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Economics Semester 1 > Balance of Payments > Flashcards

Balance of Payments Flashcards

(57 cards)

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1
Q

What does the BoP record

A
  • all economic transactions between Aus residents and the rest of the world
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2
Q

What are the 2 main components of the BoP

A
  • current acc
  • capital and financial acc
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3
Q

What is the rule of the overall balance of payments

A

= 0

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4
Q

what does a credit entry represent in the BoP

A

inflows - exports, income receivable, increase in foreign assets

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5
Q

what does a debit entry represent in BoP

A

outflows - imports, income payable, increase in foreign assets

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6
Q

why are there always equal and opposite entries for every transaction in BoP

A

to reflect the inflow and outflow (double-entry accounting system)

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7
Q

what does the current account record

A

transactions involving goods, services and net income

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8
Q

what is a CAD

A

debits > credits in the CA

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9
Q

What is a CAS

A

debits < credits

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10
Q

what goods are in the BoP

A
  • Exports (credits)
  • Imports (debits)
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11
Q

what percentage of Aus X are mining and energy resources

A

approx 72%

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12
Q

What services are in the BoP

A

intangible exchanges such as tourism and education

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13
Q

what is the trade balance

A

combined value of net goods and net services

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14
Q

What does primary income include

A

Compensation for employees and investment income

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15
Q

what is the largest component of primary income

A

Investment Income 95%

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16
Q

what are examples for Primary income credit and debit

A

Credit: dividend received from an overseas company
Debit: Interest payment to a Us bank

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17
Q

What does secondary income include

A

one - way transfers like gifts, pensions and foreign aid

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18
Q

what are examples for secondary income credit and debit

A

Credit: Uk penison paid to a resident living in Aus
Debit: foreign aid from Aus to Indo

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19
Q

What does a capital account include

A

capital transfers and acquisition/disposal of non-produced, non- financial assesets

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20
Q

what are capital transfers and give examples of credits and debits

A

migrants funds and aid related to capital formation
credit: migrant bringing funds into aus
debit: migrant transferring funds from aus abroad

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21
Q

what are non-produced, non-financial assests and give examples of credits and debits

A

intangible assets like copyrights, patents, and franchises
credit: selling an Aus copyright to foreign company
debit: buying a foreign patent by an aus company

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22
Q

what does the financial account track

A

foreign borrowings, debt, and FI, equity

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23
Q

what are credit and debit examples for portfolio investment

Study These Flashcards
A

credit: aus borrows from a chinese bank (foreign debt inflow)
debit: us borrows from an aus bank

24
Q

what are credit and debit examples for FDI

Study These Flashcards
A

credit: china buying 20% of BHP
debit: Aus buying 40% of microsoft

25
what are financial derivatives give example of credit and debit
contracts whose value is based on other financial instruments credit: japan buying and aus govt. bond debit: buying a US govt. bond
26
What are other investments in the financial acc (credits and debits)
trade credit and currency transfers across borders credit: us currency transferred into aus debit: aus currency sent overseas
27
what are reserve assests in the financial account
RBA held assets used for foreign exchange interventions and IMF obligations
28
what is the double entry system
every transaction is recorded twice: 1 credit (inflow) and 1 debit (outflow) = 0
29
what is a credit entry
inflow of money into aus eg. x or FI
30
What is a debit entry
outflow of money from au eg. imports or investment abroad
31
Example: aus imports cars worth 1m from Germany
Debit: CA (goods) Credit: FA (payment/currency outflow)
32
Example: China buys iron ore worth 2m from Aus
Credit: CA (goods x) Debit: FA (currency inflow)
33
CAD Trade Balance: fall in commodity prices
reduces x rev --> decreased credits --> CAD
34
CAD Trade Balance: High domestic inflation
reduces x competitiveness --> increase M --> CAD
35
CAD Trade Balance: Chinas economic slowdown
decrease dd for aus x --> CAD
36
CAD Trade Balance: Domestic Boom
increases income --> increase M --> CAD
37
CAD Trade Balance: AUD Appreciation
X more expensive, M cheaper --> trade deficit --> CAD
38
CAD Income Balance: Savings investment Gap
Borrowing from overseas --> increased interest payments --> CAD
38
CAD Income Balance: foreign investment inflows
increase dividends paid overseas --> increase debits --> CAD
39
CAD Income Balance: budget deficit
increased govt. borrowing --> increased repayments --> CAD
40
CAD Income Balance: rising world interest rates
increased interest rate --> CAD
41
CAS Causation: weak domestic economy
decreased imports --> decreased debits --> CAS
42
CAS Causation: strong chinese demand
increased X --> increased credits --> CAS
43
CAS Causation: AUD depreciation
X cheaper, M dearer --> increased trade surplus --> CAS
44
CAS Causation: Rising commodity prices
increased X revenue --> CAS
45
CAS Causation: Brazil mine closures/ukraine war
decreased global supply --> increased dd for AUS X --> CAS
46
Improving income balance CAS: Reduced foreign investment
decreased outflow profits --> decreased debits --> CAS
47
Improving income balance CAS: increased savings
decreased borrowing --> decreased interest payments --> CAS
48
Improving income balance CAS: Lower global interest rates
decreased interest repayments --> CAS
49
Improving income balance CAS: increased returns on Aus foreign assets
increased income inflows --> increased credits --> CAS
50
Implications of CAD: capital M
support future growth or increase reliance on consumption
51
Implications of CAD: foreign investment
boosts wealth but increases vulnerability to profit outflows
52
Implications of CAD: rising foreign debt
increased interest burden --> credit rating risks
53
Implications of CAD: Policy Focus
Need productivity gains and improved export competitiveness
54
TBC (trends)
55
What are the key characteristics of AUS CA
Strong link with trade balance: drives the CA Trade balance is more volatile: fluctuates with domestice/global cycles Shifts between surplus/deficit: reflects X/M trends Income balance is consistently a deficit: due to foreign investment outflows
56
TBC

Economics Semester 1 (6 decks)

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