The paper "Summary of Article by Mulligan" is a wonderful example of a case study on macro and microeconomics. First, although the Australian dollar fell relative to the US dollar in 2015, the governor of the Reserve Bank of Australia believes that the movement of the Australian dollar relative to the US dollar is in accordance with changes in the international market, such as a decline in commodity prices. Another issue is that as of January 2016, commodity prices were still falling; hence it was possible that a further fall of the Australian dollar would occur since Australia exports commodities.
But despite the decline in the value of the Australian dollar, the currency lost no more than seven percent when one looks at the trade-weighted index, which is a critical measure of a country’ s competitiveness as an exporter of goods and services. Thus, Australia can be deemed to be still competitive as an exporter of commodities and services like higher education and tourism. Thirdly, Australia’ s weak dollar makes the country’ s exports more competitive, which boosts the sectors that have been mentioned above. The fourth point is that the main factors that have driven the fall of the Australian dollar are falling commodity prices and divergent policies by central banks in the US and Australia. The demand model functions in such a way that other things remaining the same, when the exchange rate of a given currency (such as the Australian dollar) is high, a small quantity of that currency will be demanded, and vice versa (McTaggart, Findlay & Parkin 2013, p.
521). In contrast, the supply model applies in such a way that when the exchange rate of a given currency (for instance the Australian dollar) is high, more of that currency will be supplied, and vice versa.
What this means that if Australian business becomes more competitive, there would be greater demand for Australian goods, and an increase in the demand for Australian goods will cause an increase in the value of the Australian dollar relative to other currencies such as the US dollar. That is, if Australia’ s exports increase, the demand for the Australian dollar will increase (Dwivedi 2013, p. 287), and this will increase the value of the Australian dollar relative to other currencies.
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