(15.190 marks) Imagine that Australia and the US are the only 2 countries in the world. The demand for and supply of Australian dollars is given by: Demand = 50,000 15,0006A + 201000024 rug) Supply = 30,000 + 5,000.24l 20,0000} 7135') where 8,1 is Australia's nominal exchange rate measured as SUS per SA; TA is Australia's real interest rate and Tus is the US real interest rate. Assume that, initially, Australia's real interest rate is 15% and the US real interest rate is 5%. Calculate Australia's equilibrium nominal exchange rate and the quantity of SA traded. (4 marks) . . 1o . . b. Say Australia xes Its exchange rate at ed = ?. What action must the Reserve Bank of Australia [REA] take in the foreign exchange market in order to maintain this fixed rate? Assume all else remains unchanged. (5 marks) c. If the Reserve Bank of Australia does n_ot engage in the foreign exchange market actions used in part {b}, what monetary policy action would it have to take in order to maintain the xed exchange rate specified in part (b)? Calculate the quantity of SA that would be traded. Also assume that the US Central Bank does not alter its monetary policy in response to the RBA's monetary policy action. {5 marks) d. In one foreign exchange market diagram ofthe SA (i.e. plot ed on the vertical axis), illustrate the solutions from parts {a}, (b) and {c}. In words, explain the move from the exible exchange rate equilibrium in part (a) to the equilibria in part (c). {6 marks) e. Assume that the national savings (NS) and investment {I} functions for Australia are given by: NSA = 4500 + 15001;, + 2000113 IA 2 6000 100051 3000x35- where all quantities are measured in Australian dollars {SA}. i. Calculate Australia's capital account balance, current account balance and balance of payments and, when the $US$A exchange rate is fully exible (5 marks} ii. Calculate the Australian capital account balance, balance of payments and current account balance when the exchange rate is maintained at 3A 2 % as in part (b) above. {5 marks}