A few questions on Topic 2 (2 Viewers)

[rsingh]

Hey guys, I have an assessment for this soon, so I just needed to clarify a few things.

1. Explain the link between the BoGS and the CAD; net income and net external liabilities.
2. What are the cyclical and structural factors that have contributed to the CAD in recent years?
3. Why do we measure the CAD as a percentage of GDP?
4. How can international competitiveness be measured?
5. How do protectionist policies of other countries and interntional organisations impact upon Australia?
6. How does our international competitivenss impact upon the Balance of Payments?
7. Explain the impact of structural change on our Balance of Payments?
8. How does the exchange rate impact upon the Balance of Payments?

These are just questions I have seen here and there, and just need to clarify. I have an idea about a few, but not to sure. The last three I'm really lost about, and if someone could explain how the everything impacts upon the BoP, and vice versa, that would be great! I understand everything is interrelated, just don't know why and how.

Also, I'm not sure if it is included in the syllabus, but do we need to know the adv/disadv of different types of exchange rate systems? I've seen some people include it in their own notes, just not sure whether we need it. If we do, could someone please post the adv/disadv of each type.

If you guys could help me, it would be highly appreciated.

Thanks in advance!

 

[mattchan]

1. Explain the link between the BoGS and the CAD; net income and net external liabilities.
2. What are the cyclical and structural factors that have contributed to the CAD in recent years?
3. Why do we measure the CAD as a percentage of GDP?
4. How can international competitiveness be measured?
5. How do protectionist policies of other countries and interntional organisations impact upon Australia?
6. How does our international competitivenss impact upon the Balance of Payments?
7. Explain the impact of structural change on our Balance of Payments?
8. How does the exchange rate impact upon the Balance of Payments?


1) The balance of our goods/services impacts upon the CAD. If there are more exports than imports, this would benefit the CAD. While if we're importing more than we export, our CAD will deteriorate because the Current Account would turn towards a negative and so we must get financial inflows to subsidise this CAD.

Net income and net external liabilities. When we have a CAD, we turn to financial inflows to fund this CAD. However, these financial inflows (external liabilities) require interest repayments on them such as dividents, rent, interest etc. This is recorded on the net income component. So as our net external liabilites increase, so does our net income.


3) I think the answer to this question, is that it shows the level of sustainability of our CAD against the the GDP. Obviously if the CAD was as high as our GDP, it would be unsustainable and thus international confidence would decline..

6) Our international competitiveness impacts on our BOP because on the influence on the balance of goods and services. If Australia becomes less competitive in areas such as inflation rate, exchange rate, or interest rate, it would constitute an outflow (debit) of funds). Eg. High interest rate brings in financial inflows. High inflation rate represents an outflow of financial investment. Low exchange rate = higher exports and improvement in the balance of goods/services.

8) The exchange rate affects Australia's international competitiveness and so movements in this will affect our foreign debt + balance of trade. Eg. An appreciation of the $AUD will cause foreign debt to reduce thus reducing our servicing costs. Also an appreciation will cause our terms of trade to improve but in the long term our exports woudl become less competitive and thus increasing our CAD.


Cheers, i only picked a few

 

[rsingh]

Thanks for your input! But I didn't quite understand q6. If you or someone else could re-explain, that would be great!

 

[snowblack]

How does our international competitivenss impact upon the Balance of Payments?

isnt it just like Australia's international compeitiveness impacts on the BoP because if our international competitiveness increases, we export more, thus decreasing the CAD and vice versa ?

2. What are the cyclical and structural factors that have contributed to the CAD in recent years?
sorry cant help u here

5. How do protectionist policies of other countries and interntional organisations impact upon Australia?
If other countries have protectionist policies, Australia cannot export as much to these countries because of the tariffs for example, in the Doha Round, there were negotiations about (i think, dont quote me on this) about the high tariffs that international organisations like the EU have placed on countries that arent part of their organisation, making it extremely hard for developing countries to export goods (mainly agricultural) to these countries. While the aim of these organisations is to free up trade, theyve been criticised for having high tariffs on those trading nations that arent included in the organsiation

7. Explain the impact of structural change on our Balance of Payments
isnt structural change microeconomic reform ? The result of this reform is that industries become more competitive and efficient. There are also structural job changes right ? (dunno here) but these job losses will lead to jobs being created in more efficient industries, so Australia becomes more efficient ?

sorry if turn out to be wrong , i tried

 

[rsingh]

Thank you also snowblack for yor input. if anyone has answers or thoughts regarding the current answers, please feel free to post.

 

[snowblack]

2. What are the cyclical and structural factors that have contributed to the CAD in recent years?

im not sure about cyclical but structural factors include :major reforms to the labour market, industry policy, protectionism, competition policy, the public sector, the tax system and deregulation in many sectors, which have contributed the to the CAD but this effect will not be long term and will help improve the CAD as we become more efficient blablaa

4. How can international competitiveness be measured?
From the leading edge answer booklet, it says there are various ways of measuring a country's international competitiveness and none can be considered as the last word on the issue. But one useful indicator is an annual index released by Swiss based International Institute of Management Development (IMD) each year. Australia ranked 18th in this index in 2002 - around the level it has been over the past decade