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Unit 3: Australia and the Global Economy

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

What does the terms of trade measure and why does it matter so much for Australia?

Define and calculate the terms of trade, explain the causes of movements in Australia's terms of trade, and analyse the effects of a rising or falling terms of trade on national income and the balance of payments

WACE Year 12 Economics Unit 3 on the terms of trade: the index of export prices relative to import prices, how to calculate it, the commodity-driven causes of its movements, and the effects of a boom or bust on Australian incomes, the dollar and the current account.

6 min read →

How does globalisation shape Australia's international competitiveness?

Explain globalisation, the terms of trade and international competitiveness, and analyse Australia's trade relationships and the role of productivity

WACE Year 12 Economics Unit 3 on globalisation and competitiveness: the integration of markets, the terms of trade, productivity, and Australia's major trading partners and agreements.

8 min read →

Why does Australia rely on foreign investment and what are its benefits and costs?

Distinguish foreign direct investment from portfolio investment, explain why Australia is a net capital importer, and analyse the benefits and costs of foreign investment for the Australian economy

WACE Year 12 Economics Unit 3 on foreign investment: the difference between direct and portfolio investment, why Australia is a long-standing net capital importer, the link to the savings-investment gap, and the benefits and costs of foreign capital.

6 min read →

Why do countries trade and what determines the pattern of trade?

Explain the basis for trade using absolute and comparative advantage, opportunity cost and the gains from specialisation and trade

WACE Year 12 Economics Unit 3 on why nations trade: absolute and comparative advantage, opportunity cost ratios, the gains from specialisation, and how the theory explains Australia's resource-heavy export pattern.

8 min read →

How is the value of the Australian dollar determined and why does it matter?

Explain how a floating exchange rate is determined by demand and supply, the causes of appreciation and depreciation, and the effects of exchange rate movements on the economy

WACE Year 12 Economics Unit 3 on exchange rates: how supply and demand set the floating AUD, what causes appreciation and depreciation, and the effects on trade, inflation and the balance of payments.

8 min read →

How does Australia record its transactions with the rest of the world?

Explain the structure of the balance of payments, the current and capital and financial accounts, and the causes and consequences of current account deficits and surpluses

WACE Year 12 Economics Unit 3 on the balance of payments: the current account, the capital and financial account, why the two balance, what drives Australia's CAD or surplus, and the implications for foreign liabilities.

9 min read →

Why does Australia run persistent current account deficits and does it matter?

Explain the causes of Australia's current account deficit using the savings-investment gap, distinguish net foreign debt from net foreign equity, and evaluate whether a current account deficit is a problem

WACE Year 12 Economics Unit 3 on the current account deficit and foreign liabilities: the savings-investment gap, the difference between net foreign debt and equity, the Pitchford consenting-adults view, and whether a deficit is sustainable.

6 min read →

What does Australia trade, with whom, and what role do free trade agreements play?

Describe the composition and direction of Australia's trade, explain the role of bilateral, regional and multilateral trade agreements, and analyse Australia's reliance on key trading partners

WACE Year 12 Economics Unit 3 on Australia's trade patterns: the commodity-heavy composition of exports, the direction of trade toward Asia, the role of agreements such as AUSFTA, CPTPP and RCEP, and the risks of concentrated reliance on China.

7 min read →

How does specialisation according to comparative advantage create gains from trade for both countries?

Use opportunity cost ratios and a production possibility analysis to demonstrate how two countries both gain from specialising and trading, and explain the limits and distribution of those gains

WACE Year 12 Economics Unit 3 on the gains from trade: how to use opportunity cost ratios to find comparative advantage, prove that both countries gain by specialising and trading, and explain where the terms of trade must sit for trade to be worthwhile.

6 min read →

Should governments protect domestic industries or pursue free trade?

Analyse methods of protection (tariffs, subsidies, quotas) and the arguments for and against free trade and protection in the Australian context

WACE Year 12 Economics Unit 3 on protection: how tariffs, subsidies and quotas work on a supply and demand diagram, who wins and loses, the arguments for and against, and Australia's long move toward free trade.

9 min read →