Lecture Notes: Introduction to External Stability in HSC Economics

Objective of the Lecture

• Simplify the concept of external stability for HSC students.
• Discuss how this topic appears in HSC exams.

Definition of External Stability

• External Stability (External Balance): Economic objective focused on sustainable foreign obligations, minimizing risk and volatility.

Syllabus Reference

• Topic appears in Topic 3 of the HSC Economics syllabus.
• Indicators of external stability include:
  • Current Account Deficit as a percentage of GDP.
  • Net Foreign Debt and Net Foreign Liabilities.
  • Terms of Trade.
  • Exchange Rate.
  • International Competitiveness.

Key Concepts

Current Account

• Records non-reversible incomes in the balance of payments.
• Trend: Australia traditionally has a current account deficit (CAD) due to structural factors.
• Recent Change: Surplus in September 2019 due to cyclical factors (iron ore boom, high savings ratio, low interest rates).

Terms of Trade

• Measures export prices relative to import prices.
• Trend: Driven by demand for Australian mining resources.

International Competitiveness

• Structural influence on the balance of goods and services (BOGS).
• Lack of competitiveness leads to BOGS deficit.
• Causes include high labor costs, low productivity, and appreciating AUD.

Exchange Rates

• Value of AUD relative to other currencies.
• Influenced by demand for commodity exports and interest rate differentials.

Net Foreign Liabilities

• Sum of net foreign debt and net foreign equity.
• Involves inflows minus outflows of debt and equity.

Definitions

• Debt: Loans.
• Equity: Ownership of assets.
• Liabilities: Debt plus equity.

Trend

• Australia's net foreign liabilities are typically positive, indicating more debt/equity inflows.
• Sharp drop recently, lowest since mid-1980s.

Exam Strategy

• Syllabus has six dot points on external stability.
• In essays, focus on 2-4 main points, e.g., foreign liabilities and current account.
• Integrate subtopics where relevant (exchange rates, competitiveness, BOGS, terms of trade).

Additional Resources

• Videos, playlists, and worksheets for deeper understanding and practice.
• Offer for tutoring services to assist with essay structures and current trends.
• Mention of related upcoming videos and resources.

Conclusion

• Video provides an overview; more detailed resources are recommended for comprehensive understanding.
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