1. Explain why a high value of the Australian dollar causes tradables inflation to fall relative to non-tradables inflation. 3 marks

Fill the gaps for these short answer responses

  
Fill in all the gaps, then press "Check" to check your answers. Use the "Hint" button to get a letter if an answer is giving you trouble. Your goal should be to achieve 100% for each question. Note that you will lose marks if you ask for hints!
The high value of the Australian dollar (AUD) makes goods and services relatively cheaper given that each AUD is able to purchase more foreign currency. This directly reduces the prices of imports (such as imported cars) as well as the price of import goods (such as Australian made cars). This is because the demand for the import competing good falls as Australians purchase the relatively cheaper imported . Australian producers are then forced to contain or reduce prices in order to retain market . In contrast, those goods and services that are not exposed to imported competition (i.e. non-) do not experience the same forces exerting downward pressure on prices. Accordingly, price rises for those goods and services (i.e. non-tradables ) remain relatively high in comparison.