inflation
* inflation increasing at a faster rate than overseas
* Aust g/s appear more expensive relative to another countries g/s then previously
* trading partner incentives to trade with other trading partner
* ↓IC (sell less exports)
* ↓X
* ↓demand for AUD on the foreign exchange market
↓AUD (depreciate)
Credit rating + speculation
* fall in credit rating
* ↓confidence in AUD
* ↓ capital inflow
* ↓demand for AUD on the foreign exchange market
* ↓AUD (depreciate)
OR
- fall in credit rating
- ↓confidence in AUD
- ↑capital outflow
- ↑ supply for AUD on the foreign exchange market
↓AUD (depreciate)
also add: WHICH ALSO INDICATES PURCHASING POWER AS WELL (not really needed but good to have)
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International competitiveness
+ factors influencing
Definition: International competitiveness refers to a country’s ability to compete in global markets for goods + services, where this competition can be based on prices or non price factors (e.g., service or quality)
⚡AUST g/s apper rel cheaper = tp more incentive to trade with aus
Productivity
* ↑productivity
* ↓ COP
* ↓ prices (firms pass on lower costs in the form of market prices to consumers) ⚡
* ↑IC
Production costs
availability of natural resources
* AUST a lot of natural resources in mining and agriculture
* = can produce relative cheaper prices
* = ↑IC
[exchange rates]
* ↓AUD = ⚡ = ↑IC
relative rates of inflation
* ↑relative rate of inflation
* ↓ real value of money (erosion of purchasing power) (opposite to ⚡)
* loss of international competitiveness
TOT
* ↑TOT for exchange rate (+ other way around)
* factors influencing TOT
exchange rate
↑TOT
assume ↑ in export prices (ceteris paribus)
↑demand for AUD of foreign exchange market
↑Appreciation of AUD
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FACTORS:
Anything that impacts export prices
oil price movements
* ↑oil prices
↓pressure TOT
ALSO
Anything that effects import prices
commodity prices (↑overseas growth)
* AUST export commodities
* inc demand for aud exports
* ↑price of commodities
* ↑TOT
ALSO
↓AUD
g/s appear relatively less expensive than previously
TP inc incentive to trade more with AUST
Inc ic
↑demand for AUD exports
↑TOT
A ratio of Australian export prices to import prices. It is also an indicator for how much imports the economy can buy per unit of export [export price index/import price index]
Effect on the goals
↑AUD
AD and AS
demand and supply analysis
demand analysis
Aust g/s appear relatively more expensive than previously
TP incentive to trade with other tp
=↓IC
=↓export demand (+cheaper imports)
=↓NX
=↓AD
(↓demand pull inflation)
=↓production
=↓economic growth
=↓export production
=↓real GDP = ↓ econoimc growth
Supply analysis
TP g/s appear cheaper than previously
↓cost of imports
↓cost of intermediate goods (import components)
Dec cop
………
↓prices
↓cost inflationary pressures
Effect on the goals + ls
↑TOT
AD and AS??
demand analysis
assume ↑ in export prices (ceteris paribus)
↑export incomes (↑X -> ↑C -> ↑I overtime)
↑AD
D>S
↑demand inflationary pressures
↑production
↑econoimc growth
↑DDL
↓UNN
supply analysis
↑TOT
relatively lower import prices paid -> import component
↓$ imports
↓COP (also can do AS analysis here)
↓prices
↓COST inflation
2
appreciation of the Australian dollar on the CAB
↑AUD
Aust g/s appear relatively more expensive than previously
TP incentive to trade with other tp
=↓IC
=↓export demand
= ↓credit in BOMT or NS
* (add for 4+ marks)
* TP g/s appear cheaper than previously
* ↑import demand
* ↑ debit in BOMT or NS (**rise in debits relative to credits)
=↓value of BOGS
worsen CAB
EFFECT ON GOALS
↓IC
↓x
↓AD
↓EA
S>D
↓demand inflationary pressures
↓production
↓Economic growth
↓DDL
↑UNN
↓disposable income
↓access g/s
↓MLS
TOT on the CAD
TOT on the CAD
↑TOT
assume ↑ in export prices (ceteris paribus)
↑export credits in BOMT + NS (credits rise relative to debits)
↑value of BOGS
(↓CAD) ↑CAB
