I really need a help for this problem!!! Consider the exchange rate between the

Question

I really need a help for this problem!!!

Consider the exchange rate between the U.S. dollar and the euro. Let the foreign currency be on the x-axis as in class. For each of the following, chose one of the graphs above which best illustrates the changes in the exchanges rate.

a.Textile companies' "Buy American" campaign is successful, and U.S. consumers switch from purchasing imported products to those made in the United States.

b.The U.S. inflation rate falls well below that of its trading partners.

c.Rising labor costs of the U.S. manufacturers lead to a worsening ability to compete in world markets.

d.The European Central Bank lowers interest rates.

e.The U.S. is the host of the next Olympics

f.The Federal Reserve sells bonds in open market operations.

g. European wine gains new popularity in the United States.

h. Speculators believe the euro will depreciate in the near future.

i. A recession in Europe results in severe decreases in income.

j. A new political party in Europe which threatens to freeze all foreign assets in the country shows a strong following in the latest election polls.

Explanation / Answer

(a) Graph 4

Lower import demand will decrease the demand for foreign currency, shifting its demand curve leftward.

(b) Graph 4

Lower price in US makes US exports more competitive and imports costlier, so exports rise and imports fall, increasing demand for US dollar and decreasing supply of foreign currency. Demand for foreign currency shifts left.

(c) Graph 2

Lower competitiveness decreases US exports and increases imports, increasing the demand for foreign currency, shifting its demand curve right.

(d) Graph 4

ECB lowering interest rate will decrease foreign investment in Eurozone, lowering demand for Euro (foreign currency) and shifting its demand curve left.

NOTE: As per Chegg answering guidelines, first 4 parts are answered.

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