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Multiple Choice Help (1 Viewer)

Kangaaroo

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Anyone know how to do these two questions? I honestly can't work out what I'm looking at

Screen Shot 2020-07-05 at 1.36.58 pm.png
 

#RoadTo31Atar

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STM = IGX is equilibrium

STM>IGX eco is shrinking

STM<IGX eco is growing

Under a clean floating er, the BOP=CA+KAFA=0

You need to know where the parts of STM and IGX go in the BOP and add them up to see what's going on

If you have a textbook just read the BOP section and you'll prob figure it out
 

quickoats

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The floating exchange rate implies that the BoP balances out to zero.

Using the formulas Y = C + S + T and Y (aggregate demand) = C + I + G + (X - M), you can find the value of (X-M) (net exports) and use this to infer what is happening in the economy.

Y = C + I + G + (X - M) ...... (1)
Y = C + S + T ...... (2)

(1) - (2): 0 = (I + G) + (X - M) - (S + T) -> (X - M) = (S + T) - (I + G).

For year one, this means X - M = -15. i.e. the BOGS is negative. Since there is no information on NPY or NSY and we know that the BOGS makes up most of the CA, we can infer that the KAFA is +15.

If you do the same math on Q13, you'll find that X - M = 0, which represents an improvement by $15 on the CA. Answers A and D only changed by $5 and C is wrong (FA decreases), thus the answer is B.
 

Kangaaroo

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The floating exchange rate implies that the BoP balances out to zero.

Using the formulas Y = C + S + T and Y (aggregate demand) = C + I + G + (X - M), you can find the value of (X-M) (net exports) and use this to infer what is happening in the economy.

Y = C + I + G + (X - M) ...... (1)
Y = C + S + T ...... (2)

(1) - (2): 0 = (I + G) + (X - M) - (S + T) -> (X - M) = (S + T) - (I + G).

For year one, this means X - M = -15. i.e. the BOGS is negative. Since there is no information on NPY or NSY and we know that the BOGS makes up most of the CA, we can infer that the KAFA is +15.

If you do the same math on Q13, you'll find that X - M = 0, which represents an improvement by $15 on the CA. Answers A and D only changed by $5 and C is wrong (FA decreases), thus the answer is B.
Thanks

Don't you think it's kinda sketchy to leave off the income accounts considering they're a pretty major factor in the CA? It really threw me off.
 

quickoats

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Thanks

Don't you think it's kinda sketchy to leave off the income accounts considering they're a pretty major factor in the CA? It really threw me off.
Yes, and it's quite mathy to solve for net exports. Don't quote me but I feel like this is probably a bit too convoluted and can be argued as 'not enough information' to be in an exam.
 

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