International Trade
Lower opportunity cost gives this advantage.
Comparative advantage
Exports are recorded here.
Current account
A rise in the AUD is called this.
Appreciation
AE = C + I + G + ___.
X - M
The RBA’s main policy instrument.
Cash rate
A tariff raises domestic price and reduces these.
Imports
Foreign investment into Australia is mainly recorded here.
Financial account
Higher Australian interest rates usually increase this
Demand for AUD
MPC = 0.8. Multiplier?
5
Higher cash rates usually reduce this component of AE.
Investment
Removing a tariff increases this measure of welfare.
Total surplus
Investment exceeds saving. Likely current account outcome?
Deficit
A lower AUD makes imports more what?
Investment falls $4b, multiplier = 5. GDP changes by?
- $20b
Expansionary fiscal policy shifts AD which way?
Right
1 wheat = 2 steel in A; 1 wheat = 5 steel in B. Give a beneficial trading range.
2–5 steel
Export prices rise 10%, import prices rise 5%. Terms of trade?
Rises
Commodity prices rise strongly. What happens to demand for AUD?
Rises
AE is below GDP. What happens to inventories and production?
Inventories rise, production falls
Economy above potential GDP with high inflation: appropriate monetary stance?
Contractionary
A country specialises according to comparative advantage. What happens to world output?
It increases
Why can a current account deficit be linked to a financial account surplus?
Foreign capital funds the saving-investment gap
rise strongly. What happens to demand for AUD? RisesAUD appreciates. Give two likely effects on net exports.
Exports less competitive, imports cheaper, so net exports fall
Labour productivity rises. What happens to SRAS and LRAS?
Both shift right
Cash rate rises. Give a two-step transmission chain to AD.
Higher rates → lower C/I → lower AD