Part 1)

The United States economy is growing at avfaster rate then the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing.

A. Draw correctly labeled graphs to show how the increase in inflation will affect the supply of the U.S dollar and demand for the British pound in the foreign exchange market.

TIP: The graph for the USD must show decrease in demand, since fewer pound sterling are being offered up in exchange for those dollars; the graph for the British pound must show a decrease in supply since the British buyers do not want more expensive American goods and services.

Part 2)

The Federal Reserve decreases the money supply in the United States causing interest rates to increase.

A) Draw correctly labeled graphs to show the increased interest rates in the scenario will affect the demand for the U.S dollar and supply of the EU euro in the foreign exchange market.

TIP: The graph for the Euro is correct; now illustrate what happens to the USD in that scenario. Remember, in this scenario, European financial investors are clamoring for USD so that they can buy US Treasury Notes with that higher interest rate.

Below you can find the graphs I submitted. Considering I got an not nice grade on this, something went wrong with my graphs.

2:25 AT&T at alll 53% Quantity of Euro in Foreign exchange market Exchange Euro O A2:25 PA But allll 52% Me PA 2:27 PM, Apr 1 Exchange Quantity of Pound in Foreign exchange Market per Quantity of dollar in furdie Exchange exchange market Site 15 per Save Share O A