what are the consequences of an improvement in the terms of trade (2 Viewers)

[Kaatie]

as above.

all help appreciated xo.

 

[Zak Ambrose]

perhaps a sustained increase will reduce australia's international competitiveness which will cause export idustries to undergo structural change to regain the competitveness. so unemployment may rise in X industries.

that's all i can add at the moment.

 

[bell531]

Okay well first of all, an improvement in the terms of trade means that export prices are increasing faster than import prices.

Since our export prices are increasing faster than import prices, our exports can finance more imports and consequently, the current account improves.

For Australia, this means the current account deficit decreases.

Sorry, I can't think of anything else. Hopefully someone else can chip in and help you out.

Just to clarify, an improvement means the export price index is increasing faster than the import price index - i.e. total export (import) income (expenditure). Not to be confused with the actual prices rising.

 

[bell531]

Haha, yea my bad. I noticed that we're doing the same subjects! *shock horror*

OMG! Crazy

 

[AnandDNA]

an improvement in the terms of trade leads to higher export prices compared to import prices. This can deter other nations from purchasing our goods due to the higher prices consequently causing a reduction in export market and international competitiveness. This can also lead to a depreciation of the AUD as it is not as much demanded now and thus leading to all the problems due to a depreciation of AUD.

So yeh everything is kinda linked in economics lol

for some reason i think i'm wrong with the tot affecting exchange rates heavily. dunno why though :S

 

[Kaatie]

thanks alot guys

 

[bell531]

thanks alot guys

That's ok.









But rep me now....srsly.

 

[gurmies]

Okay well first of all, an improvement in the terms of trade means that export prices are increasing faster than import prices.

Since our export prices are increasing faster than import prices, our exports can finance more imports and consequently, the current account improves.

For Australia, this means the current account deficit decreases.

Sorry, I can't think of anything else. Hopefully someone else can chip in and help you out.

If we import more, our CAD should deteriorate as there are more debits than credits (imports are an outflow)...

 

[gnrlies]

If we import more, our CAD should deteriorate as there are more debits than credits (imports are an outflow)...

I think what is being said is that if export revenue increases, you can import more without having any consequences to your CAD. In otherwords if your income rises, you can spend more on your credit card.

 

[gurmies]

I think what is being said is that if export revenue increases, you can import more without having any consequences to your CAD. In otherwords if your income rises, you can spend more on your credit card.

Oh, ok - that makes sense.