Economics Unit 3 AOS 3

Absolute cost advantage

occurs if a nation is the cheapest or most efficient producer of a single good or service in the world.

Appreciation

of the exchange rate occurs when the value of a nation's currency rises against another currency.

Balance of payments account (BOP)

an annual statistical record of Australia's financial transactions with the rest of the world. In turn, these transactions are divided into two main types of transactions — current transactions, and transactions involving the capital and financial accounts, each recording credit and debit transactions.

Balance on capital account

(also called the capital account balance) is a subsection in the BOP capital and financial accounts. It records the total value of credits minus the total value of debits for capital transfers and other intangible assets.

Balance on current account

(also called the capital and financial account balance) is equal to the total value of all credits minus the value of all debits for goods, services, primary incomes and secondary incomes, measured over a period of time. The balance can be a CAD or a CAS.

Balance on financial account

is a subsection in the BOP capital and financial accounts. It mainly records international transactions involving the movement of money capital or investment, as well as the dealings of the Reserve Bank of Australia (RBA)

Comparative cost advantage

occurs if a nation specialises in a few key areas of production where its cost advantages are greatest or its disadvantages and opportunity costs are lowest.

Current account deficit (CAD)

is when the value of all current account debits exceeds the total value of all current account credits for goods, services, primary incomes and secondary incomes, measured over a period of time.

Current account surplus (CAS)

is when the value of all current account credits exceeds the total value of all current account debits for goods, services, primary incomes and secondary incomes, measured over a period of time.

Cyclical influences

can affect the nation's current account balance causing it to become stronger or weaker as AD and economic activity slow or rise. Cyclically stronger spending domestically normally tends to increase imports and slow exports, weakening the current account balance. In addition, weaker spending overseas has a similar effect. In contrast, cyclically weaker spending domestically or stronger spending overseas, tend to strengthen the current account balance.

Depreciation

of the exchange rate occurs when the value of a nation's currency falls against another currency.

Direct investment

involves capital movements into and out of Australia that involve the establishment, purchase or expansion of companies and other assets.

Economies of large-scale production

are reductions in a firm's average costs per unit associated with an increase in its production levels, perhaps enabled by trade liberalisation (e.g. the signing of FTAs) and bigger export markets.

Exchange rate

The number of units of another currency that can be purchased with or swapped for one unit of our currency.

Foreign exchange market

is where international currencies are swapped or converted into other currencies.