Multiple Choice Question (Need Help!) (1 Viewer)

[krazedrealitii]

2005 HSC Q10.

Which of the following is the likely effect on Australia of a recession in the economies of all Australia's major trading partners?
a) A reduction in Australia's imports and a decrease in the current account
b) A reduction in Australia's exports and an increase in the current account deficit
c) A reduction in foreign investment into Australia and a decrease in the financial account surplus
d) An increase in foreign investment into Australia and a decrease in the financial account surplus

I think that it could be
a), because the recession overseas would affect Australia and reduce our demand for imports and hence decrease the CAD (in the long run?)
b), because the overseas recession would lead to fall in demand for Australian exports meaning the BGS would be fall into a higher deficit since we have less import income (in the short run?)
And I think C and D are wrong.

Any ideas? Help is much appreciated!

 

[Terlob]

I'd think B - If Australias trading partners are in recession and Australias isn't (pretty bloody unlikely), there will be less demand for exports as overseas consumers have less to spend, and more imports as the $AUD will increase relative to their currency, meaning we can purchase more - leading to a worsened CAD

I could be wrong though

 

[lolcal]

it says major trading partners, so it's B

if they are buying less exports because they are in recession, our exports will decrease, and thus our CAD will increase.

 

[karnage]

Its B. Why isnt it A? It can be but its more of a long term effect in that B would lead to A i.e. reduced export revenue. I cant really explain it, id just say B because its the best answer

 

[lolcal]

it's not a because it isn't asking about long term, just what a direct impact of a recession of our trading partners leads to - decreased exports.

 

[bling05]

It doesn't say Australia is in a recession, so we may possibly be able to buy more imports, therefore it is certainly B.

 

[krazedrealitii]

Yeah but its easy to make that assumption. I guess b is the most correct answer though =]