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Economics units 3&4 > UNIT 3 AOS 3 - part 2 - TOT/IC > Flashcards

UNIT 3 AOS 3 - part 2 - TOT/IC Flashcards

1
Q

def

Terms of trade

TOT

A

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

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2
Q

def

Exchange rate

A

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)

also add: WHICH ALSO INDICATES PURCHASING POWER AS WELL (not really needed but good to have)

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3
Q

LIST

Factors influencing the exchange rate

A

Relative interest rates, TOT, demand for exports, demand for imports, foreign investment, relative rates of inflation, Credit rating + speculation

at least 3

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4
Q

Factors influencing the exchange rate

Relative interest rates

when interest rate > than trading partner interest rate???

A
  • 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)

cost of borrowing money from banks as well as return on savings

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5
Q

Factors influencing the exchange rate

Commodity prices/TOT

when TOT increase (also why TOT increases)

A
  • ↑TOT (world commodity prices - since exports increase in the TOT ratio)
  • ↑demand for AUD on the foreign exchange market
  • ↑AUD (appreciate)
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6
Q

Factors influencing the exchange rate

demand for exports

↑demand for X

A
  • ↑demand for X
  • ↑demand for AUD on the foreign exchange market
    ↑AUD (appreciate)
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7
Q

Factors influencing the exchange rate

demand for imports

↑demand for M

A
  • ↑demand for M
  • ↑supply for AUD on the foreign exchange market (put AUD in international markets to buy imports)
  • ↓AUD (depreciate)
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8
Q

Factors influencing the exchange rate

foreign investment

* ↑foreign investment (mining) what happens

A
  • ↑foreign investment (mining)
  • ↑capital inflow
  • ↑demand for AUD on the foreign exchange market
    ↑AUD (appreciate)
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9
Q

Factors influencing the exchange rate

Relative rates of inflation

when inflation increasing at a faster rate than overseas??

A
  • 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)
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10
Q

Factors influencing the exchange rate

Credit rating + speculation

fall in this

A
  • 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)
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11
Q

def

International competitiveness

A

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)

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12
Q

Factors that influence IC (list out)

A
  • Productivity
  • Production costs
  • availability of natural resources
  • exchange rates
  • relative rates of inflation
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13
Q

factors that influence IC

Productivity

A

↑productivity
↑IC
↓Average COP
Business can reduce price or improve quality

OR AS analysis

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13
Q

factors that influence IC

Exchange rates

A

↓AUD
AUST g/s appear relatively cheaper than previously
TP more incentive to trade with AUST
↑IC

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14
Q

factors that influence IC

Production costs

A
  • labour costs (wages) = ↑IC
    • capital costs (machinery/tech) = ↑IC
      raw material costs (energy/electricity) =↓IC

↑COP = ↑prices = ↓IC

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15
Q

factors that influence IC

Availability of natural resources

A

AUST a lot of natural resources in mining and agriculture
= can produce relative cheaper prices
= ↑IC

16
Q

factors that influence IC

Relative rates of inflation

A

↑relative rate of inflation
↓ real value of money (erosion of purchasing power)
=Aust g/s appear more expensive relative to another countries g/s then previously
= TP incentives to trade with other TP (assuming Australia has a higher rate relative to TP)
= loss of international competitiveness
= ↑M and ↓X
= ↓AD = ↓ production = ↓DDL = ↑UNN = ↓Access to g/s

17
Q

↑TOT for exchange rate

exchange rate

A

↑TOT
assume ↑ in export prices (ceteris paribus)
↑demand for AUD of foreign exchange market
↑Appreciation of AUD

18
Q

Factors influencing TOT

A

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
* ↑price of commodities
* ↑TOT

↑growth in o/s coutries
↑demand for AUST exports
↑TOT

and

↓AUD
g/s appear relatively less expensive than previously
TP inc incentive to trade more with AUST
↑demand for AUD exports
↑TOT

19
Q

Effect on the goals

↑AUD

AD and AS

demand and supply analysis

A

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)
↓prices
↓cost inflationary pressures

20
Q

Effect on the goals + ls

↑TOT

AD and AS??

A

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

21
Q

2

appreciation of the Australian dollar on the CAB

A

↑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) BOGS
=↓value of BOGS
↓CAB

OR
↑AUD
TP g/s appear cheaper than previously
↑import demand
↓ credit in (BOMT or NS) BOGS
↓value of BOGS
↓CAB

22
Q

EFFECT ON GOALS

↓IC

A

↓x
↓AD
↓EA
S>D
↓demand inflationary pressures
↓production
↓Economic growth
↓DDL
↑UNN
↓disposable income
↓access g/s
↓MLS

23
Q

TOT on the CAD

A

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

24
Q

NFE NEGATIVE good or bad thing and why?

A

NFE is money leaving the country (but we still own the asset outside of australia so it’s a good thing!)

25
Q

Strong and sustainable econoimc growth def

GOAL 1

A

CHECK IF THERE I WROTE “EMPLOYMENT GROWTH”

The governments strong and sustainable growth is to achieve
* the highest rate of growth in real GDP (which is)
* consistent with employment growth, but without running into excessive inflationary, external or environmental problems.
* Generally considered to be in the range of “3-3.5% of real GDP growth per annum”

check if add “3-3.5% of real GDP growth per annum”

check “rate of growth in real GDP”

26
Q

define

Low and stable inflation

also known as price stability

A

The government (via the RBA’s) goal of low and stable inflation is to manage the increase in the general prices levels of goods and services, between 2-3% on average over time, measured by CPI.

27
Q

Goal of full employment

A

The goal of full employment refers to the:Maximum sustainable rate of reduction of unemployment by lifting the pace at which economic growth can be maintained without running into inflationary and external pressures. Economists use the NAIRU: 4.25% as the acceptable rate of full employment. The zone of unemployment is between 4-4.5%.

Economics units 3&4 (9 decks)

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