Economics Essay Question Assignment 2015

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)

1. 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)

1. 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 non- mining 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)