Econ 101 Assessment 2 - Macroeconomic Essentials for Business

Econ101 Macroeconomic Essentials for Business

Assessment 2: In Class Essay

Instructions.

Go to the subject Moodle site. In the very top left hand corner of the screen, click on ‘My Library’,

then click on ‘Econ101 Subject Readings’. The reading that is relevant to this essay is titled ‘Falling A$

brings back businesses’. In your responses to the questions below, you should refer to information

from this reading to clarify your discussion as necessary.

Essay Questions.

1. The reading suggests that the appreciating A$ of the last decade has had a substantial

negative impact on Australian manufacturing firms. Explain, using a demand/supply diagram

to clarify your explanation, how the Australian mining boom contributed to a significant

appreciation of the $A over the currencies of its major trading partners. (4 marks)

2. Explain the likely impact of this $A appreciation on non-mining sectors of the Australian

economy such as manufacturing and agriculture. As part of your explanation, include a

numerical example by assuming that a Japanese car imported into Australia has a constant

landed price of two million yen. Assume an initial exchange rate of A$1=Yen100, and then

show numerically how a strengthening $A (assume the exchange rate becomes A$1 = Yen

200), other things equal, is bad for Australian car manufacturing firms. (4 marks)

3. Discuss two likely reasons why in the last 12-18 months the $A has depreciated significantly,

and show the effects of these changes in the demand/supply diagram you used in your

response to part 1 above. Explain the likely impacts of this recent depreciation on the nonmining

sectors of the economy. (6 marks)

4. Explain the likely impact, other things equal, of the mining boom of the 2005 -2012 period,

and the current decline in mining activity, on Australia’s Balance of Payments. (6 marks)