Economics Revision

Question 1

Provide THREE characteristics of a developing economy

Question 1

You’ve got this one...

Question 2

What is the role of the World Trade Organisation?

Question 2

Use your textbook!

Question 3

What does OECD stand for?

Question 3

Organisation for Economic Cooperation and Development

Question 4

Outline TWO benefits of trade agreements.

What are some of the potential costs associated with free trade

Question 4

Benefits: MICE GI

Costs: DUDE

Question 5Demonstrate (diagrammatically) the consequence of Au reducing tariffs imposed on imported goods.

Question 5

Question 6

What is a quota?

What is a subsidy?

Question 6

Definitions are easy... look them up!

Question 7

Name three cyclical causes of the CAD

Question 7

Remember that cyclical are those causes that fluctuate with the business CYCLE:

- exchange rates

- TOT

- interest rates etc..

Question 8

Name two structural causes of the CAD

Question 8

Structural causes are slower to change... they don’t change much at all:

- narrow export base

- household savings rate

Question 9Allocate the following transactions into their correct position in the BoP:

• An Au business takes out a loan from a German bank

• An Australian student studying overseras pays fees to attend NYU

• A Chinese investor purchases a majority of the shares in an Au company

• A Hungarian backpacker pays to stay at an Australian youth hostel

• An Au citizen receives a pension from the Italian government

Question 9Allocate the following transactions into their correct position in the BoP:

• An Au business takes out a loan from a German bank - (principal) credit financial; (repayments) debit primary income

• An Australian student studying overseras pays fees to attend NYU - debit services

• A Chinese investor purchases a majority of the shares in an Au company credit financial - DFI

• A Hungarian backpacker pays to stay at an Australian youth hostel - credit services

• An Au citizen receives a pension from the Italian government - credit secondary income

Question 10

Define the term ‘trade weighted index’

Question 10

Definition is on you...

Question 11Explain the impact of a depreciation of the AUD on the BoP

Question 11Explain the impact of a depreciation of the AUD on the BoP

Trade: decrease exports and increase imports leading to an increase in deficit in the BOGS

Investments: valuation effect will mean that the repayments on current investments held by foreigner will decrease, reducing the net income deficit. This may impact the level of investors choosing to invest in Au, although the cheaper AUD may be an incentive for some foreign investors to invest in Au.

Question 12

Outline the influence of the RBA on Au’s exchange rate

Question 12

Direct - dirtying the float

Indirect - monetary policy

Question 13

Describe one benefit of a fixed exchange rate system

Question 13

Less volatility and exchange rate risk

Question 13

Discuss how Au’s current levels of protection compare to those of other high income economies

Question 13

Similar to other established economies - statistics research guys!

Question 14

What are the components of AD?

Question 14

C + I + G + X - M

Question 15

Discuss the impacts of a greater level of economic growth on the economy

Question 15• Look at ALL areas of the

economy:

- exchange rates

- inflation

- interest rates

- un/e

- international competitiveness/trade

- consumer confidence

Question 16

• Calculate the unemployment rate for Year 1

• What is the trend in the participation rate from Year 1 - 3

employed persons (M)

unemployed persons (M)

working age population (M)

total population

Year 1 13 2.5 19 25

Year 2 15 4 20 26

Year 3 16 5 21 27

Question 16

• Year 1 un/e rate: 2.5/(13+2.5) = 16.2%

• It is improving... so much so participation is at 100% by Year 3

employed persons (M)

unemployed persons (M)

working age population (M)

participation rate

Year 1 13 2.5 19 15.5/19

Year 2 15 4 20 19/20

Year 3 16 5 21 21/21

Question 17

Demonstrate (diagrammatically) a depreciation of the AUD against USD

Question 17

p130 fig 5.2 of your text

Question 18

What are FOUR causes of un/e?

Question 18

p187- 191 of your text (or look at our notes from class)

Question 19

What impact does economic growth have on trade?

Question 19

What impact does economic growth have on trade?

Question 19

Stronger economic growth generally = higher CAD

Why:

- Higher economic growth = higher real wage = greater spending by business and consumers on imported goods and services as they have more disposable income

High economic growth can cause problems for external stability... that is why the BoP is considered a ‘speed limit’ on the level of economic growth

Question 20Allocate the following transactions into their correct position in the BoP:

• An Au company makes interest payments on a lan from a Paraguayan bank

• An Au importer buys 50 bottles of Chateau Petrus wine from France

• Au sends aid to NZ to help set up quality schools and educational institutions

• An Irish investor makes interest repayments to the Commonwealth Bank of Australia

• An Au investor purchases a 3% shares of a grocery retaining chain in Turkey

Question 20Allocate the following transactions into their correct position in the BoP:

• An Au company makes interest payments on a loan from a Paraguayan bank debit primary income

• An Au importer buys 50 bottles of Chateau Petrus wine from France credit import account

• Au sends aid to NZ to help set up quality schools and educational institutions debit secondary income

• An Irish investor makes interest repayments to the Commonwealth Bank of Australia credit primary income

• An Au investor purchases a 3% shares of a grocery retaining chain in Turkey debit financial account - portfolio

Question 21Allocate the following transactions into their correct position in the BoP:

• A Northern Territorian entrepreneur buys the copyright to a popular Swedish yodelling song

• An Au investor establishes a shoe-making factory in NZ

• A Dutch investor receives a dividend cheque from the Au company ‘ABC Ltd’

• A Guatemalan importer purchases three tonnes of Au lamb

Question 21Allocate the following transactions into their correct position in the BoP:

• A Northern Territorian entrepreneur buys the copyright to a popular Swedish yodelling song - debit capital - non-produced, non-financial assets

• An Au investor establishes a shoe-making factory in NZ - debit financial - direct

• A Dutch investor receives a dividend cheque from the Au company ‘ABC Ltd’ - debit primary income

• A Guatemalan importer purchases three tonnes of Au lamb - credit export account