Answer to Question #89377 in Macroeconomics for cynthia pazata

Question

Part A
Assuming a system of floating exchange rates between Japan and Australia, indicate whether
each of the following would cause the Japanese yen and the AUD to appreciate or depreciate.
a. Australia unilaterally reduces tariffs on Japanese products.
b. Japan encounters severe inflation.
c. Deteriorating political relations reduce Japanese tourism in Australia.
d. The Australian government invites Japanese firms to invest in oil fields in Australia.
e. The rate of productivity growth in Australia diminishes sharply. (5 marks)

Answer 1

a. Australia unilaterally reduces tariffs on Japanese products, this would cause the Japanese yen to appreciate and the AUD to depreciate.

b. Japan encounters severe inflation, this would cause the Japanese yen to depreciate.

c. Deteriorating political relations reduce Japanese tourism in Australia, this would cause the AUD to depreciate.

d. The Australian government invites Japanese firms to invest in oil fields in Australia, this would cause the Japanese yen to appreciate.

e. The rate of productivity growth in Australia diminishes sharply, this would cause the AUD to depreciate.