Answer to Question #251632 in Macroeconomics for Malefa

Question

Explain, with the aid of a graph, what will happen to the rand-dollar exchange rate and the equilibrium quantity of dollars if South Africa's exports to United States increase

Answer 1

When South Africa's expo

rt to the United States increases, the demand for the rand will rise to cause the rand curve to shift rightward in the demand resulting in an increased quantity demanded of the rand. Therefore the value for rand will increase due to high preference for the rand resulting in a decline in the rand/dollar exchange rate. Accordingly, the South African goods will be expensive in the United States and united states goods cheaper in terms of rand causing downward pressure on the domestic currency rand and an increase in the domestic price of goods purchased by the United States, as a result, the US demand for south Africa products will reduce thus encouraging the importation of goods and discourage exportation in South Africa.