HSC Economics Question Thread

[StudyBuddyKJ]

Hey!

I am wondering if someone was able to summarise the Balance of Payments because I am not really grasping the whole concept of it all.

Thanks in advance!

Okay, so the Balance of Payments comprises of two accounts. The two accounts are the current account, and the capital and financial account. The current account consists of the balance of goods and services (otherwise known as BOGS), the net primary income, and the net secondary income. The BOGS part is basically just looking at net exports (stuff you bring out of the country) minus net imports (stuff you bring into the country). The BOGS is usually in fluctuation (either in deficit or in surplus)

The net primary income is basically just returns on investment from credits -debits. Credits is money going into the country. Debits is money going out of the country. Because Australia spends more and saves less, it has very low domestic  savings, hence net primary income is usually deficit. Also remember that a lot of countries choose to invest into Australia because Australia has relatively high interest rates as compared to other countries. This means that there will be a greater return on investment. Hence, there is more money going out of the account (which is a debit by the way) to pay the foreign countries back, hence there is a deficit.

The net secondary income is basically just credits- debits for government transfers (aka stuff that is not directly related to investment or exports). this can be stuff like Australia giving out foreign aid to different countries, migrants transfering money back to their home country, that sort of thing. Again, there is a lot of fluctuation with it being either a deficit or surplus. It just depends.

So the current account is basically the NPI (net primary income), NSI (net secondary income) and BOGS (balance of goods and services). The capital and financial account is literally just the capital account and financial account (two separate accounts). For all intents and purposes, we just say that those two accounts are together.

Capital Account basically records credits and debits for the acquisition or disposal of non-produced & non-financial assets such as foreign aid and net capital brought into Australia by migrants. The Financial Account records credits and debits associated with direct investment, portfolio investment, other investment and changes in the level of reserves held by the RBA.

That is pretty much it. Hope that helps! Again it is a quick summary. Feel free to research and go into more detail.

[raymond.semaan]

Can someone tell me the consequences of the Current Account Deficit, I can't seem to find it in the textbook

[emilyygeorgexx]

Can someone tell me the consequences of the Current Account Deficit, I can't seem to find it in the textbook

Hey!

If you have the Tim Dixon textbook its on pages 124 - 126.

[raymond.semaan]

Hey!

If you have the Tim Dixon textbook its on pages 124 - 126.

I have the Tim Riley Textbook I think, is it a big chunk of info or can you just copy and paste it

[allate]

hi, would anyone know an economic cost of a free trade agreement involving Australia? would trade diversion count or are there better options? thanks in advance.

[emily_p]

hi, would anyone know an economic cost of a free trade agreement involving Australia? would trade diversion count or are there better options? thanks in advance.

I feel like trade diversion would be particularly significant for bilateral agreements (I've mostly learnt that diversion is a disadvantage of bilateral) but they can also work for multilateral agreements/trading blocs! For example the European Union is pretty exclusive - it promotes free trade between countries within the bloc, however trading with countries outside can be difficult. Other costs can involve structural unemployment (seen with the manufacturing industry - car producers like Ford, Holden, Toyota etc have shut down due to overseas competition) so while free trade promotes investment into efficient industries, it can lead to retrenchment of certain workers within the economy. If an economy is moving from tariffs in particular towards free trade then governments can also lose revenue collected from taxes on overseas goods. Hope this helps!

[raymond.semaan]

Evaluate the contribution of transnational corporations (TNCs) to economic development  in developing economies.    (4 Marks)

[gumscape]

Helloooo, this is from 2010 MC.

Which of the following is most likely to shift both the aggregate demand and aggregate supply curve to the right?
(A) An increase in investment and a reduction in subsidies to producers
(B) An increase in the budget deficit and a decrease in the cost of labour
(C) An increase in the productivity of labour and an increase in interest rates
(D) An increase in the budget surplus and an increase in the cost of raw materials

In short pls help me i'm failing this subject.

[emilyygeorgexx]

Helloooo, this is from 2010 MC.

Which of the following is most likely to shift both the aggregate demand and aggregate supply curve to the right?
(A) An increase in investment and a reduction in subsidies to producers
(B) An increase in the budget deficit and a decrease in the cost of labour
(C) An increase in the productivity of labour and an increase in interest rates
(D) An increase in the budget surplus and an increase in the cost of raw materials

In short pls help me i'm failing this subject.

