Problems with protection   Is the CAD a problem? Goal of external stability   The exchange rate   International investment position   Free trade v protection

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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Australia's Net International Investment Position (NIIP) - net foreign liabilities

The NIIP describes the extent to which Australia is financially obligated to the rest of the world. The ABS reports the change to Australia's NIIP on quarterly basis within the Balance of Payments (BOP).  The NIIP is essentially made up of Australia's net foreign liabilities (NFLs), which in turn is made up of net foreign debt (NFD) and net foreign equity (NFE).  The most recent statistics available can be accessed at ABS Catalogue 5302.0.  

Like the CAD, Australia's levels for NFLs also reflect that national spending is greater than income and that, as a country, we must use foreign borrowing (or equity) to finance part of our expenditure. Australia's aim is to achieve NFL levels that can be adequately maintained (e.g. the funds are put to productive use and generate returns that finance the debt or equity).  Foreign debt or equity levels that are rising too high might reflect that Australia's ability to service its liabilities is diminishing.  In particular, high NFD levels are likely to:

The importance of 'external stability' is highlighted with reference to the experience of a number of European countries over 2010-11.  In particular, Greece, Ireland, Portgual, Spain and Italy all experienced financial crises as a result of national (primarily government) borrowing that became excessive and unsustainable.  This resulted in huge austerity measures and/or rescue packages (involving the European Union and the IMF) being undertaken in both countries.  The measures ultimately resulted in large cuts to government expenditure and restrictions on further borrowing.  In addition, they experienced large downgrades to credit ratings, which raised the cost of borrowing and compromised Investment into the future.  These factors continue to have a negative impact on economic growth and employment in those countries, reducing average living standards.  In essence, by spending beyond their means for too many years, these countries allowed their debt levels to become unsustainable.  By allowing their countries to bring forward too much future consumption via debt, they are now facing years of austerity in order to pay for the consumption they have already enjoyed.

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