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The Reserve Bank of Australia has been increasing cash rates in an attempt to curb the rising rates of inflation. Ceteris paribus, explain the mechanisms
The Reserve Bank of Australia has been increasing cash rates in an attempt to curb the rising rates of inflation. Ceteris paribus, explain the mechanisms behind the increase in demand for Australian dollar in this case assuming that interest rates rise in other countries are relatively lower than compared to Australia? (4 marks) b) How will the appreciation of the Australian currency affect Australia's current account in its balance of payment? (2 marks) c) Let us imagine that the income for all Chinese increased and therefore created an increase in demand for Australian wine, lamb and barley in China. How will this further affect the exchange rate in the above figure from P1 and why? (3 marks) d) The Australian economy is a small open economy and allows its currency to float against other currencies with occasional central bank intervention. Currently, the RBA has been implementing a contractionary monetary policy to ensure that the inflation returns to its target levels within a desired timeframe. How would
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