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Question 4: Exchange Rate Effects of Monetary Policy - 25 marks in totol [Please note that you need to complete drawing the Exchange Rate diagram on your own piece of paper as you explain your answers for part (a) of this question. Take a photo-shot (or screen short) of the completed diagram ONLY and upload it in the uploading section following this question. However, all your explanations MUST be written in the space provided following the question in the online exam paper] In addition to fiscal policy measure, many countries have also introduced monetary policy measures to overcome the economic crisis caused by the COVID-19 outbreak In March 2020, the US Federal Reserve lowered its interest rate significantly to 0.00-0.25%% to help small and medium-sized businesses hit by the COVID-19 pandemic access affordable credit, making the US interest rate one of the lowest in the world. Economic analysts say that the US Federal Reserve is likely to keep its zero-interest rate until 2023. For a simplification of the economic analysis, assume that the US government keeps its fiscal policy and everything else unchanged. As a result of interest rate cut in the United States, the US interest rate is currently much lower than the interest rate in China. Given the interest rate change in the United States, ) Discuss how you would expect a decrease in interest rate in the United States to affect the quantity of money, value of US dollar, demand for and supply of US dollar, and the exchange rate (depreciation or appreciation) against Chinese Yuan (currency). In your discussion, use the exchange rate diagram below as a starting point for your graphical analysis and complete the diagram showing the movement of US exchange rate against Chinese Yuan, Yuan/US$. (hint: use demand for and supply of US dollar). (15 marks) Exchange rates (Yuan/USS) Quantity of US$ traded ) Discuss how the change in the US exchange rate against Chinese Yuan is expected influence exports, imports and the current account balance (improve or worsen) of the United States and China. (10 marks)