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Secondly, consider the two mechanisms by which a depreciation can occur: a decrease in demand for the $A or an increase in supply of the $A.If you are finding it difficult to brainstorm causes think about both the supply and demand side.Here is an example how to do so for the cash rate diagram: As shown in the diagram above, the RBA’s decision to loosen monetary policy involved increasing the supply of loanable funds in the overseas cash market.
To address this issue I thought about the key components of aggregate demand.
Using the equation AD = C I G X — M, it is easy to identify at least 5 potential impacts.
Place diagrams in the centre of the page, draw large diagrams and avoid writing on the side of the diagram.
Most importantly, directly reference the diagram in your writing.
Crafting a holistic response requires you to acknowledge that economic indicators are interdependent, so a movement in one indicator will cause a chain reaction. It simply requires you to analyse multiple topics in your response rather than sticking to a narrow explanation of one topic.
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This will be clarified in the example below, where a question focusing on exchange rates incorporates an analysis of other indicators such as inflation, economic growth and international competitiveness.
Often students focus solely on demand and neglect to discuss supply side factors.
External influences (global factors): When I was writing my economics essay I often struggled to identify impacts to discuss.
This may be caused by an increase in supply or a decrease in demand.
Australia’s exchange rate peaked at $US 1.10 in 2011, during the Resources Boom, however, due to a range of global and domestic factors, has recently depreciated to $US 0.75.