The terms of trade refer to the relative price of exports in terms of imports and are defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.

1. Impact on Current Account: The terms of trade impact the current account, which is a record of a country's transactions with the rest of the world, in terms of trade balance, investment income, and cash transfers. If the terms of trade improve, it means that for each unit of exports sold, a country can buy more units of imported goods. This can lead to an improvement in the current account balance, assuming the volumes of exports and imports remain the same.

2. Australian Experience: In recent years, Australia has experienced fluctuations in its terms of trade. For instance, during the mining boom, Australia's terms of trade improved significantly as global demand for commodities, particularly from China, drove up export prices. This led to a significant improvement in Australia's current account as the country could afford to buy more imports for each unit of exports sold.

3. However, when commodity prices fell, Australia's terms of trade deteriorated, leading to a worsening of the current account balance. More recently, due to the global pandemic, demand for Australia's exports has been affected, impacting the terms of trade and subsequently the current account.

4. It's important to note that movements in the terms of trade are just one factor that impacts the current account. Other factors such as changes in exchange rates, domestic and international economic conditions, and government policy can also have a significant impact.

5. In conclusion, movements in the terms of trade can have a significant impact on a country's current account. A country like Australia, which is heavily reliant on commodity exports, can experience significant fluctuations in its current account balance due to changes in the terms of trade.

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The terms of trade refer to the relative price of exports in terms of imports and are defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.

1. Impact on Current Account: The terms of trade impact the current account, which is a record of a country's transactions with the rest of the world, in terms of trade balance, investment income, and cash transfers. If the terms of trade improve, it means that for each unit of exports sold, a country can buy more units of imported goods. This can lead to an improvement in the current account balance, assuming the volumes of exports and imports remain the same.

2. Australian Experience: In recent years, Australia has experienced fluctuations in its terms of trade. For instance, during the mining boom, Australia's terms of trade improved significantly as global demand for commodities, particularly from China, drove up export prices. This led to a significant improvement in Australia's current account as the country could afford to buy more imports for each unit of exports sold.

3. However, when commodity prices fell, Australia's terms of trade deteriorated, leading to a worsening of the current account balance. More recently, due to the global pandemic, demand for Australia's exports has been affected, impacting the terms of trade and subsequently the current account.

4. It's important to note that movements in the terms of trade are just one factor that impacts the current account. Other factors such as changes in exchange rates, domestic and international economic conditions, and government policy can also have a significant impact.

5. In conclusion, movements in the terms of trade can have a significant impact on a country's current account. A country like Australia, which is heavily reliant on commodity exports, can experience significant fluctuations in its current account balance due to changes in the terms of trade.

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The terms of trade refer to the relative price of exports in terms of imports and are defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.

1. Impact on Current Account: The terms of trade impact the current account, which is a record of a country's transactions with the rest of the world, in terms of trade balance, investment income, and cash transfers. If the terms of trade improve, it means that for each unit of exports sold, a country can buy more units of imported goods. This can lead to an improvement in the current account balance, assuming the volumes of exports and imports remain the same.

2. Australian Experience: In recent years, Australia has experienced fluctuations in its terms of trade. For instance, during the mining boom, Australia's terms of trade improved significantly as global demand for commodities, particularly from China, drove up export prices. This led to a significant improvement in Australia's current account as the country could afford to buy more imports for each unit of exports sold.

3. However, when commodity prices fell, Australia's terms of trade deteriorated, leading to a worsening of the current account balance. More recently, due to the global pandemic, demand for Australia's exports has been affected, impacting the terms of trade and subsequently the current account.

4. It's important to note that movements in the terms of trade are just one factor that impacts the current account. Other factors such as changes in exchange rates, domestic and international economic conditions, and government policy can also have a significant impact.

5. In conclusion, movements in the terms of trade can have a significant impact on a country's current account. A country like Australia, which is heavily reliant on commodity exports, can experience significant fluctuations in its current account balance due to changes in the terms of trade.

Explain how movements in the terms of trade impact on the current account,with reference to recent Australian experience

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