State whether each of the following statements is True or False. Carefully explain your answer.

(a) "When the interest rates in Australia increase Australian dollar, ceteris paribus, tends to depreciate relative to other currencies. This happens because foreign investors would prefer to enter other markets with lower borrowing costs." (3 marks)

(b) "If inflation increases across developed economies, Central Banks of these countries will respond by increasing their target interest rates. This in turn will make firms' returns on investment more attractive and will lead to an increase in investment and aggregate demand in the economy, pushing the price level even higher. This vicious circle is one of the reasons why monetary policy is ineffective in the current economic environment." (3 marks)

(c) "Suppose the government decides to impose a per unit tax on petrol consumption to compensate for the environmental damage that arises due to the CO₂ emissions. Assume that the tax is chosen to exactly offset the external damage created by petrol consumption. This tax will, in general, increase the price of petrol paid by the consumers. The resulting market equilibrium cannot be efficient unless consumers are compensated for the price increase caused by the tax" (3 marks)

(d)"During a recession, some people who lose their jobs choose to drop out of the labour force completely, even though they would prefer to remain employed if the jobs were available. This makes the official unemployment rate statistic less reliable for understanding the dynamics of the labour market." (3 marks)