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VICEconomicsQuick questions
Unit 4: Managing the economy
Quick questions on Exchange rates and external stability (VCE Economics Unit 4)
6short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is the exchange rate defined?Show answer
The exchange rate is the value of the Australian dollar (AUD) expressed in terms of another currency (or a basket of currencies). Australia has a floating exchange rate: since 1983 the AUD has been set by demand and supply in the foreign exchange market, not fixed by the RBA.
What is external stability defined?Show answer
External stability is a macroeconomic goal of maintaining Australia's external accounts at a sustainable level, so that the size of foreign liabilities and the current account does not threaten the economy's ability to meet its international obligations or undermine confidence in the AUD.
What is australia's external position?Show answer
Australia historically ran current account deficits, financed by capital inflow to fund investment that exceeded domestic saving. From around 2019 the strong terms of trade and high commodity export prices produced periods of current account surplus, an unusual development. The position fluctuates with commodity prices and global demand, so always cite the latest ABS Balance of Payments release for current figures.
What is q1?Show answer
Explain what causes the Australian dollar to appreciate under a floating exchange rate. [3 marks]
What is q2?Show answer
Explain how an appreciation of the AUD affects the goal of low and stable inflation. [3 marks]
What is q3?Show answer
Define external stability and identify two indicators used to measure it. [4 marks]
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