1.6. Now that we've built up some intuition about exchange rates, let's apply the principle more thoroughly....
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1.6. Now that we've built up some intuition about exchange rates, let's apply the principle more thoroughly. In this question, we di cus the U.S.-China exchange rate. Officiall , the Chinese government fixed this exchange rate for years at a time, but in this question, we treat it as a market rate that can change every day.
a.
In the figure below, hift the appropriate curves to illustrate the effect of the following news story: Chinese factory ells poisonou dog food.
Dollars per yuan Quantity of yuan
b. Does this news story raise or lower the price of the yuan? Does this strengthen or weaken the Chinese currency? Does this strengthen or weaken the U.S. dollar?
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