It may be argued that a factor that can affect the equilibrium exchange rate is changes in relative income growth between countries.If the growth in Australian national income rises substantially,while that in the USA remains stagnant,which of the following impacts would you expect to occur?

Question

Quizplus · Accepted Answer

When the growth in Australian national income rises substantially while that in the USA remains stagnant, it can lead to various outcomes affecting the equilibrium exchange rate. A higher income growth in Australia compared to the USA could increase demand for imports in Australia, potentially leading to the depreciation of the AUD if the increase in import demand is significant. However, it could also attract more foreign investment into Australia, appreciating the AUD due to increased demand for Australian dollars to invest. Therefore, the relative strength of import growth and foreign investment inflows will indeed impact the equilibrium exchange rate, making all the given answers correct in explaining the potential effects on the AUD's value.

It May Be Argued That a Factor That Can Affect