m/c question..... quite hard (1 Viewer)

[Too right]

Which of the following is a likely cause in the price of $A from US $0.60 to US $0.67

(diagram depicts shift in demand curve to the right (increase in demand) and a shift in the supply curve to the left (decrease in supply)


a) a decrease in exports and an increase in imports

b) An increase in exports and a decrease in imports

c) an increase in interet rates in australia

d) an increase in interest rates in the USA

 

[Tommy_69]

c) increase of interest rates in australia

this is because as interest rates rise in Australia, foreign investors come in and invest their funds to make a greater profit than if invested in a country with lower interest rates. Therefore this makes our dollar appreciate in this scenario from 60c to 67c

 

[kouklitsa]

Which of the following is a likely cause in the price of $A from US $0.60 to US $0.67

(diagram depicts shift in demand curve to the right (increase in demand) and a shift in the supply curve to the left (decrease in supply)


a) a decrease in exports and an increase in imports

b) An increase in exports and a decrease in imports

c) an increase in interet rates in australia

d) an increase in interest rates in the USA

well demand for $A has increased which would mean that demand for exports (coz we have to be paid in $A)... and imports need to be financed in $US so that constituts supply... so the answer would be B i think

 

[Too right]

aighty, thank you

 

[Tommy_69]

No its not B. Because why would foreigners want to buy our exports at a more expensive price (because of the appreciation of the aus dollar) therefore its definetly Answer: C

 

[Too right]

i see what your saying tommy 69 but the question asks for ...... the likely CAUSE


doesnt that mean that B would also be correct?

 

[Tommy_69]

Yes the likely cause is C. Its common sense. If you went to a shop where they were selling widgets for $100 but at kmart down the road they sold them for $80, would'nt you buy them from the shop down the road?

Well in b it said "exports will increase". How the hell can exports increase if people have to pay more money for our goods and services because of the appreciation of the dollar. They will go elsewhere where the same product is cheaper.

 

[SPYKE_JOE]

i see what your saying tommy 69 but the question asks for ...... the likely CAUSE


doesnt that mean that B would also be correct?

no (b) would demonstrate a shift of the supply curve aswel to the left, it only demonstrates the demand shift, therefor only c is correct

 

[kouklitsa]

(diagram depicts shift in demand curve to the right (increase in demand) and a shift in the supply curve to the left (decrease in supply)

are ppl ignoring this ^^^?
supply to left = supply down, which would be the impact of a decrease in imports

 

[Tommy_69]

again you are wrong. If our dollar has appreciated that means that we can buy more of foreign products at a cheaper price. Now as the dollar as appreciated consumers will buy more from overseas. How the hell can imports be reduced. Unless there is protection but the question says nothing about that.

 

[sixleadballoons]

I think its c
Its not b, because an increased demand for Aus. exports won't decrease the amount of imports to Aus.

 

[Tommy_69]

because supply is so low prices go up (appreciation of the dollar) and the goods are demanded more. simple as that

 

[ando_88]

tommy your logic is not correct. The answer is B

B is the answer because an increase in exports would increase demand for our dollar. Exporters convert $US to $A when they make profits, thus constituting a demand for the $A. However a decrease in imports will also increase our dollar as a result of reduced supply. Think about it, importers supply the dollar to purchase foreign currency, as such a decrease in imports constitutes a decrease in supply.

C cannot be correct because an increase in interest rates will not cause supply of $A to decrease like hte diagram is depicting. Yes it will increase demand for the $A and cause an appreciation, however it will not decrease supply.

 

[kouklitsa]

tommy your logic is not correct. The answer is B

B is the answer because an increase in exports would increase demand for our dollar. Exporters convert $US to $A when they make profits, thus constituting a demand for the $A. However a decrease in imports will also increase our dollar as a result of reduced supply. Think about it, importers supply the dollar to purchase foreign currency, as such a decrease in imports constitutes a decrease in supply.

C cannot be correct because an increase in interest rates will not cause supply of $A to decrease like hte diagram is depicting. Yes it will increase demand for the $A and cause an appreciation, however it will not decrease supply.

totally agree!

 

[fujiwara.takumi]

Yep Correct
B

 

[datacore]

this question was in one of my schools past trials

but it had
B as increase in exports and an increase in imports

and C as incraese in interest rates in Australia

with C being the correct answer


but with ur B as decrease in imports i'm not sure

 

[Tommy_69]

Shit. i get it now

 

[know_it_all]

Yep Correct
B

yes but an increase in interest rates will attract greater foreign inflows
thus creating greater D for the AUD
--> appreciation

 

[fujiwara.takumi]

Could we possibly assume that the answers were written incorrectly?

 

[gorgo31]

datacore is correct; either Too_right has typed out the possibilities wrong, or his question was modified from the original.

The original question was from the Independent Paper 2003.

a) A decrease in exports and an increase in imports

b) An increase in exports and an increase in imports

c) An increase in interest rates in Australia

d) An increase in interest rates in the US

Under this, the answer is definitely C - I have the marking guidelines with the answers in front of me. As for Too_right's question...