Is the answer B?

[gumscape]

Is the answer B?

It sure is, I just have no idea why lmao

[JTrudeau]

It sure is, I just have no idea why lmao

Alright, I’m gonna give this a try.
It is B, and here’s why:
An increase in the budget deficit means you’re increasing government spending more than you increase taxation. According to our aggregate demand equation, AD=C+I+G+X-M, increasing government spending (G) increases your overall level of aggregate demand.

This part I’m less sure about. A decrease in the cost of labour means firms can supply the same quantity of goods at a lower price (because their costs of production go down). So this encourages them to hire more workers and increase their quantity supplied, thus increasing aggregate supply.

Does that make sense?

[emilyygeorgexx]

Hey!

Can someone explain how to do this question and get the answer C. I understand the part about increased purchasing power for Australians travelling overseas but I don't get the domestic part.

Thanks 

[Lumenoria]

Hey!

Can someone explain how to do this question and get the answer C. I understand the part about increased purchasing power for Australians travelling overseas but I don't get the domestic part.

Thanks 

Holy crap, this is a massive curveball haha! I get why you're stuck, my original thought was that the purchasing power would be weaker in year 1 compared to year 2, thus the purchasing power would relatively increase even if overall there was a decrease due to inflation. But then I reread your post and the answer was C, so obviously that wasn't it.

Okay, this took me a while to wrap my head around, but it's the only plausible explanation I can come up with that results in C.

Hypothetically, say there's an economy with inflation of 200% one year then 100% the next. In this economy, the oranges are $5 at the beginning, and you have $30 in your pocket as a domestic consumer. By the end of year one, oranges are worth $15 [(100%+200%)x$5]. However, by the end of year two, oranges are worth a massive $30 [(100%+100%)x$15]. In year one, you could buy two oranges, but in year two you could only buy one. Therefore, even though inflation has decreased, your purchasing power still diminishes over these 2 years. Hence, you can extrapolate this to 2%/1%, exaggerating the numbers just made it easier to illustrate my point lol.

So, while the inflation rate HAS in fact decreased compared to the previous year, inflation is STILL occurring so the real value (purchasing power) of any given amount of money has decreased. I suppose this is true regardless of the inflation rate as long as it is positive, even if it is 0.00001%. lol

I hope this helped! x

[emilyygeorgexx]

Holy crap, this is a massive curveball haha! I get why you're stuck, my original thought was that the purchasing power would be weaker in year 1 compared to year 2, thus the purchasing power would relatively increase even if overall there was a decrease due to inflation. But then I reread your post and the answer was C, so obviously that wasn't it.

Okay, this took me a while to wrap my head around, but it's the only plausible explanation I can come up with that results in C.

Hypothetically, say there's an economy with inflation of 200% one year then 100% the next. In this economy, the oranges are $5 at the beginning, and you have $30 in your pocket as a domestic consumer. By the end of year one, oranges are worth $15 [(100%+200%)x$5]. However, by the end of year two, oranges are worth a massive $30 [(100%+100%)x$15]. In year one, you could buy two oranges, but in year two you could only buy one. Therefore, even though inflation has decreased, your purchasing power still diminishes over these 2 years. Hence, you can extrapolate this to 2%/1%, exaggerating the numbers just made it easier to illustrate my point lol.

So, while the inflation rate HAS in fact decreased compared to the previous year, inflation is STILL occurring so the real value (purchasing power) of any given amount of money has decreased. I suppose this is true regardless of the inflation rate as long as it is positive, even if it is 0.00001%. lol

I hope this helped! x

Omg thank you so much! This actually makes so much more sense now. My class has literally been arguing for 2 lessons on this question because no one could understand that even though inflation decreased, you would lose your purchasing power.

If they gave me this question in an exam I honestly would full get it wrong.

[Lumenoria]

Omg thank you so much! This actually makes so much more sense now. My class has literally been arguing for 2 lessons on this question because no one could understand that even though inflation decreased, you would lose your purchasing power.

If they gave me this question in an exam I honestly would full get it wrong.

Not a problem! I definitely would've gotten it wrong too, were it not for you asking!! HAHA