28. Define the CPI. Explain how the CPI is calculated. Explain how inflation rate is calculated. 29. Australia and the USA are trading partners, and both countries operate floating exchange regimes. a. Suppose Australia's inflation rate becomes higher than USA's inflation rate. Discuss how higher relative Australian inflation rate would impact the Australian dollar (AUD) and the USD. Illustrate your answer with a clearly labelled demand and supply diagram of the Australian dollar. What would be the impact on Australia's NX? b. Suppose Australia's real GDP growth rate becomes higher than USA's real GDP growth rate. Discuss how higher relative Australian real GDP growth rate would impact the Australian dollar (AUD) and the USD. Illustrate your answer with a clearly labelled demand and supply diagram of the Australian dollar. Let's consider what will happen to Australia's demand for USD and the supply of USD for sale if Australia's inflation suddenly becomes much higher than USA's. Australia's demand for USA goods will increase, reflecting the increased Australia demand for USs. Australians will sell the AUD, shifting the supply curve to the right and depreciating AUD. USA demand for Australian goods will decrease, and the Demand for AUD will decrease, shifting demand curve of AUD to the left and reinforcing the depreciation of AUD. 30. The New Zealand economy is operating at potential output level. The government increases, its spending on roads and infrastructure. i. Use the AS-AD model to explain the short-run impact of the increase in government purchases on real GDP, unemployment rate, the price level and interest rate. ii. What type of monetary policy could the Bank of New Zealand implement to return the economy to long-run equilibrium? Use the AD-AS diagram to explain and illustrate how the policy would impact the economy