Plz Help Wif My Poor Economic Understanding. (1 Viewer)

[sunjet]

And the Current account + Capital and financial account = 0.. because under a floating exchange rate they have to equal.. that's all you need to know I think

 

[MeehShanku]

yea thx sunjet. i got another question. when the $A increases does that increases inflation? if so than can som1 plz explain y?

 

[Will Hunting]

yea thx sunjet. i got another question. when the $A increases does that increases inflation? if so than can som1 plz explain y?

No, an appreciation will curb inflation. This is because an appreciation cheapens imports, forcing import-competing domestic firms to curtail their prices and, hence, contain inflationary pressures.

obviously there will be differences between the accounts wen they are added because of varying exchange rates... thats why they include net erors and ommisions

This isn't really true. Every inflow and outflow (credit and debit) on each account is measured in $A terms, meaning that movements in the $A relative to overseas currencies don't create discrepancies in the balance. In actuality, these movements are necessary to maintain the equilibrium that was discussed earlier. As sunjet said, the accounts sum to zero under a floating exchange rate system, and since a variance in the exchange rate will have opposite effects on either account (eg. An appreciation in the $A could mean a larger deficit on the G & S item of the CA due to the accompanying TOT improvement, however, could decrease foreign investment in Australia and, hence, create a narrower surplus on the Capital and Financial Account), any change thereof will not disturb the BOP.

Net errors and omissions are exactly that: errors in calculation and items discarded as trivial.

the current account and the capital account are interdependant. What is recorded on one side as a debt is recorded on the other side as a credit. That's the fundamentals behind the BOP

Not exactly. They are interdependent, yes, but there isn't an exact equivalence between debit and credit on each account, and vice versa. Payment for imported goods, for example, isn't registered as a credit on the C&F Account. Conversely, overseas investment in a local firm doesn't suddenly "give" the CA a debit. The relationship is not as simple as this.

When you're trying to get your head around the reciprocity of the two BOP Accounts, you should try to think cause and effect. To build on my second example of foreign investment in Australia, whilst the inflow on the C&F account won't have an "immediate" effect on the CA, the servicing expenses associated with the transaction, in this case, dividends and stuff, will find their way into the CA, manifesting as a debit on the Incomes item of this particular account.

 

[monique66]

wow, i feel stupid Will Hunting have you done your HSC already or are you doing it this year?

 

[Will Hunting]

This year Nah, don't feel stupid. Soz if my post was taken the wrong way. I wasn't meaning to shut anyone down or anything I was more just trying to illustrate how important it is to get your head around some of the finer points of the subject, 'cause, in my experience, it's deficiencies in these areas that tend to bring you down the most

 

[monique66]

wow, it looks like you will do well this year, good luck with everything

 

[MeehShanku]

Wow thx Will Hunting. Just got a quick simple question coz i cant find it anywhere. Is Australia's economic growth rate at 3%?

 

[Will Hunting]

No probs, man.

Projected figures suggest that Australia will experience economic growth measured at 2.6% of real GDP over the coming financial year, 2005-06 (according to predictions made by the IMF).

As to right now, conditions are even more barren, with the ABS recording a modest rate of 1.5% real GDP growth in December 2004 and forecasting little improvement in the short term.

If you ever have issues with stats and stuff, don't hesitate to use the websites listed in Dixon's text. They're tops for finding things that don't show up in the text proper (you use Dixon's, right? If not, you should. It's the indisputable best text available for HSC Economics students. I don't touch anything else!) Otherwise, make sure to keep a collection of a variety of periodicals as they're published. They're a huge help for current affairs.

I don't know about you, but when teachers ask me to include loads of stats, current examples and pieces of headline news in my assignments, I can get overwhelmed by the sheer volume of information out there and having to sort through what's important and unimportant. That's a natural feeling, though, man, and it can be overcome. Just remember to break down the task before you into a few simple steps (eg. websites, then periodicals, then ABS figures...) and you'll wipe it out in no time

 

[MeehShanku]

oh Thx Will Hunting. Apprecicate it