QCAA Economics International trade

An appreciation of the Australian dollar makes exports more expensive for foreign buyers, which decreases rather than increases international competitiveness.

When wage growth outpaces productivity growth, unit labor costs increase, making Australian goods more expensive to produce and less competitive internationally.

Higher GDP growth does not directly improve international competitiveness and could potentially reduce it if the growth leads to higher domestic inflation.

Incorrect. Consumption spending is the primary component of the circular flow of income, representing money flowing directly from households to domestic firms, rather than leaking out.

Incorrect. Transfer payments are money given by the government to households, which actually increases disposable income and potential consumption rather than acting as a leakage.

Incorrect. Investment spending is an injection, not a leakage, because it represents new money entering the circular flow from the financial sector to purchase capital goods.

International trade increases competition from foreign producers, which typically reduces, rather than increases, the profits of domestic import-competing firms.

Australia historically relies on foreign capital to fund domestic investment, and engaging in international trade does not eliminate this structural need.

While trade increases economic interdependence, becoming overly dependent on foreign economies is generally considered a strategic vulnerability rather than an economic benefit.

Incorrect. A trade-to-GDP ratio of 75% is much higher than Australia's and is typically seen in smaller, highly open economies or major global trade hubs.

Incorrect. A ratio of 25% is too low for Australia and is more characteristic of very large economies with massive domestic markets, such as the United States.

Incorrect. A trade-to-GDP ratio of 5% is exceptionally low and does not accurately represent the trade openness of any modern developed economy.

This is incorrect. One unit of beef is the opportunity cost of producing one unit of corn for Country A ($5000/5000 = 1$), not Country B.

This is incorrect. Two units of beef is the inverse of the correct calculation; it represents Country B's opportunity cost of producing one unit of beef ($4000/2000 = 2$ units of corn).

This is incorrect. Opportunity cost must be measured in terms of the alternative good given up, which in this case is beef, not corn.

Incorrect. Australia is a major commodity exporter, so a fall in global commodity prices reduces export revenue. This decreases demand for the Australian dollar, causing it to depreciate rather than appreciate.

Incorrect. A credit rating downgrade makes Australian financial assets riskier and less attractive to foreign investors. This leads to capital outflows and a depreciation of the currency.

Incorrect. An increase in imports relative to exports means more Australian dollars are being sold to purchase foreign currency. This increases the supply of the Australian dollar, leading to its depreciation.

An increase in the terms of trade typically increases export revenue, leading to higher demand for the Australian dollar and causing it to appreciate, not depreciate.

Primary income credits represent money flowing into Australia from overseas investments. An increase in these credits increases the demand for the Australian dollar, causing it to appreciate.

Foreign direct investment into Australia requires multinational corporations to purchase Australian dollars. This increases the demand for the currency, leading to an appreciation.

Importing capital machinery is recorded as a debit in the goods section of the current account, not the capital and financial account.

If Australian investment overseas exceeds foreign investment in Australia, there is a net outflow of funds, which would result in a deficit on the capital and financial account, not a surplus.

The composition of foreign investment (whether it is equity or debt) does not determine if the account is in surplus or deficit; only the net total flow of funds matters.

While the investment is correctly identified as a credit in the financial account, the increased demand for Australian dollars will cause the currency to appreciate, not depreciate.

This option is entirely incorrect; an inflow of foreign investment is recorded as a credit (not a debit) and causes the Australian dollar to appreciate (not depreciate) due to increased demand.

A deterioration in the terms of trade means export prices fall relative to import prices, which typically decreases export revenue and worsens the current account balance.

An appreciation of the Australian dollar makes exports more expensive for foreign buyers and imports cheaper for domestic consumers, which generally reduces net exports and worsens the current account balance.

Slower economic growth in China, a major trading partner, would reduce demand for Australian exports, thereby worsening Australia's trade balance and current account.

Foreign ownership of Australian assets represents foreign equity or investment, which is a different component of foreign liabilities than foreign debt.

Australia owning foreign assets represents Australian investment abroad (foreign assets), not what Australia owes to other countries.

While borrowing by Australian companies is a significant component of foreign debt, this option is incomplete because foreign debt also includes borrowing by the government and other sectors.

This is incorrect because comparing individual leakages, such as savings and taxation, does not determine whether the economy is expanding or contracting; you must compare total leakages to total injections.

This is incorrect because total injections ($100$) are actually less than total leakages ($110$), which results in an economic contraction rather than an expansion.

This is incorrect because comparing a single leakage (imports) to a single injection (private investment) does not determine the overall state of the economy, which is actually contracting.

Structural change associated with globalisation typically causes short-term job losses, known as structural unemployment, as domestic industries adjust to increased foreign competition.

Globalisation does not eliminate comparative advantage; rather, it relies heavily on it by encouraging countries to specialize in producing goods where they have a lower opportunity cost.

Globalisation increases the interconnectedness of financial systems, which can actually increase volatility and the risk of financial contagion spreading rapidly across global markets.

China, not the European Union, is Australia's largest two-way trading partner, accounting for a significant portion of both imports and exports.

Iron ore, not coal, is consistently Australia's largest export commodity by value, largely driven by strong demand from Asian steel manufacturers.

Tourism (a service export/import) dropped significantly in 2020 due to global COVID-19 travel restrictions and border closures, meaning it was not the largest import category.