1.18 Australia produces natural resources (coal, iron ore and natural gas), the demand for which has increased rapidly as China and other emerging economies have expanded.

a Explain how growth in the demand for Australia’s natural resources would affect the demand for Australian dollars in the foreign exchange market.

b Explain how the supply of Australian dollars would change.

c Explain how the value of the Australian dollar would change.

d Illustrate your answer with a graphical analysis.