Impacts of Changes in the global economy on Current Account and Net Foreign Debt (1 Viewer)

[sarlovesyou]

Ok Im doign a few essays for Eco, just as some revision/study.

The question is "analyse the impact of changes in the global economy on Australia's current account and net foreign debt"


Now Im ok with the majority of the essay, Just am a bit unsure on what aspects exactly should I be looking at in terms of the changes in the global economy?

Im thinking things like the international business cycle going into a recession and changing the demands of Australias Imports and Exports thus a change in the CAD etc?

Are there any other areas I should be looking at specifically?

TIA

 

[williamc]

The question is "analyse the impact of changes in the global economy on Australia's current account and net foreign debt"

Now Im ok with the majority of the essay, Just am a bit unsure on what aspects exactly should I be looking at in terms of the changes in the global economy?

Im thinking things like the international business cycle going into a recession and changing the demands of Australias Imports and Exports thus a change in the CAD etc?

Are there any other areas I should be looking at specifically?

TIA

Yer you pretty much stated it. Look at how both an upturn and downturn in the international business cycle would effect the demand for exports and imports. So there is 2 para's + diagrams just on the Balance of Goods and Services in the CAD.

Look at how both an upturn and downturn in the international business cycle would effect the Net Income component of the CAD.Ie. upturn in the international business cycle means as a flow on effect there should theoretically be more financial and investment flows in between nations. Therefore, international investors will be investing in Australia, maybe even loaning there money to australians (lol i kow bit far fetched). So you pretty much just blabber on about this.. for the Net Income component of the CAD.

So for net foreign debt you pretty much just talk about if there is a upturn in the international business cyle, other countries will be demanding more australian shizza. And seeing as australia has one of the lowest levels of national savings even referred to as dis-savings by many economists, capital to fund goods and services would have to be borrowed from overseas. So there i just linked upturn in global economy to net foreign debt. I would then blabber on the "debt-trap scenrio" which is good to know and expand on..

To add further debt to my essay i would go on further and say how this have caused such problems and make an assessment on whether i thought australia net foreign debt and CAD were a problem in my essay by analysing the above factors throughout the essay..

Oh yer use heaps of diagrams were possible.

And yer that is a band 6 essay..

 

[sarlovesyou]

Thanks a lot, that was really helpful. We haven’t started this topic yet, so I didn’t really have an idea wether I was on the right track.

The other essay question I had about the Balance of Payments is, "Examine the reason for the changes in the composition and direction of Australia’s Trade and financial flows and the impact of these on the Australian Balance of Payments"

I’m fine for the Trade Section, But I’m unsure about the financial flows?

Any help would be great!

 

[williamc]

Thanks a lot, that was really helpful. We haven’t started this topic yet, so I didn’t really have an idea wether I was on the right track.

The other essay question I had about the Balance of Payments is, "Examine the reason for the changes in the composition and direction of Australia’s Trade and financial flows and the impact of these on the Australian Balance of Payments"

I’m fine for the Trade Section, But I’m unsure about the financial flows?

Any help would be great!

Ok im pretty stetchy on this stuff as i havn't looked at it since Nov 6 2007.

From memory, in the 50's australia use to trade alot with UK and other euro countries. But then the UK joined the EU and the EU imposes tariffs on non-member countries for trade therefore our trade with these countries dropped. Simultaneously, Japan went BAM! and then more recently with the mining boom China has increased in trade. (so that is direction of trade)

Back in the 80's and shizza australia use to export alot of rural, and mining goods and import intermediate goods most signifiacntly. Australia now exports mostly mininglike nearly 50% resources or something, with the commodity boom, which was expected to peak mid 2007 (and proally did). (composition of trade)

Due to globalisation international investment is 999999999999999999999999999999 times bigger (or thereabouts). Floating of the dollars and deregulation of financial markets is what enabled this. lol cant remember much else sorrry..

Ok so all this is going to effect the BOP. for trade this is going to massively effect the CA side of the BOP, more specificially the balance of goods and services. If australia runs a BOG deficit it will need to borrow capital from overseas, thus further straining our CAD as the Net Income Account (interest repayments on loans) will increase almost exponentially as we will have to keep borrowing furhter and further to pay off all the loans.

Same for the Capital and Financial account side of the BOP. Investment that either comes into australia or by australians is in the Financial account. If the Finanacial account increases in size obviously the CAD has to balance out. (CA + capital and financial account + net errors and emmisions = 0).