Problem 6. Exchange rates. a) b) TRYIUSD National Currency to US Dollar Exchange Rate 0.5 350 8 300 r 15 r - g 250 r 01-Jan-2021: Fl. 5.5 7.43 ' In E 200 '- 5 - - N 3 5'5 ' 03-Jan-2320: E 5 4.5 1001 l' _ m ' Jan 2013 Jan 2019 Jan 2020 Jan 2021 2010 2012 2014 2010 2013 2020 Figure 1: Exchange Rates. Source: retrieved from FRED Given the information in Figure 1, did the Turkish Lira depreciate or appreciate from the Turkish perspective between January 2020 and January 2021'? Explain. In the righthand side we allow for a comparison relative to the EURIUSD exchange rate where both have been converted into an index (2015 = 100). What can you say about the volatility of the Lira? A pistachio baklava in Turkey costs 2.5 Lira at the beginning of January 2020 and assume rst its price does not change throughout 2020. How many baklava would a US. tourist visiting Turkey be able to buy with $00 on the 3rd of January 2020 compared to the 1st of January 2021? Is the baklava becoming more or less expensive in dollar terms? Research now what ination was in Turkey in 2020 and calculate what the baklava's price likely was at the beginning of January 2021. How does your answer to the previous question change? Plot the demand curve for Lira in terms of USD {think of the amount of Lira the US tourist is demanding in the baklava example at the two exchange rates). 1What happens to the demand curve if U.S. income has risen and the tourist now has $70 to spend on baklava in Turkey? [No calculations needed, provide a graphical argument for full credit.) Can you predict if the Lira will appreciate or depreciate relative to the dollar? Would your answer change if income in Turkey increases by the same percentage as well