aos3 dot structural/cyclical influences

Question 1

cyclical influences

Answer 1

short term, volatile, aggregate demand side factors effecting current account

Question 2

structural influences

Answer 2

long term, more table supply side factors effect current account

Question 3

cyclical influences are strong domestic vs outside

Answer 3

-increase in AD eg. due to consumer confidence
-leads to little spare capacity in the domestic economy
-increases demand for imports
-value of m>x
-weakens the CA balance (debits>credits) CAD

-When the pace of economic activity among our major trading partnersabroad isrising Our overseas trading partners tend to buy more Australian exports and pay higher prices,
-adding to the value of credits relative to debits on strength current account.

Question 4

structural influences are weak

Answer 4

-AS weaking eg. wages increase (cost of production)
-price of ex increase
-demand for ex decreases (tend to slow sales of locally made goods and services abroad)
-im>ex
-weakens the CA

Question 5

cyclical influences are weak

Answer 5

low AD and fall in spending, strengthening our current account balance.

This may be due to consumer and business confidence which REDUCES our demand for imports (X>M).
when overseas spending is depressed and there is a slowdown in economic activity perhaps due to consumer or business confidence abroad, they spend less on Australian goods and services,
-reducing the value of credits relative to debits on our current account.

Question 6

structural inflences are strong

Answer 6

More favorable aggregate supply conditions:
-cost per unit decrease due to favorable supply conditions such as cheaper raw material

-strengthening our international competitiveness as prices are lowered

hence the value of exports against imports.

strengthen the current account balance by boosting the value of credits relative to debits.

Question 7

national savings-investment gap

Answer 7

STRUCTURAL
national savings by households, firms and governments are not sufficient to finance high levels of investment, so the gap is filled by borrowing credit from overseas.

In turn, this increases our foreign debt on which interest must be paid. This is recorded as a debit on the net primary incomes section of the current account, weakening the current account balance.

reflects a fundamental imbalance between savings and investment needs within a nation