Economics IA1 Revision

Absolute Advantage

The ability to produce goods and services more efficiently than another nation.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than another nation.

Competitive Advantage

Advanced industries of a nation leading to trade advantage.

Currency Devaluation

Decreasing a country’s value of money relative to foreign currencies.

Currency Revaluation

Increasing a country’s value of money relative to foreign currencies.

What is currency depreciation and how does it affect the cost of imports for Australia?

Currency depreciation is to a decrease in the value of a country's currency compared to others, leading to higher costs for imports as foreign goods become more expensive.

How would a weaker Australian dollar benefit Australian exporters?

A weaker Australian dollar makes Australian goods cheaper for foreign buyers, potentially increasing demand and boosting exports.

Why might a weaker Australian dollar lead to higher inflation in Australia?

Can lead to higher inflation as it increases the cost of imported goods and services, resulting in higher overall prices for consumers.

How would an appreciation of the Australian dollar impact the competitiveness of Australian-made goods abroad?

Makes Australian goods more expensive for foreign buyers, potentially reducing demand and decreasing exports.

How could a weaker Australian dollar influence the spending habits of Australian consumers?

Could increase prices for imported goods, encouraging consumers to buy Australian products.

How does a decrease in exports due to a global recession affect the demand for a country’s currency?

Decrease in exports leads to less demand for a country's currency, resulting in currency depreciation.

How does an increase in global demand for a country's exports shift the demand for its currency?

Raises the demand for the country’s currency, leading to currency appreciation as foreign buyers need to purchase the currency to pay for the exports.

What effect does a decrease in foreign investment have on the supply of a country's currency in foreign exchange markets?

Reduces the supply of a country's currency in foreign exchange markets, potentially leading to currency appreciation as there are fewer investments in it.

Why might demand for a currency increase if the country has a strong economy?

Strong economy attracts foreign investment and increases exports, leading to higher demand for the country's currency.

If the central bank raises interest rates, how might this impact the demand for the local currency?

Higher interest rates increase demand for the local currency as investors seek higher returns and invest.

How would an increase in imports affect the supply of a country's currency in a floating exchange rate system?

Would lead to a higher supply of the country's currency in the foreign exchange market as consumers and businesses purchase foreign goods, potentially resulting in currency depreciation.

If the Federal Reserve raises interest rates, how would this likely impact the US dollar?

Higher interest rates would likely appreciate the US dollar as it attracts foreign capital seeking better returns.

What are the benefits of trade?

Can result in higher standard of living and economic growth.

Why is trade important for an economy?

Provides benefits for producers and consumers. Access to a wider range of goods and services that aren’t produced domestically.

What is the balance of goods and services?

The difference between export income and import costs for goods and services.

What is the terms of trade formula?

𝑇𝑂𝑇=𝐸𝑥𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒x/𝐼𝑚𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 ×100

Why is higher terms of trade better?

Because the country needs less exports to purchase a given number of imports.

Floating Exchange Rate

Exchange rate is determined by the interaction of supply and demand.

International Monetary Fund

Ensures global financial stability by providing loans. Avoiding global recessions.

World Trade Organisation

Organises trade negotiations and establishes trade agreements. Reduces trade barriers - removes tariffs.

Relative Scarcity

Limited supply of a resource.

If oil prices fall and boost the US economy, how might this affect the US dollar?

The dollar might appreciate due to stronger economic growth, improved trade balance, and increased investor confidence

Referring to the table below, which country has a comparative advantage in the production of electric vehicles:

Electric Vehicles

Wheat (in tonnes)

Canada

400

150

Japan

350

140

Total

750

290

Canada

If the Federal Reserve signals that it may lower interest rates soon, what effect might this have on the US dollar?

The dollar would likely depreciate as lower interest rates reduce returns on US assets, making them less attractive to foreign investors.

In the circular flow of income model, an export of Australian beef and marketing expenditure in Japan by the Australian beef industry would:

a. Decrease the flow in the case of beef exports, increase the flow in the case of marketing expenditure

b. Increase the flow in the case of beef exports, decrease the flow in the case of marketing expenditure

c. Both increase the circular flow of income

d. Both decrease the circular flow of income

C, both increase the circular flow of income.

If Australia experiences a mining boom that leads to an increase in iron ore exports, what impact would this have on the demand for the Australian dollar?

Increase in iron ore exports would raise demand for the Australian dollar as foreign buyers need to purchase it to pay for the iron ore.

Australia can produce more wheat per hectare than Indonesia with the same amount of resources. What type of advantage does Australia have in wheat production?

Absolute Advantage

Australia is known for its high-quality education services, attracting students worldwide. What type of advantage does this describe?

Comparative Advantage

How has the International Monetary Fund (IMF) impacted world trade patterns?

a. By imposing tariffs on developing nations to restrict trade.

b. By providing short-term loans to countries in financial distress, helping to stabilise their economies and facilitate international trade.

c. By promoting the use of a single global currency for all trade.

d. By preventing foreign direct investment in emerging economies

B

In the circular flow of income model, an export of Australian coal and machinery purchased from the United States by Australian mining companies would:

a. Decrease the flow in the case of coal exports, increase the flow in the case of machinery purchases

b. Increase the flow in the case of coal exports, decrease the flow in the case of machinery purchases

c. Both increase the circular flow of income

d. Both decrease the circular flow of income

 

B