Short Answers

(a) Brieflfly explain the following policy or market response using the models and the concepts we have

covered in this class.

i. The US-China trade war leads to appreciation of the Canadian dollar and Mexican

peso.

ii. Following the US-China trade war, a survey by the American Chambers of Commerce

in China found that many American fifirms are considering shifting or have already relocated

their Chinese manufacturing facilities, mostly to South East Asia.

iii. The Federal Reserve cut interest rates from 5.25 percent in September 2007 to 2

percent in April 2008.

(b) How would you draw the AA-DD diagram when the current account's response to

exchange rate changes follows a J-curve pattern?