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April 16, 2024, 09:44:59 pm
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Author Topic: 2009 VCAA MC  (Read 761 times)  Share 

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Nima2703

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2009 VCAA MC
« on: November 12, 2012, 04:35:12 pm »
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2009 Multiple Choice question 3? I don't understand why it's C...especially the depreciation part :/ the question is:
The most likely effect of a fall in commodity prices would be:
C. an unfavourable movement in Australia's terms of trade and a depreciation of the Australian dollar
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redxman

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Re: 2009 VCAA MC
« Reply #1 on: November 12, 2012, 05:24:24 pm »
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Terms of Trade can be represented as Export Price Index (divided by) Import Price Index.

A majority of our exports are commodities. So if commodity prices go down then terms of trade goes down.

And obviously because a lower value of exports are sold the dollar goes down.
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Nima2703

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Re: 2009 VCAA MC
« Reply #2 on: November 12, 2012, 05:46:17 pm »
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Oh because even if the demand remains the same its a lesser amount? I thought lower prices would elevate demand thereby appreciating the dollar :/
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redxman

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Re: 2009 VCAA MC
« Reply #3 on: November 12, 2012, 06:09:06 pm »
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I got this question wrong when I did it is well. Thought the same thing as you. But I think you have to remember ceteris paribus.
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