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Unit 3 Economics AOS3 - Coggle Diagram
Unit 3 Economics AOS3
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The balance of payments
- (Record of all transactions relating to g/s, income & capital, which take place over a year b/w Australia and the test of the world)
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- Credits = money flowing into AUS ie; reciepts
- Debits = money flowing out of AUS ie. payments
- Net = 'after deductions' (credits after - debits
- Surplus (credits exceed debits)
- Deficit (debits exceed credits
- if CA is in a deficit then CAFA is in an equal surplus = always equalling 0
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Terms of trade
The terms of trade measures the export prices received vs import prices paid. Ratio of prices
- TOT = export price index / import price index x 100
- favourable or unfavourable
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FACTORS AFFECTING TOT
Commodity prices (exports): fluctuate on world markets for eg. iron ore,
coal & oil are determined by global demand and supply. - china demands more coal, increases price of commodities and increases export price index and TOT
Production costs in trading partners (imports): will drive up prices paid for our imported goods.
- an increase in costs of production will increase prices paid for imports and decrease TOT
- a decrease in costs of production will decrease prices paid for imports and increase TOT
- increase in TOT = favourable
- decrease in TOT = unfavourable
International competitiveness (ability of Aus business to compete in world market on price & quality)
Productivity (outputs per inputs) - labour & capital productivity drive improvements in cost and quality and increase competitiveness. Govt always trying to invest in productivity improvements
Production costs: different countries have varying tax rates, min wages, employment conditions and costs of utilities. This differing cost of production impacts ability to compete
Availability of natural resources: minerals/commodities, access to clean water or arable land improves productivity, decreases cost of production and improves competitiveness
Exchange rates: a depreciating dollar = exchange less currency for same volume, dollar appreciates = exchange more currency for same volume
Relative rates of inflation: directly affect ability to compete as if Aus prices rise at faster rate than our competitors then our g/s are less competitive on price
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