§-Module

Topic 2: Australia's Place in the Global Economy

7 dot points across 2 inquiry questions, in syllabus order. Each dot point has a focused answer, with exam-style questions and worked answers where available.

How does Australia engage with the global economy and what is its position relative to other economies?

Investigate Australia's international financial linkages including foreign debt, the foreign debt to GDP ratio, foreign equity, net foreign liabilities, and the implications of these for the Australian economy

International financial linkages. Distinguishes foreign debt from foreign equity, defines net foreign liabilities and the debt-to-GDP ratio, and analyses the benefits and risks of Australia's net liability position with current ABS data.

7 min read →

Analyse the effects of exchange rate movements (appreciation and depreciation) on the Australian economy, including the impact on the balance of goods and services, inflation, foreign debt servicing and economic growth, and the J-curve effect

How AUD appreciation and depreciation affect trade competitiveness, inflation, foreign debt servicing and growth, with the J-curve effect explained and applied to dated Australian data.

10 min read →

Examine the determination of the Australian dollar exchange rate including the influence of demand for and supply of the Australian dollar, the foreign exchange market, and the influence of speculation and Reserve Bank intervention

AUD exchange rate. Defines floating, fixed and managed regimes, draws the foreign exchange market with demand and supply, identifies the seven major determinants of the AUD, and works through the effects of a depreciation on trade, inflation and the BoP.

9 min read →

Examine the structure of Australia's balance of payments including the current account and the capital and financial accounts, and analyse the links between them

Balance of payments. Defines the current account (BOGS, net primary income, net secondary income, net services) and the capital and financial account, explains the accounting identity, and analyses the causes of Australia's persistent current account deficit and recent surplus.

8 min read →

Examine the composition and direction of Australia's trade and financial flows including the changing trade and investment partners, the changing direction of trade, and the impact of Australia's free trade agreements

Australia's trade. Identifies the composition (commodities dominate exports, manufactures dominate imports), the direction (East Asia, especially China), the 17 free trade agreements, and the evolution of trade flows since the 2000s.

7 min read →

How does Australia engage with the global economy?

Examine Australia's policies on free trade and protection, including the arguments for and against protection, the methods of protection, and the impact of changes in the terms of trade on the Australian economy

Free trade versus protection and the terms of trade. Covers tariffs, subsidies, quotas and local content rules, the arguments for and against protection, Australia's move to free trade since the 1980s, and how the terms of trade drives national income.

8 min read →

Discuss the impact of the current account deficit (CAD) on external stability, and assess the Pitchford (consenting adults) thesis that a CAD driven by private-sector borrowing does not threaten external stability

Current account deficit (CAD) and external stability. Explains why a CAD matters, sets out the Pitchford "consenting adults" thesis, evaluates it against the debt-servicing and foreign-liabilities counter-view, and applies both sides to recent dated Australian data.

9 min read →