everything your dumbarse needs to know Flashcards
(26 cards)
Impacts of Boom
High confidence high consumption (durables and luxuries) high profit high utlaisation of productive capacity (bottlenecks) low unemployment high labour market participation high borrowing high spending low savings
Leading, coincident, lagging indicator
Leading - share prices, building approvals, confidence
coincident - gdp, retail sales, job advertisements
lagging - interest rates, unemployment, inflation (CPI)
Factors facilitating globalisation
gov policy changes (ChAFTA, WTO, unliateral)
advances in transportation and communication
Effects of globalisation
Higher living standards, low inflation, high employment, economic cooperation and multiculturalism
loss of economic sovereignity, structural change and bad behaviour by MNCs
Arguments for and against trade liberalisation
AGAISNT : infant industry national security cheap foreign labour anti dumping
FOR:
high income and living standards
efficiency
consumer gain and specialisation
WTO
promotes trade iberalisation through negotiations
must-favoured nation principle
settles trade disputes
Multiplier definition and formula
Factor that measures increase in consumption as result of increased investment
1/(1-MPC) = k
What makes up AE
Consumption - 56% (expectations, stock of wealth, interest rates, disposable income and gov policies)
Investment - 20% (expectations, interest rates, profitability, gov policies, stability)
Gov spending - 25% (dom growth)
Net Exports - -1% (economic growth, ToT, ER)
Causes of CAD
+ structural and cyclical reasons
Savings-investment gap
Aggregate expenditure > aggregate production
Cyclical - after 08 import of consumer goods fell but exports steady from Asia
Structural - level of commodity prices and ToT, change in exchange rate AUD, end of mining boom = reduction imports, new trade agreements, international competitiveness, natural shocks
Effects of movement on ToT economy
producer and consumer surplus, living standards and national income, purchasing power (20% GDP from exports), consumption outside of PPF and employment
Trade balance, national income, aggregate demand, investment, AUD, CPI
Top 4 Trading Partners (direction)
China, USA, Korea, Japan
Main exports (composition)
Iron ore, coal, education, tourism
Structure BOP
Current Account - goods, services, primary income, seconadary income
Financial account - flow of foreign investment (portfolio, direct and RBA flows)
Capital account - foreign aid made of capital
Return to LRE
1) cost of labour causes first shift
2) business and consumer confidence
3) economy can fix itself but speeds up with monetary policy and discretional fiscal
Compatible and conflicting EPOs
Compatible:
economic growth and full employment
full employment and equitable income distribution
price stability and economic growth
efficient resource allocation and productivity
Conflicting:
price stability and full employment
price stability and economic growth
economic growth and structural unemployment
economic growth and equitable income distribution
Benefits and costs FI
Benefits:
closes savings-investment gap, growth and employment, increase international competitiveness, knowledge transfer from MNCs
Costs:
loss of sovereignity, outflow of primary income, vulnerability in future economic crisis, speculative behaviour
How FIA impacts BoP
- financial inflows from borrowing and sale of assets recorded in financial account
- increase FIA increase CAD
Factors influencing amount of FIA
Profit expectations, interest rate differentials, political stability (commodity prices, exchange rate)
Factors affecting ER
relative interest rates, relative inflation rates, change in ToT, domestic and world economic growth, international capital flow
speculative activity
Impact of increased ER economy
contractionary effect Aus macro
increased imports, less exports, trade balance deficit increases, deflationary
Exports in manufacturing and rural industries less competitive
reduced level of foreign debt
potential for two speed economy + dutch disease
Strengths and weaknesses fiscal
Strengths: Direct (short outside lag), spending tap and multiplier effect, compliments auto stabilisers
Weaknesses: Recognition and decision lag, inflexible, not effective in boom and political constraints
How to fund government deficit
Sell gov. bonds = crowding out
Borrowing RBA = inflation
Borrowing overseas = increased AUD, less exports more imports
Strengths weaknesses monetary
Strengths: flexible, politically neutral, effective during boom (direct impact due to transmission mechanism and floating exchange rate)
Weaknesses: less effective in trough (liquidity trap), timelags (effect) and blunt instrument
transmission mechanism
cost of borrowing - price and return on savings
cash flow - price of servicing loans and impact on disposable income
asset prices and wealth - share attractiveness and wealth effect
exchange rate - demand for AUD, FI, X and M
