Intro

Question 1

In Australia, what do interest rates represent?

Answer 1

Reflect the confidence in the central bank of future grown potential

Question 2

Since when has the Aus$ been floating?

Answer 2

1983

Question 3

What is the ToT?

Answer 3

• The price of exports over the price of imports
• X/M
• The value of what we sell/The value of what we buy

Question 4

How can imports cause a current account deficit?

Answer 4

Imports increasing → foreign currency leaving Australia → increase in current account deficit

Question 5

What is the problem with a current account deficit?

Answer 5

• Borrowing is unsustainable in the long term and countries will be burdened with high interest payments
• Foreigners have an increasing claim on your assets, which they could desire to be returned at any time
• May imply that you are relying on consumer spending, and are becoming uncompetitive
• May cause a loss of confidence by foreign investors