Question
If PNG's merchandise export to Australia increased, how will that affect the demand and supply curve on a graph where the exchange is at equilibrium at K3.00 = A$1.5?
Answers
Answer
If the government fixes our exchange rate at $1, what would be the effect:
1. on our export (answer in one short sentence)
2. On our balance of payments? (Answer in one short sentence)
1. on our export (answer in one short sentence)
2. On our balance of payments? (Answer in one short sentence)
Answer
Our exchange rate as in PNG's exchange rates .
Answer
What do you mean improvement in the balance of payment? Is it a balance of payment surplus or balance of payments deficit? Answer in one short sentence.
Answered by
GPT-4o mini
To analyze the effect of an increase in Papua New Guinea's (PNG) merchandise exports to Australia on the demand and supply curves in a foreign exchange market, we need to consider what this increase represents.
1. **Understanding the Context**:
- PNG increasing its merchandise exports means that Australian importers will require more PNG Kina (K) to pay for these goods.
- This increased demand for Kina will affect the currency exchange market between PNG Kina and Australian Dollars (AUD).
2. **Demand and Supply Curves**:
- In the foreign exchange market, the demand curve represents the demand for a currency (in this case, Kina) by foreign buyers (Australians wanting to import PNG goods).
- The supply curve represents the supply of that currency by local users (PNG exporters converting their earnings to AUD, etc.).
3. **Shift in Demand Curve**:
- With the increase in PNG's merchandise exports, Australian buyers demand more Kina to pay for these goods. This increased demand would shift the demand curve for Kina to the right (from D1 to D2, for example).
- There is now a higher equilibrium demand at the existing exchange rate.
4. **Effect on the Equilibrium**:
- As the demand curve for Kina shifts to the right, we would see an upward pressure on the exchange rate, meaning more AUD will be required to obtain the same amount of Kina.
- If we visualize this on a graph:
- The initial equilibrium is at point E1 where the demand for Kina and the supply of Kina intersect at K3.00 = A$1.5.
- With an increase in demand, we move to a new equilibrium point (E2), effectively raising the exchange rate for Kina.
- As a result, the new equilibrium may settle at a higher exchange rate, reflecting that now more Australian dollars are needed to purchase the same quantity of Kina, say K4.00 = A$1.5.
5. **Final Thoughts**:
- The graph you would draw would show the initial demand and supply curves intersecting at K3.00 = A$1.5, with the demand curve shifting rightward due to increased PNG exports, leading to a higher exchange rate and a new equilibrium point where the new exchange rate reflects the increased demand for Kina.
In summary, increased merchandise export from PNG to Australia would lead to a rightward shift in the demand curve for PNG Kina, resulting in a new equilibrium with a higher Kina exchange rate against the Australian Dollar.
1. **Understanding the Context**:
- PNG increasing its merchandise exports means that Australian importers will require more PNG Kina (K) to pay for these goods.
- This increased demand for Kina will affect the currency exchange market between PNG Kina and Australian Dollars (AUD).
2. **Demand and Supply Curves**:
- In the foreign exchange market, the demand curve represents the demand for a currency (in this case, Kina) by foreign buyers (Australians wanting to import PNG goods).
- The supply curve represents the supply of that currency by local users (PNG exporters converting their earnings to AUD, etc.).
3. **Shift in Demand Curve**:
- With the increase in PNG's merchandise exports, Australian buyers demand more Kina to pay for these goods. This increased demand would shift the demand curve for Kina to the right (from D1 to D2, for example).
- There is now a higher equilibrium demand at the existing exchange rate.
4. **Effect on the Equilibrium**:
- As the demand curve for Kina shifts to the right, we would see an upward pressure on the exchange rate, meaning more AUD will be required to obtain the same amount of Kina.
- If we visualize this on a graph:
- The initial equilibrium is at point E1 where the demand for Kina and the supply of Kina intersect at K3.00 = A$1.5.
- With an increase in demand, we move to a new equilibrium point (E2), effectively raising the exchange rate for Kina.
- As a result, the new equilibrium may settle at a higher exchange rate, reflecting that now more Australian dollars are needed to purchase the same quantity of Kina, say K4.00 = A$1.5.
5. **Final Thoughts**:
- The graph you would draw would show the initial demand and supply curves intersecting at K3.00 = A$1.5, with the demand curve shifting rightward due to increased PNG exports, leading to a higher exchange rate and a new equilibrium point where the new exchange rate reflects the increased demand for Kina.
In summary, increased merchandise export from PNG to Australia would lead to a rightward shift in the demand curve for PNG Kina, resulting in a new equilibrium with a higher Kina exchange rate against the Australian Dollar.
Answered by
GPT-4o mini
1. Fixing the exchange rate at $1 would make exports more expensive for foreign buyers, likely reducing demand for our exports.
2. This could lead to a deterioration in the balance of payments if exports decrease significantly while imports remain unchanged or increase.
2. This could lead to a deterioration in the balance of payments if exports decrease significantly while imports remain unchanged or increase.
Answered by
GPT-4o mini
Thank you for the clarification regarding PNG's exchange rates.
1. **On our export**: Fixing PNG's exchange rate at $1 could make PNG's exports cheaper and more competitive in foreign markets, potentially increasing demand for those exports.
2. **On our balance of payments**: This could lead to an improvement in the balance of payments if the increase in export revenue surpasses any changes in import levels.
1. **On our export**: Fixing PNG's exchange rate at $1 could make PNG's exports cheaper and more competitive in foreign markets, potentially increasing demand for those exports.
2. **On our balance of payments**: This could lead to an improvement in the balance of payments if the increase in export revenue surpasses any changes in import levels.
Answered by
GPT-4o mini
An improvement in the balance of payments refers to a balance of payments surplus, meaning that exports exceed imports, resulting in a net inflow of foreign currency.
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