Rad randomness
If export prices drop relative to import prices, what does this do to the terms of trade?
Unfavourable to TOT
TOT drops
Give an example of factors that would increase our terms of trade
Australia's beef export prices may increase due to increased demand overseas (can use iron, wheat, gold, etc.)
What is a consequence of adopting the principles of trade liberalisation?
Drops in tariffs can leave local industry vulnerable to being undercut by overseas companies. Structural unemployment will result in most cases.
A debit in the net secondary incomes account
Australia paying pensions to AUS citizens living overseas
Payment of foreign aid to heavily indebted , low income countries.
What is a factor that would cause Australian international competitiveness to increase?
Higher productivity in labour markets, higher capital investment in new technology, better utilisation of natural resources.
Give an example of factors that would decrease our terms of trade
rise in the cost of imports such as machinery, vehicles and computing RELATIVE to the cost of our imports.
What will decreased rates of domestic inflation do to Australia's international competitiveness?
Increase
A credit in the net primary incomes account
Dividends on foreign shares, profits earned by Australian companies overseas.
What’s the difference between net foreign debt (NFD) and net foreign equity (NFE)
NFD is the difference in value between what Australia has borrowed from overseas and owes overseas (our liabilities minus our assets).
NFE is the excess value of foreign-owned Australian assets (property, shares and retained earnings of overseas owned companies operating here) over overseas assets owned by Australian residents.
NFD is the total borrowed amount owed overseas. NFE is the foreign assets owned overseas
Define Net Primary Income
Payment of income on foreign owned assets
Eg: Dividends on foreign shares, profits earned by Australian companies overseas (credits)
Profits earned from foreign companies operating in Australia. Rent paid to foreign owners of Australian property (credits)
What will an increase in skilled migration to Australia do to Australia’s international competitiveness?
Australia will have a larger labour market to access, keeping the cost of labour low as there are more available in the market. This lower labour cost translates through to lower production cost and higher productivity, increasing international competitiveness.
A credit in the net services account
Education provided here to overseas students
Tourism provided to o'seas tourists here
Banking and insurance provided locally to overseas individuals or companies.
Name a cyclical cause of the CAD
Tied to economic growth and spending
(Business Cycle)
If Australia’s interest rates drop, what will that do to capital inflow?
Capital inflow will decrease due to decreased returns on investment from lower interest rates.
What will a decrease in Australian water prices for farmers do for Australia’s international competitiveness?
A lower price for water will lower the cost of production for farmers as they spend less money on water for their crops or livestock. Lower cost of production lowers the purchase cost here and overseas, raising our international competitiveness.
A protectionist policy Australia used to protect jobs and keep our manufacturing industry going
Tariffs
What is a benefit of trade liberalisation?
Greater access to low cost goods, raising the material standard of living for consumers as goods purchased from overseas may be higher quality or lower cost.
Trade liberalisation forces local producers of goods and services to increase productivity. While this can lead to short-term structural unemployment due to companies restructuring to stay viable, this is offset by the long-term benefit of these companies growing and eventually requiring increased labour.
Name a structural cause of the CAD
Dividends paid overseas to foreign investment
(non-business cycle)
Low levels of efficiency, productivity and competitiveness.
If Australia’s interest rates rise relative to those overseas, what will this do to the Australian dollar?
In the long term, a rise in interest rates by the RBA will attract foreign investment to gain the higher interest rate returns.
What will a decrease in the TWI do to Australia’s international competitiveness?
Our international competitiveness will decrease as we are receiving less for our exports relative to the price that we pay for our imports, increasing the likelihood of a trade deficit.
Net secondary income
pensions received from other countries to foreigners retired here
donations to the country (aid)
(1-way transactions with no need for repayment)
What makes up the balance of the current account?
Net goods,
Net services,
Net primary incomes,
Net secondary incomes