Question

1a)

. State the difference (IN YOUR OWN WORDS) between

-absolute advantage and comparative advantage.

           -between the terms of trade and the exchange rate

- between a demand side shock and a supply side shock

          -between a trade surplus and a budget surplus

1b)

Use the Australian Bureau of Statistics website and perhaps the Reserve Bank of Australia website to answer the following questions: What are the current levels of the following economic indicators in the Australian economy? (Remember these should be expressed in annual terms)

Inflation

Unemployment    

Economic growth rate  

The cash rate

The Australian dollar exchange rate  

Answer 1

1a) Absolute Advantage and Comparative Advantage : Absolute advantage of a good for a country is defined as the capacity of a country to produce the particular good at very low input cost whereas comparative advantage of a good for a country is stated as ability of a country to produce the good at a lower opportunity cost with the given amount of resources.

Terms of trade and Exchange Rate : Terms of trade is defined as a benchmark based on Base year and therefore depicts the representative change in prices of exports and imports whereas exchange rate representation of domestic costs in terms of foreign costs and in the same currency

Demand side shock and Supply side shock : If an unforeseen event or downturn in an economy changes aggregate demand or aggregate supply then it is termed as Demand Side Shock and Supply Side Shock.

Trade Surplus and Budget Surplus : Trade surplus is defined as a situation where export is more than imports and Budget surplus is termed as when revenue is more than expenditure in an economy.

1b)

Current level of indicators mentioned below are as follows:

Inflation : 1.6%

Unemployment : 5.3%

Economic Growth Rate : 0.5%

The Cash Rate : 1%

The Australian Dollar Exchange Rate : 1 USD = 0.6762 AUD