Studying for eco (1 Viewer)

[monique66]

Alright, they created a thread like this in legal and i thought it was a good idea. Basically we ask the person below us a question, they answer it and then ask another question. It seems to be a good way to jog your memory. Don't write essay responses or anything, just the main points...So here goes:

Question: What are the disadvantages of free trade?

 

[Tommy_69]

dumping
unemployment
inefficient industries shut down due to increased global competition


my question:

what is Australias CAD amount in dollars at the moment. Dollars not GDP (7.1%)?

 

[_muse_]

$15.2 billion?! i think thats right...



QUESTION: How do exchange rates effect the balance of payments?

 

[ando_88]

A: An appreciated exchange rate will make imports cheaper and exporters less internationally competitive. Therefore if we loose export revenue and our imports remain constant (or even increase due to the cheaper prices!) then our BOGS will deterioate and thus our CAD will worsen. However this depends on the elasticity of demand for our exports. If our exports are highly price inelastic then the increased price will mean more export revenue and thus an improvement in our CAD.

On the other hand, due to the valuation affect, the servicing costs of our foreign liabilities (ie dividends and interest) will decrease if the currency appreicates. This is because most of Australia's foreign liabilities are demoninated in foreign currencies and with a higher $A we can get more foreign currency. This should reduce our overall foreign liablities and thus reduce our net incomes deficit and improve the CAD.

Apply the opposite for a depreciated currency!

my question:

What affect will an appreciation of the $A have on the terms of trade?

 

[illmatic]

An appreciation in our dollar should ultimately result in an improvement on the terms of trade because the price of the exports essentially becomes larger than the prices for the imports.

IS THIS RIGHT?



Q:

Outline the negative effects of a subsidy.

 

[monique66]

An appreciation in our dollar should ultimately result in an improvement on the terms of trade because the price of the exports essentially becomes larger than the prices for the imports.

IS THIS RIGHT?



Q:

Outline the negative effects of a subsidy.

Umm...an appreciaction will cause:

Negative effects:
-the level of exports to overseas to decline (coz it costs more for overseas buyers to buy $A)
-Imports will be cheaper (coz we can buy more of overseas currencies)thus it will lead to an increase in CAD
-Less financial flows (unless investors believe the $A is likely to increase further)

Positive effects:
-reduce outflow on income acount on the current account because we are better able to service our debts (therefore a reduction in CAD)
-less inflationary pressure

As for subsides they artifically raise the prices of goods and services, meaning that consumers get less variety and choice and have to pay a higher price in order to sustain an inefficent local industry

Q: Briefly explain the structure of Aus's export base

 

[illmatic]

Umm...an appreciaction will cause:

Negative effects:
-the level of exports to overseas to decline (coz it costs more for overseas buyers to buy $A)
-Imports will be cheaper (coz we can buy more of overseas currencies)thus it will lead to an increase in CAD
-Less financial flows (unless investors believe the $A is likely to increase further)

Positive effects:
-reduce outflow on income acount on the current account because we are better able to service our debts (therefore a reduction in CAD)
-less inflationary pressure

As for subsides they artifically raise the prices of goods and services, meaning that consumers get less variety and choice and have to pay a higher price in order to sustain an inefficent local industry

Q: Briefly explain the structure of Aus's export base

Yes but you didn't say how it affects the Terms of Trade...


The structure of Australia's export base is mainly the production of primary commodities such as timber, wool, wine etc.. However we also manufacture ETM's, but as forementioned, primary commodities are the predominant area. Demand and supply of such things fluctuates due to seasons, and weather etc, therefore our export industries are not very secure



Q: What influences the supply and demand of a currency? [assuming it is a floating currency]

 

[MeehShanku]

Yes but you didn't say how it affects the Terms of Trade...


The structure of Australia's export base is mainly the production of primary commodities such as timber, wool, wine etc.. However we also manufacture ETM's, but as forementioned, primary commodities are the predominant area. Demand and supply of such things fluctuates due to seasons, and weather etc, therefore our export industries are not very secure



Q: What influences the supply and demand of a currency? [assuming it is a floating currency]

Well it can either improve the terms of trade or be deteriotrating. Since the world are demanding lots of commoditiy products which Australia tend to specialise in then this would improve the terms of trade.

However, an appreciation of the dollar will make imports cheaper, n therefore most likely increase consumer spending for cheaper imported goods. (deteriotrating TOT coz BOGS more imports than exports). Hence it can be affect the TOT in both ways. Just using them as egs. but there are other factors as well
damnation had listed

 

[Will Hunting]

unemployment

Unemployment can balloon in the short term due to competitive pressures, however, following structural adjustment, should ultimately decline in the medium to long term.

inefficient industries shut down due to increased global competition

Not necessarily. Sometimes uncompetitive firms will shift their operations to more efficient sectors, or can even choose to specialise in one particular aspect of production, concentrating all resources on a single production line to the detriment of everything else. Sometimes inefficient industries will develop and implement new innovations and technologies in response to external pressure.

