Global Interdependence
Global changes have made international transactions easier to complete?
What are…
Technological advances (advances in communication and transportation)
…“The degree to which a county can produce goods and services which meet the test of international markets”
What is international competitiveness
Major export and import trading partner with Australia
Who is China?
This account records the financial flows linked to capital and foreign investment.
What is the capital and financial account?
This index measures the relative movements in the prices of exports and imports.
The terms of trade index
This index is a basket of currencies weighted to the importance of their trade partnerships with Australia
What is the trade weighted index?
This type of investment increases Australia’s foreign liabilities
What is foreign investment into Australia?
This model is a conceptualisation of the regular fluctuations in the level of economic activity.
What is the business cycle model?
This is the equation that determines the Aggregate expenditure demand
What is AE = C + I + G + NX.
This model is used to show the impact of changes in aggregate demand and aggregate supply on the level of economic activity and, hence, macroeconomic performance
What is the AD/AS model?
This involves changing the level of government spending and taxation to directly and indirectly manage the level of aggregate demand in order o achieve macroeconomic objectives.
What is Fiscal Policy?
This is the RBA’s target rate of inflation.
What is 2-3%
This is a type of productivity
What is Labour productivity or Multifactor productivity
List a benefit of Globalisation
What is
1. More efficient allocation of resources as countries specialise in areas of comparative advantage
2. More competition leading to dynamic gains from trade
3. More consumer choice
4. Increased employment opportunities
5. Larger markets for producers to sell to
An international body whose roles include the promotion of free trade.
This factor detracts from Australia’s competitive advantage?
What is…
The Australian Dollar is a ‘commodity currency’.
A regulated economy
High direct taxes
Labour supply
High wages and low productivity
Lack of economies of scale
For 44 successive years to 2019-2020 Australia had one of these.
What is a current account deficit?
The following change represents what kind of movement
Year 1 - 100
Year 2 - 95.5
What is a favourable movement?
This is the market where the currencies of different countries are bought and sold.
What is the foreign exchange market?
This sector is the owner of most of Australia’s foreign debt
Relatively high levels of consumption expenditure would occur in this phase of the business cycle.
What is a boom
[C= C + bY]
b impacts the gradient
This appears on the X axis of the AD/AS model
What is Real GDP?
This occurs when Government spending (payments) is larger than taxation (receipts)
What the RBA does when it eases or loosens monetary policy
This is how an improvement in productivity impacts on growth
Increases the capacity or potential output and allows for non-inflationary growth (moves the LRAS curve to the right)
Three factors that have facilitated globalisation in Australia
I) development in transportation
ii) development in computing and information technologies
iii) reduced restrictions on foreign investment inflows
iv) reductions in tariffs and the signing of free trade agreements
v) business leaders taking advantage of global value chains
A policy change that leads to higher living standards for domestic consumers
What is trade liberalisation
List one of the structural factors that affect Australia’s pattern of trade
What is…
The growth of trading blocs
International competitiveness
Export capacity
Chages in technology
Foreign direct investment
Participation in global supply chains
This is one of the reasons given as to why Australia has had a persistent current account deficit
What is….
Resource Rich> Capital Starved
or
Australian’s are living beyond their means
If world economic growth contracts and the demand for resources commodities fall, this is the impact on Australia’s terms of trade.
What is a fall (decrease) in Australia’s terms of trade?
This factor helps to determine the demand for a currency
What is…
export of goods and services
recipts of income from overseas
capital inflow (foreign investment into Australia)
This nation contributes the most to Australia’s Foreign Direct Investment
Who is the USA (22%)
This occurs only after two consecutive periods of negative economic growth.
What is a recession
This will cause the Keynesian Aggregate Supply curve to shift is position.
Cost of production change
capacity or potential output changes
both cost and capacity changes
This is an objective of the Reserve Bank of Australia
What is…
1. Stability of currency (low inflation)
2. Maintenance of full employment (NAIRU)
3. Prosperity and welfare of Australians (as much growth for as long as possible)
This is a factor that can reduce productivity
What is…
1. Government regulation
2. Time lags
3. Poor weather (agricultural)
4. Growth in importance of intangible assets
List three costs of globalisation
globalisation results in…
i) higher unemployment among low skilled workers
ii) lowers wages
iii) destroys local cultures
iv) worsens poverty
v) makes nations dependent of global supply chains that can be disrupted (pandemic)
A policy by which a nation removes its own trade barriers regardless of what other countries do.
What is unilateral reform
What is the trade intensity index?
If a country has a capital and financial account surplus, it also must have…
What is a deficit on its current account balance?
An increase in the terms of trade (ceteris paribus) will have what impact on economic activity
This factor helps determine the supply of Australian currency
What is…
imports of goods and services
payments of income to overseas
capital outflow (Australian investment abroad)
This is the Australian Industry (sector) that receives the most Foreign Direct Investment.
What is the mining sector?
Reason why the economy cannot expand indefinitely
What is…
Supply-side constraints
Negative output-gap develops
Inflation rises
Automatic stabilisation
Macroeconomic policy response
Market forces
The purchase of a military vehicle by the Australian army would be is this type of expenditure.
