Review the news article by Vanessa Desloires and answer the following questions.

| November 24, 2016

Question
Review the news article by Vanessa Desloires and answer the following questions.

.smh.com.au/business/markets/currencies/australian-dollar-hits-sixyear-low-on-china-fears-20150901-gjczj9.html”>http://www.smh.com.au/business/markets/currencies/australian-dollar-hits-sixyear-low-on-china-fears-20150901-gjczj9.html

1. The article by Vanessa Desloires suggests that the AUD is lower as a result of a more pessimistic outlook for the Chinese economy. What is the most likely explanation?

A. World oil prices have fallen

B. The AUD is a commodity currency, and the demand for input commodities has fallen

C. The Chinese Central Bank has raised interest rates, decreasing Ko to Australia and increasing Ki to China

D. The Chinese Central Bank has lowered interest rates, increasing Ko to Australia and decreasing Ki to China

2. The demand for AUD is generated by:

A. Australian imports of foreign output

B. Foreign imports of Australian output

C. Central bank sales of AUD

D. Australians buying US government bonds

3. The supply of AUD is generated by:

A. Chinese purchases of Australian minerals

B. Dividends paid by US companies to their Australian shareholders

C. Japanese imports of Australian beef

D. Australian purchases of shares in European companies

4. In the AD equation, X is measured by:

A. The total volume or quantity of exports

B. The total value of exports

C. None of the above

D. A and B

5. According to the article by Vanessa Desloires, “The Aussie slid more than 1 per cent against the greenback [USD] on Tuesday night amid tumultuous global markets and a general sell-off in commodity-linked currencies.” Since the AUD has depreciated, foreigners will import, ceteris paribus:

A. A higher value of Australia’s goods and services

B. A lower value of Australia’s goods and services

C. The same value of Australia’s goods and services

D. There is insufficient information to give an answer

6. Suppose India follows China and accelerates its industrialisation. For India, this will:

A. Decrease imports and raise net exports

B. Increase imports and lower net exports

C. Increase imports and increase domestic investment

D. Decrease imports and decrease domestic investment

7. Suppose India follows China and accelerates its industrialisation. For Australia, this will:

A. Decrease exports and decrease net exports

B. Increase exports and increase net exports

C. Increase exports and decrease domestic investment

D. Decrease exports and increase domestic investment

8. Suppose the foreign exchange market is initially in equilibrium. Suppose also that foreigners then increase their demand for Australian goods and services by AUD 100 million (an exogenous change). The final increase in demand for Australian goods and services by foreigners will:

A. Be higher than AUD 100 million due to the appreciation of the AUD

B. Remain unchanged at AUD 100 million

C. Be lower than AUD 100 million due to the appreciation of the AUD

D. Be higher than AUD 100 million due to the depreciation of the AUD

9. If the AUD appreciates, then the value of Australia’s imports will RISE if the price elasticity of demand for Australian goods and services is:

A. Less than one

B. More than one

C. Equal to one

D. All of the above

10. According to the article by Vanessa Desloires, Australia’s exchange rate has been affected by a variety of global factors. This is because Australia uses a floating exchange rate. Supposing that Australia enters a recession, Australian interest rates are lowered, so causing Ki into Australia to fall. The AUD exchange rate can assist the Australian economy’s recovery from the recession by:

A. Depreciating and reducing the balance of trade

B. Depreciating and increasing the balance of trade

C. Appreciating and reducing the balance of trade

D. Appreciating and increasing the balance of trade

11. Suppose that the profitability of Australian companies falls and share prices on the Australian stock exchange drop significantly (instead of the Chinese stock market). Illustrate the effect on the AUD by shifting one or both curves in the following graph. (explain if both the supply/demand curve would shift to the right or left or stay the same)

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