Question 1 Part (a) On March 19, 2020, amid the coronavirus pandemic, the Reserve Bank of Australia (RBA) announced an emergency cut to the cash rate, bringing it down to a record low of 0.25%. The...

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Question 1 Part (a) On March 19, 2020, amid the coronavirus pandemic, the Reserve Bank of Australia (RBA) announced an emergency cut to the cash rate, bringing it down to a record low of 0.25%. The following was reported by The West Australian on that day: “The Australian dollar plunged to as low as just US55.08¢, a level last seen in October 2002. At 2.20pm it had rebounded somewhat, buying US56.89¢ still down 8 per cent on the week.” Using the demand-supply model of exchange rate determination, explain while the news of an emergency rate cut as above would lead to an immediate depreciation of the Australian dollar. You do not need to draw a figure; instead, please make use of the following figure in your answer: Part (b) Using the knowledge of the J-curve effect, explain the likely impacts of a depreciation of the Australian dollar on the trade balance for Australia (note, there is no need to draw the J-curve effect figure; you can give your answer in words). Question 2 Explain the current arrangement of the domestic currency in your country. Is it closer to a fixed or flexible exchange rate regime? If so, what advantages does it have over the other exchange rate regime? (Hint: if the current arrangement is closer to the flexible exchange rate regime then discuss the advantages it has over the fixed exchange rate regime and vice versa).