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Solved: Draw a diagram, similar to Figure 43.1, representing the foreign exchange
Chapter 0, Problem 1(choose chapter or problem)
Draw a diagram, similar to Figure 43.1, representing the foreign exchange situation of China when it kept the exchange rate fixed at a target rate of $0.121 per yuan and the market equilibrium rate was higher than the target rate. Then show with a diagram how each of the following policy changes might eliminate the disequilibrium in the market.
a. allowing the exchange rate to float more freely
b. placing restrictions on foreigners who want to invest in China
c. removing restrictions on Chinese who want to invest abroad
d. imposing taxes on Chinese exports, such as clothing
Questions & Answers
QUESTION:
Draw a diagram, similar to Figure 43.1, representing the foreign exchange situation of China when it kept the exchange rate fixed at a target rate of $0.121 per yuan and the market equilibrium rate was higher than the target rate. Then show with a diagram how each of the following policy changes might eliminate the disequilibrium in the market.
a. allowing the exchange rate to float more freely
b. placing restrictions on foreigners who want to invest in China
c. removing restrictions on Chinese who want to invest abroad
d. imposing taxes on Chinese exports, such as clothing
ANSWER:Step 1 of 5
A fixed exchange rate system is the one in which the central bank( government , wrong) fixes the value of the domestic currency. The market-determined exchange rate is ignored to suit the policy goals of the government.