Author Question: The figure above illustrates the U.S. foreign exchange market. Illustrate how the exchange rate ... (Read 114 times)

jenna1 · **on:** Jun 29, 2018

The figure above illustrates the U.S. foreign exchange market. Illustrate how the exchange rate changes if the expected future exchange rate falls. Does the dollar appreciate or depreciate?

What will be an ideal response?

Question 2

If firms became more optimistic about the future of the economy, which of the following occurs?

A) Investment demand decreases, and the demand for loanable funds curve shifts leftward.
B) The quantity of investment demanded increases, and there is a movement down along the demand for loanable funds curve.
C) The quantity of investment demanded decreases, and there is a movement up along the demand for loanable funds curve.
D) The saving decreases, and the supply of loanable funds curve shifts leftward.
E) Investment demand increases, and the demand for loanable funds curve shifts rightward.

IAPPLET · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The fall in the expected future exchange rate decreases the demand for dollars and increases the supply. The demand curve shifts leftward and the supply curve shifts rightward. As shown in the figure, the exchange rate falls so the dollar depreciates.

Answer to Question 2

E