a) China is one of the fastest growing economies in the world and is one of Australia’s major trading partners. Discuss the implications for the Australian economy of a weaker than expected Chinese economy in 2016. Illustrate your arguments with the AS-AD model.
b) Using an appropriate model, explain how a weakening Chinese economy might affect the value of the Australian dollar. Note that Australia has a flexible exchange rate system.
Assume that another drought in Australia this summer sharply reduces Austr... More