How has China operated in the foreign exchange market, why, and ...

[iveyjurea]

How has China operated in the foreign exchange market, why, and with what effect?
 
  What will be an ideal response?

Question 2

Which of the following correctly comments on the following statement? The only way to increase the revenue from selling a product is to increase the product's price.
 
  A) This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic.
  B) It is not true. Revenue will increase as the price of the product increases only if demand is elastic.
  C) This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall.
  D) The statement is true.

[mcomstock09]

Answer to Question 1

From 1997 until 2005, the People's Bank of China fixed the Chinese yuan exchange rate. Over this time, the demand for the yuan increased, so the People's Bank of China supplied additional yuan to keep the exchange rate constant. By supplying yuan, the People's Bank acquired large amounts of foreign currency. In addition, by fixing its exchange rate China essentially pegged its inflation rate to equal the U.S. inflation rate. Since 2005 the yuan has been allowed to appreciate slightly as the People's Bank moved to a crawling peg exchange rate policy. The exchange rate has not been allowed to change much, so over the long run the Chinese inflation rate remains closely tied to U.S. inflation.

Answer to Question 2

A