Question 1
| Ambrosia | Year 1 | Year 3 |
| Saving | 90 | 112 |
| Investment | 95 | 125 |
What has happened to the CAB in Ambrosia over the 3-year period? Explain your answer.
Question 2
Explain the impact that technological progress in transportation and the use of tariffs have on the validity or otherwise of the rule of one price.
Question 3
The price of a haircut in Zurich is 50 Swiss francs, while the price of a haircut in Brisbane is $30. The price of gold is 6000 Swiss francs per ounce in Zurich, and the price of gold in Brisbane is $650 per ounce. Calculate the exchange rate between Australian dollars and Swiss francs (in francs per dollar)? Explain your answer.
Question 4
Why is the difference between domestic investment and saving so closely related to the current account deficit?
Question 5
The open economy model we covered in lecture 7 and 8 (week 9 and 10) shows how NFI, savings and investment are related. Historically (surprisingly), domestic investment and national savings equal each other over time in many countries around the world. Explain this apparent contradiction between the lecture material and this historical fact. How can we reconcile this apparent contradiction between this surprising historical fact and economic theory?
Marking Scheme:
| 1 | 2 | 3 | 4 | 5 | |
| Terminology relevant to the questions is used appropriately throughout the homework. | |||||
| Correct analysis and interpretation to support answers. | |||||
| The solutions were concise, well presented and comprehensive. |
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