Influences on Australia's CA Balance

Question 1

Causes of Movements in the CA

Answer 1

There are to sides of changes in the CA:

Structural Causes: Broadly aggregate supply factors - long-running and persistent
Cyclical Causes: Broadly Aggregate demand factors - fluctuate in the short term, in line with the business cycle

Question 2

Cyclical Factors

Answer 2

• Movements in overseas economic growth (impacts trade balance)
• Movements in any factor that affects AD in Australia (imports) or AD overseas (exports)
• Movements in the Terms of Trade (impacts trade balance)

Example: an economic downturn in a trading partner, leads to reduced exports, decreasing CA credits.

Question 3

Structural Factors

Answer 3

Favourable / unfavourable movements in Aggregate Supply factors impact our international competitiveness – (impact trade balance)

Examples:
- Productivity factors
- Costs of production
- International Competitiveness
- Immigration

Question 4

International Competitiveness - Structural Factor of CA Balance

Answer 4

International Competitiveness refers to the ability of Australian businesses to compete in a world market on the price or quality of G+S that we produce to export to the world.

Australian firms have poor international competitiveness due to the high minimum wage - high costs of production. This results in fever export sales, and more imports. This has a negative impact on the BOGS and leads to smaller CA surplus.