Economics Revision
Jan 21, 2016
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