overall revision

Question 1

Changes in ToT

Answer 1

After 2012, collapse of commodity prices which reduced XPI and signalled end of mining boom
142.6 in 2011 to 100 in 2015 (30% fall)
Increase in 2016 by 15% due to surge in commodity prices
Import prices steady

Question 2

Factors impacting ToT

Answer 2

XPI (commodity prices)
World Economic Growth
Oil Prices - Australia is net importer of oil so increase in oil prices will decrease ToT

Question 3

What is effected by movement in ToT

Answer 3

Trade balance (value of exports decreased/increased)
ER (unfavourable - less demand for Australian dollar)
Investment and employment in resource sector
National income
Inflation

Question 4

ToT Definition and Formula

Answer 4

Index shows country’s $X relative to $M

XPI/MPI x 100

Question 5

Why is ToT important

Answer 5

Provides measure of quantity of imports a country can obtain in exchange for given # of exports
Represents “purchasing power” of nations
Increased standard of living

Question 6

Factors facilitating globalisation

Answer 6

Government policy changes
Advances in transport
Increased communication

Question 7

Economic effects of globalisation

Answer 7

Efficient use of resources = high growth and living standards
Lower inflation
Higher levels of employment and FIA

Loss of national and economic sovereignty
Structural change
Opportunities for exploitation (+MNC)

Question 8

Main factors of low trade intensity

Answer 8

Unfavourable location
Substantial geographical area
Large population

Question 9

Trade

Answer 9

40% of GDP + 1 in 5 Australian jobs
Increases production, employment, income and living standards
Lower prices for consumer and greater variety
Stimulates competition and innovation (enhances productivity)

Question 10

Composition of Trade - Exports

Answer 10

Resources (40%)
Services (22%)
Manufacture (14%)
Agriculture (13%)

Question 11

Composition of Trade - Imports

Answer 11

Producer type goods (50%)
Consumer goods (28%)
Services (22%)

Question 12

International Competitiveness

Answer 12

Ability of business to compete effectively in international markets

Question 13

Determinants of International Competitiveness

Answer 13

Productivity
ER
Relative Inflation
High rates of investment
Labour costs

Question 14

Increases in International Competitiveness reflect:

Answer 14

Higher Productivity
Lower Unit costs
Higher living standards

Question 15

Benefits in FTA

Answer 15

Increase exports boost national income and reduce import costs - which increases efficiency
Increases real incomes
Dynamic gains from increased competition, economies of scale and access to wider range of products

Question 16

Costs in FTA

Answer 16

Discriminatory (trade diversion)

Cover limited g+s

Question 17

FTA

Answer 17

International agreement to remove trade barriers

Question 18

Role of WTO

Answer 18

Establishes rules for international trade
Arbitrates on trade disputes
Encourages reduction of tariffs

Question 19

Impact of improved economic performance on exchange rate

Answer 19

Higher national income = increased spending on imports (increased supply of AUD)
Increased FIA (increased demand of AUD)

Question 20

Reasons for recent trend in protection

Answer 20

Government push towards trade liberalisation
Desire for greater efficiency across trade exposed markets
Influence of WTO and ASEAN promoting unilateral trade agreements
Increase in bilateral and multilateral trade agreements (ChAFTA)

Question 21

Arguments for trade liberalisation

Answer 21

Greater access to export markets will increase producer surplus
Consumers will have access to greater variety of goods at cheaper prices
Gains in efficiency responding to increased competition

Question 22

Arguments against trade liberalisation

Answer 22

Infant Industries
Anti-dumping
National defence