Question 4: Open Economyuilibrium and Exchange Rate Prhlul' Ami I {I R1 lllllrlills Refer to the diagram above to answer the questions below: a] In the above diagram, has there been a change in the quantityr demand for Australian dollars or a change in demand for Australian dollars? Explain three important reasoning for the rightward shift in the demand Australian dollars. {1 + 3 = 4 marks} b] Did the Australian currency appreciate or depreciate? How does this affect the current account in its balance of payment? [1 + 1 = 2 marks} c} Suppose all Australians started experiencing a falling income and the demand for Japanese cars in Australia decreases. How will this affect the exchange rate in the above figure from P1 and why? {2 marks] d] The Australian dollar is allowed to float against other currencies with occasional central bank intervention. The Reserve Bank of Australia {REA} has implemented an expansionary monetary policy by decreasing the interest rates to stimulate the economy. Will the aims of REA be achieved in a small open economy like Australia and how? [4 marks]