Question

Consider the exchange rate between the U.S. and Japan. Draw a demand curve for dollars and a supply curve for dollars. Label the vertical axis “Japanese Yens per dollar” and the horizontal axis  ”quantity of dollars.” Show the equilibrium U.S.-Japanese exchange rate. Holding other factors constant, explain and illustrate on the graph the impact of each of the following events on the value of dollar (expressed in Japanese Yen):

a- The Federal Reserve increases U.S. interest rates

b- Japan goes into a severe recession but interest rates remain unchanged

c- A Japanese company introduces a highly attractive new video game.

Answer 1