4. Analysis of Factors Affecting the Equilibrium Exchange Rates of the $/ Assumptions: a. US and UK goods are perfect substitutes b. Initial equilibrium exchange rate is $1.50/ c. If exchange rates increases, assumes it goes to $1.75/ d. If exchange rates decreases, assumes it falls $1.30/ a. US Inflation increases relative to UK inflation Arrows Why? Explain Demand analysis What happens to the demand of US goods by USA citizens? What happens to the demand of UK goods by USA citizens? How does this affect the demand of the pound by USA citizens? Supply What happens to the demand of US analysis goods by the British? How does this affect the demand of USD by the British? How does this affect the supply of the pound? How does this affect the equilibrium exchange rate? Illustrate using a graph. label the graph. Use dotted lines to show the shifts. Give the values for eo and e leo = Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Conclusion? Calculations: b. US interest rates increases relative to UK interest rates Consider investors have the choice of investing funds in the USA or UK Arrows Why? Explain Demand What happens to the demand of the analysis British pound by US citizens? Supply analysis What happens to the demand of USD by the British? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e en = e = Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Calculations: Conclusion: Supply What happens to the demand of US analysis goods by the British? How does this affect the demand of USD by the British? How does this affect the supply of the pound? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e leo e- Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Conclusion? Calculations: b. US interest rates increases relative to UK interest rates Consider investors have the choice of investing funds in the USA or UK Arrows Why? Explain Demand What happens to the demand of the analysis British pound by US citizens? Supply analysis What happens to the demand of USD by the British? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e en = e = Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Calculations: Conclusion: US income increases relative to UK income Arrows Why? Explain Demand What happens to the demand of the analysis British pound by US citizens? Supply analysis What happens to the demand of USD by the British? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e eo = Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: e = Calculations: Calculations: Conclusion: 4. Analysis of Factors Affecting the Equilibrium Exchange Rates of the $/ Assumptions: a. US and UK goods are perfect substitutes b. Initial equilibrium exchange rate is $1.50/ c. If exchange rates increases, assumes it goes to $1.75/ d. If exchange rates decreases, assumes it falls $1.30/ a. US Inflation increases relative to UK inflation Arrows Why? Explain Demand analysis What happens to the demand of US goods by USA citizens? What happens to the demand of UK goods by USA citizens? How does this affect the demand of the pound by USA citizens? Supply What happens to the demand of US analysis goods by the British? How does this affect the demand of USD by the British? How does this affect the supply of the pound? How does this affect the equilibrium exchange rate? Illustrate using a graph. label the graph. Use dotted lines to show the shifts. Give the values for eo and e leo = Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Conclusion? Calculations: b. US interest rates increases relative to UK interest rates Consider investors have the choice of investing funds in the USA or UK Arrows Why? Explain Demand What happens to the demand of the analysis British pound by US citizens? Supply analysis What happens to the demand of USD by the British? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e en = e = Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Calculations: Conclusion: Supply What happens to the demand of US analysis goods by the British? How does this affect the demand of USD by the British? How does this affect the supply of the pound? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e leo e- Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Conclusion? Calculations: b. US interest rates increases relative to UK interest rates Consider investors have the choice of investing funds in the USA or UK Arrows Why? Explain Demand What happens to the demand of the analysis British pound by US citizens? Supply analysis What happens to the demand of USD by the British? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e en = e = Calculations: Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: Calculations: Conclusion: US income increases relative to UK income Arrows Why? Explain Demand What happens to the demand of the analysis British pound by US citizens? Supply analysis What happens to the demand of USD by the British? How does this affect the equilibrium exchange rate? Illustrate using a graph. Clearly label the graph. Use dotted lines to show the shifts. Give the values for eo and e eo = Did the British pound appreciate or depreciate? Formula: Answer: Did the UD dollar appreciate or depreciate? Formula: Answer: e = Calculations: Calculations: Conclusion