Question

Describe what happens to the supply and/or demand curves for U.S. dollars under the following scenarios. In each scenario, does the U.S. exchange rate appreciate or depreciate, and what happens to the U.S. balance of trade? a. Bollywood movies become extremely popular in the United States, increasing demand for foreign movies.

A.The U.S. exchange rate will _________________ and net export ______________.

What does the graph do?

b. The U.S. government forces all government offices to purchase American-made computer products, instead of importing them. The U.S. exchange rate will _________________ and net export ______________.

what does the graph do?

Answer 1

A. Given an increase in demand for Bollywood movies, there will be increased imports into the U.S. resulting in an appreciation of Indian rupee due to increased exports and depreciation of U.S. dollars due to increased imports.

Thus, the U.S. exchange rate will depreciate and the net exports will fall/decrease

In this case, the demand curve for Indian rupee will shift to the right and push up the exchange rate of rupee against the dollar.

B. A "buy-America" policy focus will lead to fall in imports from other countries. As a result, the exchnage rate would appreciate and net exports will increase.

The exchange rate curve will shift to the left.