Sem 1 Exam Revison Flashcards
(13 cards)
Current Account Trends
current account balance = -78 billion 2016, +63 billion 2021, -19 billion 2024 and 6/10 current account deficits in last 10 years
Terms of Trade Trends
TOT trends 2016–2019
2016–2019:
World economic growth increases, saw an increase in demand for commodities and therefore saw our XPI increase.
XPI increased 40% in this time, and the ToT increased by 30% as there was a slight increase in MPI.
TOT trends in 2020
COVID-19 saw a global recession. XPI and MPI fell
TOT trends in 2021
Recovery of economies saw a surge in demand for commodities. This had a large effect on the XPI and TOT
TOT trends in 2022
War in Ukraine/Russia saw energy prices spike (LNG, coal, gas etc).
This increase in prices of our exports meant that ToT reached record highs.
TOT trends in 2022–2024
After reaching high levels in 2022, iron ore prices declined, as China’s economic recovery was weaker than expected.
Countries focused on controlling inflation, rather than boosting infrastructure spending. This sharply reduced the XPI.
As inflation gradually fell, so too did many production costs of imports.
This slightly lowered the MPI.
1 benefits of foreign investment
Benefit #1 – S-I gap and economic activity
a
The most important benefit of foreign investment into Australia is that it has supplemented Australia’s domestic savings to fund a higher level of investment.
Investment expenditure is a component of GDP and plays an important role in the economy to increases the level of economic activity, employment and national income and therefore higher living standards.
Foreign investment increases the rate of investment and economic growth.
This will increase government tax receipts from income (income tax), from higher employment and higher business profits (corporate tax) as well as tax receipts from expenditure and consumption (ie GST).
2 benefit of foreign investment
enefit #2 – Productivity, costs and international competitiveness explanation
a
Investment also finances and expands the productive capacity of the economy by increasing the stock or amount of physical capital. (Airports, rail links, mines, agriculture projects)
This moves the production possibility frontier of an economy outwards.
A higher level of capital stock will increase aggregate supply, increasing economic growth and lowering price levels.
Capital will increase the international competitiveness of Australia’s exports.
1 cost of FI
Costs #1 – Australian assets, control and security. “Loss of economic sovereignty
a
The costs of foreign investment are associated with the “twin evils” of foreign ownership and foreign debt.
When most capital inflow in Australia was in the form of equity, the concern was in regards to the “selling” of Australian assets. Increases in foreign equity will result in a loss of control of domestic assets or a loss in economic sovereignty.
Foreign control may conflict with government economic policy and profits would be siphoned back to foreign company’s.
New concerns are now around foreign control of critical infrastructure posing a security risk.
For example, there has been debate over Chinese ownership of the Darwin port as it is used by the Australian Navy and could pose a national security risk.
This Darwin port was leased for 99 years to a Chinese company in 2015.
cost 2 of FI
Costs #2 – Interest burden on foreign debt
a
Most inward foreign investment in Australia is now in the form of borrowing. This adds to the stock or level of Australia’s foreign debt.
An argument is that this large foreign debt imposes a burden on the economy.
An increase in interest rates could see Australia’s servicing costs on foreign investment also rise, to levels that could be unsustainable or compromising on future generations.
Interest payments on foreign debt are now our largest debit in the income balance. However, as long as the borrowing boosts Australia’s future productive and economic capacity, the servicing of the debt should not be an issue.
trends in exchange rate
Trends in the AUD will depend on changes to Australia’s
Export/Imports
Foreign Investment into and out of Australia
Income payments into and out of Australia
The top four currencies that make up the TWI make up 60% of the index.
trends in aus Foreign Investment
FDI - 2016 62 billion
2022 -43 billion reccession
2024 59 billion
FPI
2016 -20 BILLION
2018 -83 BILLION
2020 0 BILLION
2024 43 BILLION
Net International Investment Position Def
Records our stock or level of foreign investment into Australia (FIA) and the level of Australia investment abroad (AIA).
2 eg of debt securities and explanation
Australian Government Bonds – Foreign investors purchase Australian government-issued bonds, which provide fixed interest payments over time. These bonds are considered low-risk and are attractive to international investors seeking stable returns.
Corporate Bonds – Similar to government bonds, however Australian companies issue bonds to raise funds from international investors
AUS FI STATS 2000 TO 2024
foreign assets have grown from ~$500b to $4,000b (Factor of 8)
At the same time Australia’s foreign liabilities have grown from $800b to just over $4,700b (Factor of 6
720 billion net foreign liablities
NIIP in June 2024
720 billion liabilites
WTO what they do
- Organisation attempts to facilitate, monitor and enforce global trade agreements between countries.
- It aims to promote trade liberalisation.
- It tries to reduce the barriers or restrictions to trade by negotiating the reduction of the tariffs or taxes around trade.
- Does this by encouraging countries to sign free trade agreements, which are written agreements to tariff-free trading between countries
Key Principles
