Suppose that ex is the exchange rate between the US dollar and the Chinese yuan in that ex indicated the number of yuan that can be purchased with one dollar. The demand for dollars, denoted, D$, is given by the equation D$ = 2,800 – 200ex. The supply of dollars, denoted, S$, is given by the equation S$ = 400 + 100ex.
a. Calculate the demand for dollars and supply of dollars at exchange rates between 0 and 12 in increments of one.
b. Graph the demand for dollars and supply of dollars against the exchange rate. What is the value of the equilibrium exchange rate?
c. Suppose the demand for dollars increases by 300 billion at each exchange rate. Explain if the increase in demand results from a large purchase by the Chinese of a new American-made airplane or a large purchase by Americana’s of new lower priced Chinese-made high definition televisions. Calculate the new demand for dollars at each exchange rate and graph the new demand curve. What is the new equilibrium exchange rate, given the original supply of dollars?
d. Suppose the supply of dollars increases by 600 billion at each exchange rate. Explain if the increase in demand results from a large purchase by the Chinese of a new American-made airplane or a large purchase by Americana’s of new lower priced Chinese-made high definition televisions. Calculate the new supply of dollars at each exchange rate and graph the new supply curve. What is the new equilibrium exchange rate, given the original demand for dollars?
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