If our exports are highly price inelastic

If we're talking Australia, remember that our export base is nearly monopolised by agricultural commodities and raw minerals, products whose prices are generally highly elastic and given to large fluctuations on global markets (with the exception, perhaps, of the mineral exports of which Australia has rich factor endowments).

due to the valuation affect, the servicing costs of our foreign liabilities (ie dividends and interest) will decrease if the currency appreicates

The Valuation Effect refers to the size of Australia's foreign debt, not the servicing costs involved.

An appreciation in our dollar should ultimately result in an improvement on the terms of trade because the price of the exports essentially becomes larger than the prices for the imports.

IS THIS RIGHT?

Sure is, dude.

As for subsides they artifically raise the prices of goods and services, meaning that consumers get less variety and choice and have to pay a higher price in order to sustain an inefficent local industry

Subsidies reduce production costs and, hence, the final selling prices of goods, enabling the subsidised industry to sell greater quantities of its product at more competitive prices on global markets. Consumers benefit from the reduced prices.

They are bad because they reduce the revenue of firms importing into the country as well breeding complacency in the subsidised firms; to the point where they are unable to survive in the absence of a barrier that was only ever supposed to be a temporary aid.

The structure of Australia's export base is mainly the production of primary commodities such as timber, wool, wine etc.. However we also manufacture ETM's, but as forementioned, primary commodities are the predominant area. Demand and supply of such things fluctuates due to seasons, and weather etc, therefore our export industries are not very secure

Also raw minerals, services such as those of the tourism, education and financial industries and some niche manufactures.

(deteriotrating TOT coz BOGS more imports than exports)

Rise in $A means deteriorating CAD and improving TOT.

Anyways, my question...

Why does an appreciation in the NAIRU curb economic growth without curbing inflation?

Meeh, dude, don't I get a question too? :'(

 

[monique66]

i'll give you a question then: Outline the positive and negative impacts of eco growth

 

[ameh]

positive:

higher real incomes per capita and living standards - due to increase productivity
greater ppp
encourages higher levels of savings
higher productivity rates and tech progress
employment creation and falling unemployment levels i.e. more opp for underemployed workers

new business investment as higher consumption spending can have an acceleration effect on net investment
increase in real output, some of which may be exported to other countries - gains from trade incl. lower prices, higher output, economies of specialisation and higher living standards like i mentioned earlier



negative:

increase taxation, although on the plus side the govt. can use revenue to provide social and eco infrastructure and fund social security and welfare system

damage caused to natural environment

widening inequality of income distribution

lead to emphasis on materialism and consumerism - although i dont mind

structual unemployment [remember arnold spong?] - i think..oh no wait, the mobile phone seller who was recently sacked from a steel company *wink wink


excessive rates of eco growth can lead to demand pull and cost push inflation as resources become scarce in relation to the increase in demand of G+S

 

[monique66]

ahem, question!

 

[monique66]

alright, i'll post one then...

Question: what are some policies the govt can use in order to curb inflation?

 

[Haku]

no idea, but i'll ask a question anywayz

Average Propensity to Save: is the percentage of all income a individual sames
Marginal Propensity to Save: is the percentage of extra income a individual saves.

what is the extra income? and what are the diffrences between APS and MPS, and why is only MPS used in the multiplyer?

 

[Jago]

alright, i'll post one then...

Question: what are some policies the govt can use in order to curb inflation?

monetary policy - raising interest rates

the rba will often use pre-emptive monetary policies to "nudge" inflation in the right direction

microeconomic reform - deregulation of labour market, increasing international competitiveness by either increasing productivity or lowering costs.

 

[azza_3761]

what are the diffrences between APS and MPS, and why is only MPS used in the multiplyer?

APS is the average amount people in a country saves while MPS is how much an individual would save if given an extra dollar.

MPS only used in the multiplyer as only that percentage of income is reinvested back into the economy directly, through savings at the bank or purchase of investment.

 

[Haku]

so MPS is theoritically how much of the extra dollar the person would save. while APS is the whole nations people and the percentages of their income saved?

in HSC do we only use MPS as multiplyer or also have to talk about APS?

 

[azza_3761]

We only need to know MPS for the multiplyer i.e. k = 1/MPS or k = 1/(1-MPC)

 

[monique66]

The multiplier annoys the crap out of me...anyway

Question: What is the definition of eco growth?

 

[azza_3761]

Economic growth is an increase in the real growth of production of goods and services over a period of time usually determined by Gross Domestic Product (GDP)