a. Graph the demand for and supply of Australian dollars for euros and label each axis. Show graphically and explain the effect of an increase in interest rates in Europe by the European Central Bank (ECB) on the demand for and supply of dollars and the resulting change in the exchange rate of euros for Australian dollars. Assume that interest rates in Australia have not changed.
b. Graph the demand for and supply for Australian dollars for euros and label each axis. Ceteris paribus, show graphically and explain the effect of an increase in Australian government budget deficits that increase Australian interest rate of euros for Australian dollars. Why might the budget deficit lead to a current account deficit?