Exam 19: Comparative Advantage, international Trade, and Exchange Rates

Suppose that large budget deficits in Australia lead to an increase in Australian interest rates.What effect will the increase in interest rates have on the value of the dollar relative to the $US? What will happen to net exports and aggregate demand as a result?

What is the theory of purchasing power parity?

Suppose the flow of capital from Japan into Australia begins to slow in the coming year.Show how this would affect the value of the dollar in the market for Australian dollars (with the exchange rate defined as yen per dollar).If this occurs,what is the effect on the balance of trade in goods and services?

According to the theory of purchasing power parity,if the inflation rate in the United States of America is greater than the inflation rate in Australia,explain what should happen to the exchange rate between the United States (US)dollar and the Australian dollar.

Assume that the exchange rate between the dollar and the euro is €0.60 = $1.Suppose the exchange rate changes to €0.50 = $1.Because of the change

The current account balance equals

The current account includes records of a country's