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Part 2: The United Kingdom and Australia are trade partners, each with a current account balance of zero. Australia's national income increases relative to the United Kingdom. (e) On a fully labeled foreign exchange market graph, illustrate the impact of the relative change in national income on the British pound sterling (GBP) with the price in terms of Australian dollars (AUD). (f) Based on your response to part (e), has the Australian dollar appreciated or depreciated? (g) Assume the new exchange rate is 2 AUD per 1 GBP. Calculate the price of the Australian dollar in terms of British pounds sterling.

Part 2: The United Kingdom and Australia are trade partners, each with a current account balance of zero. Australia's national income increases relative to the United Kingdom. (e) On a fully labeled foreign exchange market graph, illustrate the impact of the relative change in national income on the British pound sterling (GBP) with the price in terms of Australian dollars (AUD). (f) Based on your response to part (e), has the Australian dollar appreciated or depreciated? (g) Assume the new exchange rate is 2 AUD per 1 GBP. Calculate the price of the Australian dollar in terms of British pounds sterling.

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter11: Foreign Exchange, Trade, And Bubbles
Section: Chapter Questions
Problem 6MC
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Part 2: The United Kingdom and Australia are trade partners, each with a current account balance of zero. Australia's national income increases relative to the United Kingdom. (e) On a fully labeled foreign exchange market graph, illustrate the impact of the relative change in national income on the British pound sterling (GBP) with the price in terms of Australian dollars (AUD). (f) Based on your response to part (e), has the Australian dollar appreciated or depreciated? (g) Assume the new exchange rate is 2 AUD per 1 GBP. Calculate the price of the Australian dollar in terms of British pounds sterling. Part 3: Respond succinctly and precisely to each of the following scenarios. Hint: these are beginning with a currency value change; start from there, and do not consider what caused the change. (h) The countries Zeta and Epsilon are trade partners. The currency of Epsilon depreciates relative to the currency of Zeta. Ceteris paribus, how will this change affect: (i) Epsilon's net exports? Explain. (ii) the capital and financial account of Epsilon?
Transcribed Image Text:Part 2: The United Kingdom and Australia are trade partners, each with a current account balance of zero. Australia's national income increases relative to the United Kingdom. (e) On a fully labeled foreign exchange market graph, illustrate the impact of the relative change in national income on the British pound sterling (GBP) with the price in terms of Australian dollars (AUD). (f) Based on your response to part (e), has the Australian dollar appreciated or depreciated? (g) Assume the new exchange rate is 2 AUD per 1 GBP. Calculate the price of the Australian dollar in terms of British pounds sterling. Part 3: Respond succinctly and precisely to each of the following scenarios. Hint: these are beginning with a currency value change; start from there, and do not consider what caused the change. (h) The countries Zeta and Epsilon are trade partners. The currency of Epsilon depreciates relative to the currency of Zeta. Ceteris paribus, how will this change affect: (i) Epsilon's net exports? Explain. (ii) the capital and financial account of Epsilon?
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