"High inflation in Australia relative to other countries hurt Australian industries' competitiveness in theglobal trade, Trading partners in Europe may avoid buying from high-inflation countries and also have a higher inflation volatility.

Graph the demand and supply of Australian dollars for Euros. As mentioned in the above statement inflation is high in Australia relative to the European countries, show graphically and explain the effect ofthis change on the demand and supply of dollars and the resulting change in the exchange rate of Euros for Australian dollars.

Explain how the change in the exchange rate would lead to a change in Australia's current account balance.