1. Explain, using an example, how a depreciating exchange rate affects a country's competitiveness in the export and import markets.

[6 marks]

1. In 2020 Australian produced sugar cost $0.65 per kilo (AUD) and similar sugar produced in Fiji cost $1.00 per kilo (FJD). If the nominal exchange rate was 1.48 FJD/AUD, determine the price of the Fiji produced sugar expressed in Australian dollars, and thus identify which sugar was more expensive? Which country had a comparative disadvantage in producing sugar?

[1+1+1=3 marks]

1. Assume that major buyers of Australian iron ore increase their demand to help reduce the impact of a recent pandemic through embarking on significant infrastructure spending. Explain what you would expect to happen (ceteris paribus) to the Australian exchange rate, relative to the currencies of those iron ore buying countries. Feel free to include a diagram in your answer.

[5 marks]

[Question 5 = 14 marks]