Unit 2 AOS2 Part B Flashcards
Definition of International trade
The two way exchange of goods and services across international borders
Exports definition
A nation selling the G+S it produced to another nation
Imports definition
A nation buying the G+S another nation produced
Australia’s top 5 imports
- Intermediate and other raw materials
- Consumption goods (cars)
- Services
- Finished capital goods
- Gold
Direction of Trade definition and top 3 trading partners
Direction of trade identifies the the countries with whom we trade.
1. China 2. Japan 3. Korea
Composition of Trade definition
Structure of a country’s exports and imports, typically categorized by types of goods and services.
What is BOGS
Balance on Goods and Services:
The total value of exports of goods and services minus the total value of imports of goods and services measured over a 3 month or a 1 year period.
Credits vs Debits in BOGS
Credits are the value of exports whilst debits are the value of our imports
BOGS outcomes:
Trade surplus, Trade deficit, Trade balance
Surplus: Credits larger than debits
Deficit: Credits lower than debits
Balance: Credits equal to debits
Australia’s top 5 exports
- Mineral fuels (Oil but not gold)
- Services (education, transport etc)
- Manufactures (Machines, mineral concretes)
- Rural (Meat, wool, grain)
- Gold
The benefits of trade & capital flow
- Improves access to G+S through imports (Increases MLS)
- Exporting improves Material Living Standards as in increases markets to produce to, raising GDP
- Encourages efficiency and innovation through increased competition
- Allows countries to focus on production of goods and services where they have a comparative advantage (Comparative advantage)
- Lowers prices due to higher production for a larger market (Economies of scale)
Comparative advantage definition
A nations ability to produce goods and services at a lower opportunity cost than other nations.
Economies of scale definition
The decrease in cost per unit of production when producing at a high volume (because fixed costs are spread over a greater number of goods produced).
Exchange rates definition
The price of one currency in comparison to another currency
Supply and demand of currency
When Australian Dollars are converted to another currency, the AUD is being sold, and thus the supplyof $AUD is raised.
When other countries are converting currency to AUD, the AUD is being bought, and the demand for $AUD is raised
Factors affecting supply/demand of a currency
- Changes in other countries and Australias economic growth
- Changes in other countries and Australias consumer confidence
- Changes in selling price of Australian made G+S
- Changes in Australia’s spending on imported defence and foreign aid
Effects of exchange rates on importers
Lower exchange rates makes imports more expensive.
And vice versa.
Effect of exchange rates on Balance of Trade & AD
Lower exchange rates cuts spending on foreign G+S, reduces leakages, and can boost AD, GDP, employment, and incomes.
And vice versa.
Impact of international economic activity domestically
When economic activity is stronger abroad and their output and inflation rate is rising, overseas consumers tend to buy more Australian exports of commodities and services. This causes our trade balance to strengthen.
Definition of commodity
A commodity is a good sold for production or consumption just as it was found in nature.
Australia exports commodities (examples)
Crude oil, coal, copper or iron ore, rough diamonds, and agricultural products such as wheat, coffee beans or cotton.
Australia is a large exporter of commodities including minerals and rural products.
What does increased commodities mean?
Higher commodity prices = higher value of exports = better trade balance / AD
Definition of Trade protection
The effort by governments to protect local import-competing producers from the threat of imports.
Definition of Tariffs
Taxes imposed on imports entering the domestic market