What is planned government expenditure
This occurs if equilibrium occurs on the left hand side of the Long Run Aggregate Supply curve.
What is a recessionary gap?
How the Australian federal government finances a budget deficit.
What is…
Selling government bonds
Borrowing from the Reserve Bank
Selling government assets (Qantas, Telstra)
This is a problem of low cash rates
What is…
Reduces income of self-funded retirees
Encourages speculation
Lowers the Australian dollar (relatively higher import prices)
Has little impact on consumption and investment
This is a change in the composition and location of production and employment over time
What is structural change?
Imports/Exports
Tourism
Immigrants/Emigrants
Foreign Investment/Australian Investment overseas
A nation that has accused Australia of trade dumping as their rational to imposing trade barriers on Australia exports such as barley and wine.
Who is… China
This question refers to the table below, which shows the number of labour hours required to produce one unit of a particular product in two countries.
Surfboards. Skateboards
Country A. 6. 12
Country B. 24. 16.
Which country has a comparative advantage in making surfboards.
Who is A?
This is recorded in the current account
What is…
Goods
Services
Income (primary and secondary)
This will happen to the Australian dollar if their is an unfavourable movement in the terms of trade
What is the AUD will depreciate?
In a floating or free exchange rate, this determines that value of a currency
What is the market forces of supply and demand?
The result on the Australian economy of a dramatic fall in Foreign Direct Investment.
What is a fall in Australia’s standard of living and economic growth would decline because there would be insufficient savings to finance the economies capital needs.
This indicator predicts trends, they change before a trend in the economy becomes evident elsewhere
What is a leading indicator?
This line on the AE model shows all points were consumption equals income.
Ceteris Paribus, this occurs if there is an increase in aggregate demand.
What is… Unemployment falls, Inflation rises
Where government revenue comes from
What is…
Direct taxes
Indirect taxes
Profits
Sale of assets and earnings of funds
Non tax revenue
This is a weakness of monetary policy
What is…
1. Long impact or effect lag in recession
2. Little impact on investment if rates are low
3 exchange rates influenced by other factors
4. Banks don’t automatically pass on changes
5. Ineffective against cost push inflation
6. Blunt instrument - there is only one cash rate
These two states have experienced the most structural change over the last ten years
Ways the Covid-19 pandemic has made us question the necessity of globalisation
What is…
an over reliance on global supply chains that has been interrupted due to a stop in global shipping
a reliance on foreign labour that has been interrupted due to COVID19
Loss of national and economic sovereignty
Gains from trade that stem from increased levels of competition in product and resource markets
What are… Dynamic Gains from Trade
List what contributes to Australia‘s natural advantage
What is…
Natural endowment
Free Trade
Foreign Investment
Well educated, highly skilled workforce
Non-price competitiveness
Strong institutions
This is classified in the secondary income category
What is…
foreign aid, gifts, donations and pensions
How the terms of trade index is calculated
What is (export price index/ import price index)*100
Australia’s dollar is known as this…
hint - it is how we categorise our largest export
What is a commodity currency?
This is an advantageous impact of an increase in foreign debt
What is an increase in a countries productive capacity
What is a downturn?
This component of the consumption function represents consumption that is not related to income
What is a (Autonomous consumption)
A fall in energy costs would have this impact on the AD/AS model.
The AS curve would move down (to the right), there would be a rise in economic growth, and fall in the rate of unemployment and a rise in the rate of inflation.
This is the balance that occurs between government spending and taxation that automatically stabilises the economies macroeconomic performance.
This is the recent actions of RBA regarding the Cash rate.
What is holding the rate steady and 0.10%
This factor has driven structural change
What is…
1. Industrialisation in East Asia
2. Rise in demand for minerals and energy
3. Production of cheap manufactured goods
4. Technological change
5. Demographic change
6. Rising incomes and standards of living
What is… The Big Mac Index
A model that can be used to demonstrate and explain how trade reform policy can improve the wellbeing of the average Australian household.
What is…The consumer surplus/producer surplus model
Australia’s largest export
What is Iron Ore?
These cyclical factors cause a current account deficit
What are…
The domestic business cycle
world business cycle
exchange rate
commodity prices
terms of trade
What is the terms of trade decreasing?
This movement in the Australian dollar harms exporters
What is an appreciation in the Australian dollar
This action would reduce Australia’s foreign debt
What is an increase in the rate of domestic savings?
Unemployment data, Consumer debt and Inflation are examples of these indicators
The relationship between consumption with changes in income
What is positive?
An increase in the labour force would have this impact on the AS curve
The AS curve would shift to the right there would be a rise in growth and a fall in inflation. The impact on unemployment is unknown.
The type of budgetary stance being pursued if there is a reduction in the structural surolus, a shift from surplus to deficit in the structural balance or a rise in the structural deficit.
What is expansionary
What is…
1. Effect of change in returns on savings
2. Effect on cash flow of debtor households
3. Effect on nominal wealth (e.g. house prices)
4. Effect on expectations and confidence
This is a reason for government intervention
What is…
1. Public goods
2. merit goods and positive externalities
3. Demerit goods and negative externalities
4. Tragedy of the commons
5. Monopoly power distorts markets
6. Information gaps
7. Infant industries