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Safari File Edit View History Bookmarks Develop Window Help 96% Sat 9:48:54 PM Q DE . . . laecon1.lyryx.com C + Question 10 [15 points] Draw a foreign exchange market diagram to show equilibrium with a flexible or floating exchange rate. Suppose the initial exports X is $80, the supply curve is given by er = 0.01X, and the demand curve is given by er = 1.6 - 0.01X. a) Plot the supply and demand curves of the foreign exchange market. Plot the new supply curve if the supply of US dollars increases at all levels of exports by $50. - Demand Curve 1.5 Exchange rate 0.5 20 40 60 80 100 120 140 160 180 Reset US dollars b) How does the increase in exports affect the foreign exchange rate? The increase in exports (Select One) the balance on current account balance and (Select One) the supply of foreign exchange derived from export receipts. The exchange rate falls by 0 to maintain equilibrium in the balance of payments. The supply curve shifts to the (Select One) . c) How do exports and imports change to give balance of payments equilibrium at the new equilibrium exchange rate? 17 (30 W X laecon1.lyryx.com C + 1.5 Exchange rate 0.5- 20 40 60 80 100 120 140 160 180 Reset US dollars b) How does the increase in exports affect the foreign exchange rate? The increase in exports (Select One) the balance on current account balance and (Select One) the supply of foreign exchange derived from export receipts. The exchange rate falls by 0 to maintain equilibrium in the balance of payments. The supply curve shifts to the (Select One). c) How do exports and imports change to give balance of payments equilibrium at the new equilibrium exchange rate? The increase in exports would create a (Select One) on the current account. The profitability and competitiveness of exports is (Select One) . The supply of foreign exchange from exports is (Select One) to establish equilibrium. d) What are the effects on the holdings of official reserves? With flexible rates the foreign exchange market adjusts (Select One) and there is (Select One) in official reserves. Official Time: 21:49:08 SUBMIT AND MARK SAVE AND CLOSE