Assume that Japan and the US are trading partners.

a. Draw a model showing the foreign exchange for the US dollar (compared with the yen)

b. Draw another model showing the foreign exchange rate for the yen (compared to the US dollar)

c. Now assume that the US Federal Reserve institutes a policy that raises interest rates in the United States relative to interest rates in Japan. Is this a fiscal or monetary policy?

d. Show what happens -- on both models -- based on this new Federal Reserve policy

e. Has the dollar appreciated or depreciated?

f. Has the yen appreciated or depreciated?

g. As a result of the changing value of the US dollar...

i. Will US exports increase or decrease? Why?

ii. Will US imports increase or decrease? Why?

iii. Will US aggregate demand shift left or right?