Very briefly explain the ways that you have used AI in the production of this assessment.

• Explain which AI tools you have used and for what purposes.
• If you have found and used tools on your own, explain why these tools were selected and provide a URL link to the tool.
• Note the number of iterations undertaken with each main AI collaborative tool.
• Describe what output from the tool/service has been included, and where.
• Summarise how you have altered, adopted, or built on the AI output.

Suggested format:

I used [insert AI system(s) and link] to [specific use of generative artificial intelligence] [number of iterations/drafts]. The tool was used to provide  [describe content used in task]. The output from this tool was modified by [explain use].

Please answer each of the following questions in 3–5 lines. No credit will be given without a proper explanation.

a) Australia

is a major exporter of iron ore, coal, and agricultural products. If the global

price of iron ore rises, for example, due to an increase in foreign buyers

(e.g., a surge in Chinese demand), what will be the impact on the Australian

dollar? Assume that foreign buyers need to use Australian dollars (AUD) to

purchase Australian-made products.

b) Prior to

COVID-19, the Australian economy was one of the strongest in the world, as

Australia had not been severely affected by major financial or economic crises.

This strong economic performance attracted an increase in foreign direct

investment (FDI) and portfolio investment in Australia. If we assume that these

investments are made using Australian dollars, what is the impact of increasing

capital inflows into Australia on the exchange rate?

Please answer each of the following questions in 3–5 lines. No credit will be given without a proper explanation.

a) During

COVID-19, the Australian government substantially increased its expenditure

(such as the JobKeeper package). As a result, the government deficit is

expected to persist for a while. What are the consequences of this on the

loanable funds market?

b) Alan

Greenspan proposed the "saving glut" hypothesis, which argues that

excess savings from East Asian economies (such as China) flowed rapidly into

the U.S. economy in the 2000s. What was the effect of this saving glut on the U.S. loanable funds market? (2 marks)

a)      

Consider individuals who smooth their consumption over their lifetime,

meaning their consumption behavior follows the Permanent Income Hypothesis

(hereafter, PIH). Suppose a person is currently 55 years old and expects to

retire at 65. If individuals receive no income after retirement, will this

person reduce their consumption now in anticipation of a future decline in

income? Discuss.

b)     

Suppose there are individuals in the economy who are hand-to-mouth

workers, meaning they consume all of their income in the current period. What

is the marginal propensity to consume (MPC) for these individuals?

c)      

Now, consider aggregate consumption in the economy. If aggregate

consumption is the sum of consumption by both PIH individuals and hand-to-mouth

workers, explain why the slope of the consumption function (i.e., the ratio of

the change in aggregate consumption to the change in aggregate income) is between zero and one. (1 mark)