Answer to Question #86171 in Macroeconomics for Ana

Question

Using a Currency Supply-and-Demand diagram, show the effect of the following scenarios on the equilibrium exchange rate and explaining whether the exchange rate has depreciated or appreciated. Explain in 1-2 sentences how you arrived at your answers.
A) The interest rate in the U.S. increases relative to the British interest rate (market: U.S. dollars) B) The price level in Mexico declines relative to the U.S. price level (market: pesos)
C) The price level in Canada increases relative to the U.S. price level (market: dollars)
D) The demand for Japanese imports into the U.S. increases (market: Yen)

Answer 1

A) The interest rate in the U.S. increases relative to the British interest rate (market: U.S. dollars), so the exchange rate will appreciate.

B) The price level in Mexico declines relative to the U.S. price level (market: pesos), so the exchange rate will appreciate.

C) The price level in Canada increases relative to the U.S. price level (market: dollars), so the exchange rate will appreciate.

D) The demand for Japanese imports into the U.S. increases (market: Yen), so the exchange rate will appreciate.