Graph the demand for and supply of Australian dollars for euros and label each axis. Show...

Graph the demand for and supply of Australian dollars for euros and label each axis. Show graphically and explain the effect of an increase in Australian government budget deficits that increase Australian interest rates on the demand for and supply of dollars and the resulting change in the exchange rate of euros for Australian dollars. Why might the change in the exchange rate lead to an increase in Australia’s current account deficit?

Expert Solution

If expansionary fiscal policy leads to a budget deficit, this may increase domestic interest rates. An increase in Australian interest rates would increase the desire by overseas investors to invest in financial assets in Australia relative to the rest of the world. The demand for dollars would rise, causing the exchange rate for the dollar to rise, i.e. the A$ would appreciate.

See diagram below. The higher exchange rate would increase the Euro price of Australian goods and services and decrease the A$ price of European goods and services. This may result in a decrease in Australian exports, an increase in imports from Europe, and hence a decrease in net exports (X-M) leading to a current account deficit.

Rahul Sunny answered 2 years ago

Q1.Graph the demand for and supply of Australian dollars for US dollars. Label each axis. From...

Q1.Graph the demand for and supply of Australian dollars for US dollars. Label each axis. From Australia's perspective, show graphically and explain the effect on the Australian dollar of the following. Australia’s major trading partners experience higher RGDP and income growth resulting in an increase in the price of Australian exported commodities (e.g. coal, iron-ore). Additionally: - there is increased speculation of the Australian dollar (AUD) based on speculators expectations of its future value. - Lower interest rates in Australia...

Graph a labor supply curve with an upward-sloping labor supply. Label the vertical axis as “wage...

Graph a labor supply curve with an upward-sloping labor supply. Label the vertical axis as “wage rate” and the horizontal axis with “Quantity of labor” a. Place these two points on the curve: {wage= $10, quantity = 30} and {wage = $12, quantity = 45}. Calculate the labor supply elasticity.Label this curve as “Curve A” b. Now, assume that something has changed the labor supply curve so that now the line has a different slope. On this new curve are...

Draw a graph of the supply and demand for the U.S. dollar by the Australian market....

Draw a graph of the supply and demand for the U.S. dollar by the Australian market. Diagram the effect of each of the following on the exchange rate; state in words whether the effect is long, medium, or short run; and explain your reasoning. a) More rapid growth in Australia than in the US b) A rise in Australian interest rates c) Goods are more expensive in the US than in Australia d) A recession in the US e) Expectation...

Show the impact of the inclusion of external cost on a supply and demand graph.

Graph the following markets and label what happens to Demand, Supply, Price, and Quantity of goods...

Graph the following markets and label what happens to Demand, Supply, Price, and Quantity of goods A,B, and C. a. California will cut the amount of fishing license by 30% that it will issue this year in order to increase the amound of fish in its lakes and streams. Graph the effect of this policy on fishing license (good A), and the market for fishing tackle (goods B) in California. Label the relationship of goods A and B. b. How...

Show on a graph an appropriate shift in either supply or demand of skateboards, a normal...

Show on a graph an appropriate shift in either supply or demand of skateboards, a normal good, for each of the following scenarios. Write the supply or demand shifter that applied next to your graph e. The price of skateboards increases (demand) f. The price of ball bearings, an input for skateboards, increases g. Skateboard producers can make either skateboards or in-line skates. An increase in demand causes the price of in-line skates to increase h. Amid recession, average family...

Draw a graph for the Supply and Demand for Money. Show (and explain) how a central...

Draw a graph for the Supply and Demand for Money. Show (and explain) how a central bank could increase the equilibrium interest rate.

Draw an aggregate demand (AD)/aggregate supply (AS) graph to illustrate an economy experiencing a recession. Label...

Draw an aggregate demand (AD)/aggregate supply (AS) graph to illustrate an economy experiencing a recession. Label all curves and axes. Also explain, The monetary policy you would use to eliminate the recession you illustrated above, what are the policy impacts on real GDP, employment, and price level? Draw an economy in an economic bubble and explain the fiscal policy you would use to get it out. If the policy you implemented in (c) above succeeds, what is likely to happen...

Make two different graphs Sketch a graph that demonstrates the demand and supply for US dollars...

Make two different graphs Sketch a graph that demonstrates the demand and supply for US dollars against the Canadian dollar. Label the initial equilibrium exchange rate and quantity of dollars. On the graph, clearly demonstrate (shift the correct curve(s)) what happens to the exchange rate when the US has a higher inflation rate than Canada. Explain why you have drawn the change as you have. Sketch a graph that demonstrates the demand and supply for the South Korean won against...

Graph with x axis labeled Real GDP (billions of constant dollars) and the y axis labeled...

Graph with x axis labeled Real GDP (billions of constant dollars) and the y axis labeled Aggregate Expenditure (dollars). The x and y axis have points 0, 200, 400, 600, 700, 800, and 1,000. There are 4 lines. One line is vertical with the plot point of (800,0), and labeled potential GDP. Another line is an upward sloping line starting at (0,0) and at a 45 degree angle. Two lines start around (0,400) and are labeled AE0 and AE1. Between...

Question