Answer to Question #251882 in Macroeconomics for sai

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 African exports to the United States increase

Answer 1

An increase in South African’s exports to the United States will cause an increase in demand for Rand by the Americans to facilitate the exports. In the figure below, a rise in demand for Rand is shown by the rightward change in demand for Rand from D to D1. Initially, before the shift, 1 Rand bought 0.7 U.S dollars. However, after the shift, 1 Rand now buys 0.8 U.S dollars. Since 1 Rand now buys more dollars than before, the rand/dollar exchange rate has increased. That is, the Rand has appreciated against the dollar. The equilibrium quantity of dollars will also increase since the Americans will now offer more dollars to purchase Rand.