Q4: Consider Australia running a current account deficit

a/ Evaluate the statement "a current account deficit is a tax burden on future generations". Provide an answer in words.

b/ Calculate the nominal exchange rate using the purchasing power parity concept when the foreign price level (for a typical easily transportable basket of goods) is $100USD and the domestic price level is $150AUD and explain why the basket of goods needs to be easily transportable for your calculations to be accurate. Show all of your working.

c/ How can the RBA and Australian government expand the Australian economy when the cash rate is 0.25%pa? Explain your answer in words.

d/ Should we be concerned if Australia is on a course towards negative nominal interest rates? Explain your answer in words.