Answer to Question #277700 in Macroeconomics for lee

Question

Explain, with the use of a graph the impact that an increase in the volume of exports from South Africa to the United States will have on the demand and supply of dollars and the exchange rate in South Africa?

Answer 1

Solution:

When the volume of exports from South Africa to the United States increases, there will be a high demand for its currency. Due to the high demand for its goods and currency, prices rise and the currency appreciates in value. The exchange rate between South African’s rand and U.S dollar will increase as demand for South Africa’s rand increases, while the demand for U.S dollar decreases. The supply of the U.S. dollar will tend to decrease in the market.

 

This is depicted by the below graph: