Question 4 The United States is concerned about its trade deficit with China. They find that the yuan (the Chinese national currency) which is fixed in relation to the American dollar is much too low. Treasury Secretary (the American equivalent of the Minister of Finance) John Snow, in a letter sent to certain senators on September 12, that he would like the value of the yuan to be fixed in the markets and that interventions be kept to a minimum and that the low value of the yuan is harming the American economy. 1. Using the Mundell-Flemming model, explain why the low value of the yuan could harm the U.S. economy. 2. Why might China agree to have a more flexible exchange rate? Could the same result be obtained by changing the exchange rate parity?