Macroeconomics Answers

(a) Briefly outline why the value of the Australian dollar may change against the US dollar in the (FOREX) foreign exchange market. Explain how the movement in the Australian dollar
would affect Australia’s export and import prices

A farmer grows a bushel of wheat and sells it to a miller for $1.00. The miller turns the wheat into flour and then sells the flour to a baker for $3.00. The baker uses the flour to make bread and sells the bread to an engineer for $6.00. The engineer eats the bread. What is the value added by each person? What is GDP?

. Inflation is likely to…
[1] reduce the cost of living.
[2] raise the standard of living.
[3] reduce the purchasing power of a currency.
[4] increase the purchasing power of a currency.

Now assume that for some reason Aggregate Demand shifts to the left (downwards) and suppose wages fully adjust. By using the AS-AD graph, show the effects of this shift on the equilibrium output and price level in the Short-Run and in the Long-run.

Now assume that there is an increase in government expenditure (G), an increase in the labour force and a reduction in oil prices. By using the AS-AD graph, explain the effects of these changes on equilibrium output and equilibrium price level in the Short-Run. Explain each step in your graph.

Now suppose government expenditure (G) increases and there is an increase in the overall price level (P). By using the IS curve and Fed (Central Bank) Rule curve graph, explain the effect of these changes on the interest rate and output in the Short- Run. Explain each step in your graph.

Suppose there is an increase in interest rate. By using the Aggregate Expenditure (AE) – Aggregate Output (Y) graph, show the effects of this change on AE and Y in the Short-Run. Then, show the effect of increased interest rate by using the IS curve, explain what will happen to the IS curve.

Suppose central bank applies inflation targeting. What would be the central
bank’s interest rate response if there is an increase in output (Y)? Graph the Aggregate demand (AD) curve and explain the shape of the AD curve.

Now assume that there is an increase in government expenditure (G), an
increase in the labour force and a reduction in oil prices. By using the AS-AD graph,
explain the effects of these changes on equilibrium output and equilibrium price level
in the Short-Run. Explain each step in your graph.

Now suppose government expenditure (G) increases and there is an increase in
the overall price level (P). By using the IS curve and Fed (Central Bank) Rule curve
graph, explain the effect of these changes on the interest rate and output in the ShortRun. Explain each step in your graph