Explain how a decline in the terms of trade would impact living standards in Australia. Provide an example in your response.
A decline in the terms of trade occurs when the prices of a country's exports decrease relative to the prices of its imports. This would mean that Australia is receiving less value for the goods and services it exports compared to what it is paying for imports.
One way this decline could impact living standards in Australia is through a decrease in income for businesses and workers in export industries. This could lead to job losses, wage cuts, and potentially lower levels of investment in these sectors, resulting in decreased economic activity and growth.
For example, if the price of iron ore, one of Australia's major exports, decreases due to a decline in global demand or oversupply in the market, this would lead to lower revenues for Australian mining companies. As a result, these companies may have to cut jobs, reduce wages, or even close down operations, impacting the livelihoods of workers and their families.
Overall, a decline in the terms of trade can have a negative impact on living standards in Australia by reducing incomes, increasing unemployment, and potentially leading to a decrease in overall economic well-being.