International Economics and Trade Flashcards

This set of vocabulary flashcards covers essential trade terminology, international accounting concepts like the Balance of Payments, debt and equity definitions, and the macroeconomic relationships between trade, exchange rates, and domestic economic goals.

Exports

Goods and services that are purchased by those not based in the country, resulting in money flowing into Australia (e.g., coal shipped to another country).

Imports

Foreign-produced goods and services purchased by Australian households, businesses, or government, resulting in money exiting Australia (e.g., international students using Australian services).

Trade liberalisation

The process of progressively reducing various forms of protection on local industry.

Trade protectionism

Government policies that put restrictions on trade with other countries.

Tariffs

Also known as imported duties, these represent an indirect tax levied on selected imported goods.

Quotas

A form of protection designed to restrict the supply or quantity of specific types of imports allowed into a country.

Subsidies

Government cash payments made to local producers and industries to help them cover some of their production costs.

Free Trade Agreement (FTAs)

An international agreement between two or more economies that reduces or eliminates certain barriers to trade in goods and services, as well as investment.

Economies of large-scale production

The reduction in costs per unit of output gained from increasing the volume of production, allowing fixed costs to be spread across more units.

Absolute cost advantage

When a nation is the cheapest or most efficient producer of a good or service compared to other countries.

Comparative cost advantage

When a nation specializes in producing goods and services where their cost advantages are greatest and disadvantages are lowest, allowing more efficient resource allocation.

Balance of Payments (BOP)

An accounting summary of international transactions that records international money flows received from or spent in the rest of the world.

Balance of Goods and Services (BOGS)

The total value of all exports of goods and services from Australia minus the total value of imports of goods and services; also known as the Trade Balance.

Credit (receipts)

Positive entry ($+$) in the Balance of Payments recorded when money is received by Australia from overseas.

Debit (payments)

Negative entry ($-$) in the Balance of Payments recorded when money is outlaid or spent by Australia to the rest of the world.

Balance on Current Account (CA)

The difference between the value of all receipts (credits) and all payments (debits) of a current nature, covering trade, income, and investment expenses.

Net Primary Incomes

A sub-account of the Current Account recording receipts from Australians holding foreign assets minus payments to foreigners holding Australian-based assets (e.g., wages, dividends, interest).

Net Secondary Incomes

One-way movements of money where nothing is expected in return, such as foreign aid, gifts, or pensions.

Capital and Financial Account (CAFA)

Records borrowing and investments involving net changes in ownership of assets (shares, property) and liabilities (borrowings).

Savings-Investment Gap

A structural cause of the Current Account Deficit where Australia lacks domestic savings to fund its high levels of investment, requiring overseas borrowing.

Net foreign debt (NFD)

The difference in value between what Australia has borrowed from and owes overseas (liabilities) minus what Australia has lent or invested abroad.

Net foreign equity (NFE)

The value of foreign-owned Australian assets (property, shares) minus the value of overseas assets owned by Australian residents.

Terms of Trade (TOT)

The ratio of average prices paid for exports relative to prices paid for imports, calculated as $\frac{\text{Export price index}}{\text{Import price index}} \times 100$.

Favourable TOT

A situation where the average price receives for exports is relatively higher than the average price paid for imports, resulting in an index result above $100$.

Commodities

Raw materials used in production, such as coal and iron ore; fluctuations in their prices significantly impact Australia's Terms of Trade.

Trade Weighted Index (TWI)

A measure of the value of the Australian dollar expressed in terms of a weighted average of the currencies of Australia’s major trading partners.

Appreciation

An increase in the value of the Australian dollar relative to another currency, occurring when demand for AUD increases or supply decreases.

Depreciation

A decrease in the value of the Australian dollar relative to another currency, occurring when supply of AUD increases or demand decreases.

Foreign currency speculation

An investment activity where investors purchase or sell currency based on expectations of future appreciation or depreciation to make a profit.

Low and stable inflation (price stability)

The macroeconomic goal of maintaining a slow and steady increase in prices between $2-3\%$ p.a. as measured by the CPI.

Strong and sustainable economic growth

The goal of achieving the fastest rate of growth in national production possible (aimed at $3-3.5\%$) without causing negative consequences for inflation or the environment.

Full Employment

The level of employment where there is no cyclical unemployment, with the lowest unemployment rate possible before inflation accelerates (NAIRU, considered to be $4-4.5\%$).

International Competitiveness

A country's ability to compete in global markets based on price factors (inflation, production costs) or non-price factors (quality, service).

Portfolio investment

The purchase of securities such as stocks, property, or bonds that does not offer the investor control (less than $10\%$ ownership) over the enterprise.

Foreign direct investment (FDI)

When an individual or entity from outside Australia acquires $10\%$ or more of an Australian enterprise, allowing some control over operations.