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[marty mcfly]

Hey guys, this is a question from my trial exam. I can't remember how I did it, and now I'm having a massive mental blank and am getting horribly confused. Any help would be greatly appreciated (I know what the answer is, I'm just looking for an explanation)



Question: Which of the following may have caused the change in the supply of Australian dollars from S1 to S2?

a) a decrease in capital inflows into Australia
b) a decrease in demand for foreign imports
c) an increase in capital outflows from Australia
d) an increase in demand for Australian exports

Thanks

 

[Rawf]

The answer is C

 

[taintedxblood]

C) An increase in capital outflows.

When investors move capital out of Australia into other countries, they have to covert the AUD to other currencies and have to sell the dollar, leading to an increase in supply of the AUD, causing the change.

 

[Leffife]

Yup (C) An increase in capital outflows.

Pretty much this could have been due to strong economic growth, leading to an increase in the demand for imports from the US for example. But like what taintedxblood said, also could have been when investors take advantage of higher overseas interest rates where they cause a capital outflow from Australia, and then convert it to the US$ leading to an increase in supply of the A$ causing such change.

 

[marty mcfly]

Great, thanks. What would be the impact of A and D?

 

[Rawf]

Great, thanks. What would be the impact of A and D?

I think A will decrease demand and D will increase demand.

 

[marty mcfly]

Yeah, that sounds right. I just spent like 15 minutes trying to work out how they would affect supply, I'm feeling especially retarded tonight :/