Changes in the interest rates and other macroeconomic factors, including wages or labour availability for production in different sectors of the economy (tradeable and non-tradeable sectors), can cause real exchange rates to move substantially over time. This means that countries sometimes become cheaper than others and sometimes more expensive.The world interest rates are currently very low, and they will rise in the future. Explain how Australia's production, terms of trade and labour could adjust in the future if interest rates rise. How will the changes affect the expected future current account position?

Capital controls have two known opposing macroeconomic effects, List the two opposing effects, the factors that cause the effects and describe briefly how the factors cause these opposing effects. Assume China is a large open economy country, and it wants to use optimal capital control measures. List two benefits of the measure and discuss why China (select a large open economy) can use optimal capital controls measures but individuals cannot.