INTERNATIONAL TRADE - U3 AOS3

• What are the gains from international trade?

  Increased access to resources, specialization, competition, efficiency, and living standards
• How does international trade promote economies of scale?

  By allowing larger production runs, which lowers costs and increases living standards
• What impact does international trade have on GDP and jobs?

  It boosts GDP, creates jobs, and increases incomes
• How does international trade affect consumer choice?

  It increases consumer choice
• In what way does international trade keep consumer prices lower?

  By increasing competition among producers
• What are the disadvantages of international trade?

  Benefits are not shared equally, leading to structural unemployment and vulnerability to supply chain disruptions
• What is structural unemployment and how is it related to international trade?

  It is unemployment caused by foreign competition leading to local business closures
• How does international trade increase global interdependence?

  By linking economies through trade relationships
• What environmental costs are associated with increased international trade?

  Increased transportation of goods and over-exploitation of resources
• What does the Balance of Payments (BOP) account record?

  Financial transactions between Australia and the rest of the world
• What are credits and debits in the BOP accounting system?

  Credits are money received by residents; debits are money paid overseas
• What does a zero balance account in the BOP indicate?

  Total credits equal total debits
• Why does the BOP always balance?

  Every dollar spent abroad is matched by a dollar earned from abroad
• What is included in the current account of the BOP?

  Net goods, net services, net primary incomes, and net secondary incomes
• What is a current account deficit (CAD)?

  When debits exceed credits over a period
• What is a current account surplus (CAS)?

  When credits exceed debits over a period
• What does the capital account in the BOP record?

  Net capital transfers and acquisition/disposal of non-produced non-financial assets
• What are capital transfers in the capital account?

  Inflow of funds from permanent migrants
• What is the financial account in the BOP?

  The total value of credits for investments and lending by Australians abroad minus debits
• What is net direct investment?

  Inflows from foreign investment in Australia minus Australian investment abroad
• What are net errors and omissions in the BOP?

  They reflect inaccuracies in BOP calculations
• What are the cynical influences on the current account balance?

  Short-term aggregate demand factors affecting net exports
• How do domestic conditions affect the current account balance?

  Stronger local spending weakens the current account, while weaker spending strengthens it
• What impact do overseas conditions have on the current account balance?

  Stronger foreign demand strengthens the current account, while weaker demand weakens it
• What was the impact of economic activity pickup during 2020-1 on exports?

  Boosted exports to China and the USA
• How did border lockdowns during COVID-19 affect the current account?

  Reduced imports of services and spending abroad
• What effect does the exchange rate have on export competitiveness?

  A lower AUD strengthens export competitiveness
• How do production costs influence the current account balance?

  Rising costs weaken the current account, while lower costs strengthen it
• What is the national savings gap and how does it affect the current account?

  High overseas debt from the savings-investment gap weakens the current account
• How did rising oil prices in 2022-23 affect the current account balance?

  Increased import debits, weakening the current account balance
• What role do real unit labour costs play in international competitiveness?

  Slow rises help keep production costs lower, strengthening competitiveness
• What impact have climatic events had on Australia's export capacity?

  Damaged infrastructure and reduced export capacity
• What has been the trend in Australia's labour productivity growth from 2020-1?

  Weak growth averaging -0.1% a year
• What does net foreign debt (NFD) represent?

  Total borrowing from foreign lenders minus lending to foreign borrowers
• What is net foreign equity (NFE)?

  Measures net equity obligations from foreign ownership of Australian assets and vice versa
• What historical factors have contributed to Australia's large net foreign liabilities (NFL) and net foreign debt (NFD)?

  National spending exceeding national income and insufficient national savings
• How did current account surpluses from 2019-23 affect NFL?


  Led to a net inflow of funds, reducing NFL
• What is the impact of public sector borrowing on NFD?

  It increases NFD as the government borrows from overseas
• What percentage of Australia's total NFD was public sector debt by 2022-23?

  30%
• Why do companies and banks borrow from overseas?

  To finance business expansion and due to high domestic interest rates