U3 AOS3 AUSTRALIA AND THE INTERNATIONAL ECONOMY Flashcards
(24 cards)
define imports
where australian households, businesses, governments and other groups purchase products produced by another nation.
Australia top 5 imports
1. machinery $36.8B (14.8%)
2. vehicles $33.3B (13.4%)
3. electrical machinery $28.1B (11.3%)
define exports
are australian made products purchased by foreign households, businesses, governments and other groups
- ores, slag, ash $132.1B (38.3%)
- minerals fuels e.g oil $20.7B (6%)
- gems / precious metal $20.7B (6%)
Define international trade
the exchange of goods and services between different countries. represented through imports and exports
why do we trade internationally?
improves living standards of trading countries. e.g australian buy imported cars as they’re cheaper / higher quality than australian made cars.
= getting latest technology while overseas trader receive injection in circular flow model
how do governments adopt trade liberalization?
- cutting tariffs = foreign goods cheaper
- abolish import quotas which restrict volume of foreign goods entering countries
potential gains for international trade (improving living standards)
- increase access to resources, enabling higher production
- increases specialization and efficiency
- promotes greater economies of large-scale production and living standards
- boosts GDP, jobs, incomes and living standards
- increases consumer choice
- keeps consumer prices lower
all which improves living standards
How does international trade lead to increase access to resources, enabling higher production?
- international trade gives Australia access to overseas markets possessing different natural, labor and capital resources which may not be readily available domestically
- thus increases Australias access to resources whilst producing their very own distinctive goods e.g minerals which can be exported and used to purchase imports
e.g sourcing cheap labor from china to support manufacturing industries = higher production at lower costs
How does international trade lead to increase specialization and efficiency?
- Countries possess different combinations of resources allowing greate efficiency in producing a g/s compared to other nations.
- countries produce range of g/s focusing on area of greast cost advantage over foreign rivals. These g/s are relatively more efficient, can be exported and provide income used to pay for imports too expensive to produce locally.
- thus nation generates more output from same input, raising average income and living standards
define absolute cost advantage
when nation is cheapestor most efficient producer of singlegood / service in world.
define comparative cost advantage
when natioan specializes in a few key areas of production where cost advantges is greatest or disadvantages are lowest. meaning opportunity costs are minimized and output maximized.
how does international trade promot economies of large-scale production?
economies of large scale reduction = reduction in firms average cost per unit.
costs such as purchase of raw materials and borrowing of credit from banks etc can be spread more thinly whena business has a larger production run.
international trade encourages spcialization and help businesses grow sales volumes by allowing production on a much bigger scale for potential global market of up to 7.9 billion rather than a local market of e.g 26 milliona australians.
thus lower average unit costs, strenghten international competitiveness, grow average income, purchasing power and boost material living standards.
how does international trade boost GDP, jobs, incomes and living standards?
International trade boosts GDP by allowing countries like Australia to export valuable resources such as iron ore and coal, which increases national income. This rise in demand for exports leads to business growth, which in turn creates more jobs—especially in mining, transport, and agriculture. As employment rises, household incomes increase, giving people greater purchasing power. At the same time, trade allows access to cheaper imported goods like electronics and clothing, making everyday items more affordable. As a result, people enjoy a higher material standard of living through increased consumption, job opportunities, and economic growth.
how does international trade increase consumer choice?
International trade increases consumer choice by allowing countries to import goods and services that are not produced locally or are limited in variety. For example, Australia can import cars from Japan, electronics from South Korea, and clothing from Europe, giving consumers access to a wider range of products. This variety allows people to choose from different brands, qualities, and price ranges, which better meets their preferences and needs. As a result, consumers benefit from more options and better value for money.
how does international trade keep consumer prices lower?
International trade keeps consumer prices lower by increasing competition and allowing countries to import goods from places where they can be produced more cheaply. For example, Australia can import clothing from countries with lower labour costs, reducing the price compared to locally made items. The increased supply of goods and global competition forces local producers to lower prices or improve efficiency. As a result, consumers benefit from more affordable products and better value for money.
define balance of payments
balance of payments (BOP) is a quarterly or annual statistical record of money value of different type of financial transactions between australia and the rest of the world.
components of balance of payments
balance of payments
ca+cafa = 0
CA (current account) = records all receipts (credit) and payments (debits) current in nature.
- net goods
- net services
- net primary income
- net secondary income
CAFA = Capital & financial Account
records credits and debits for capital / financial transactions (future obligations)
- capital account
- financial account
includes - net portfolio investment
- net direct investment
- financial derivatives
- net other investments
-net reserve assets
components of current account (CA)
NET GOODS / NET SERVICES
NET GOODS (BOMT) =
- tangible
credit e.g iron, coal, wine
debit e.g tv, car, furniture
total value of exports - total value of imports over quarter
NET SERIVCES =
- intangible
credit e.g education, insurance
debit e.g tourism, entertainments
total value of exports - total value of imports over quarter
components of current account (CA)
NET PRIMARY INCOMES / NET SECONDARY INCOMES
primary net income = dividends, profits, rent & interest
credits for total primary income received - debits for total primary income paid
net secondary income = foreign aids / goods
secondary credits - secondar ydebits
cyclical component of the current account
MAINLY AD
cyclical component represents CA position as result of economic activity.
economic growth = consumer and business pending increase = higher import demand = worse account deficit
vice versa
structural component of the current account
MAINLY AS
favourable / non favourable structural / aggregate supply conditions.
non-favourable - at ideal economic levels, CAD would be caused by e.g rising production cost, rise in wages and increase cost of borrowing credit = slow sales of local g/s which are exported = weakening account balance
favourable - if theres a large cas- even with ideal economic activity, would attribute to favourable AS conditions strenghtening current acount balance by boosting value of credits.
credit / debit / net / surplus / deficit definitions
money received by Australian resident = credit
money paid by Australian resident to overseas = debit
net = credit - debit
surplus credit > debit
deficit debit > credit
components of capital / financial account (CAFA)
FINANCIAL ACCOUNT
- NET PORTFOLIO INVESTMENT
= transactions involving less than 10% investment in a company
credit e.g sales of shares in qantas to foreign household
debit e.g purchase of shares in apple by australian super - NET DIRECT INVESTMENT
= creation of new assets and liabilities in foreign country
credit e.g sale of australian cole mine to chinese business
debit e.g new oil field opened in papa new guniea by australian company - NET DERIVATIVES
= complex financial instruments which create asset or liabilities
credit e.g sale of options by common wealth aus to american bank
debit e.g purchas eof iron-ore futures by metals group - NNET RESERVE ASSETS
= change in asset/liabilities between central bank
credit e.g rba purchase aud on foreign exchange market
debit e.g australia gov send money to un to help with research - NET OTHER
= transactions not fitting in other categories
e.g borrowing from aus bank from overseas financial insitution
debit e.g deposit by an zin swiss bank accounts
CAPITAL
= movement of capital between nations
credit e.g receipt of intellecutal property income by australian artist
debit e.g australia grant developing countries for building roads and bridges
NET FOREIGN LIABILITES EQUATION
net foreign liabilities = net foreign debt (NFD) + net foreign equities (NFE)
net foreign debt = money australia owes to foreigners take away money owed to australia from foreigners
net foreign equity = amount of equity australia owed to foreigners take amount of equity owed to australia from foreigners
value of exchange rate
aud is usually compared to usd or traded weighted index
TWI = average value of aud compared to
