Australian economy Essay Example | Topics and Well Written Essays - 1250 words

Australian economy - Essay Example It has also been volatile. The high rate of the terms of trade plays its part in increasing the real income level. The rate also acts in keeping the rate of inflation at lower levels. The ratio between the prices of exports and the imports is defined to be the terms of trade. If the terms of trade rise Australia will have the potential to buy more imports with smaller amounts of exports. The volatility in the terms of trade can be used to define the ups and down in the expending capacity of the consumers. The terms of trade has been less volatile for Australia since the period of 1980s.The variety of goods that are offered to the consumers and the global prices for the exports as well as the imports comprises the two main components of terms of trade. The developments within the environment outside the geographical boundary of Australia can influence the terms of trade. The terms of trade can rise if the price of coal raises more steeply than the price other ICT goods since Australia is a net exporter of coal. The exchange rates and the terms of trade shares close relation. The nominal exchange rates got reduced after the financial crisis of 1990s. The volatility of the import prices can be influenced by the regional influences but changes in the global prices can affect to change the prices of exports. ... Over the last decade and a half Australia turned away from comparatively price impulsive properties and took the initiative towards moving towards exports of goods whose prices can be more predictable in the global market (Australian Government Productivity Commission, 2012). The rural goods now consist of a major proportion of goods that are exported. The wide ranges of exports that are practiced by Australia consist of rural goods like vegetables and dairy products. It can be experienced that the exports of such goods has grown in the recent months and can be thought as one of the reasons for Australia experiencing a high rate of terms of trade. In due course of time the exports of the rural goods have risen. The following graph will show the terms of trade for Australia over the period under consideration. (Department of Foreign Affairs and Trade, 2011, p. 5) Question b Economic growth is related with terms of trade. It can be witnessed that term of trade rises when an economy is experiencing economic growth while the terms of trade falls when the economy is stagnated and is not witnessing any growth. Under such cases the terms of trade will fall (Department of Foreign Affairs and Trade, 2011). Therefore in order to analyze the terms of trade of Australia it is necessary to judge the economic growth of the country for the period under consideration. The factors that have the potential to influence the terms of trade have been discussed below in bullet format. The shifts in the demand level on the global arena The commodity market shocks Globalization shocks The prices of exports are raised by the joint influence of fluctuations in global demand and commodity shocks in the market. The prices of imports are reduced