The United States is concerned about its trade deficit with China. They find that the yuan (the Chinese national currency) which is fixed against the US dollar is at a level much too low. The Secretary of the Treasury (the American equivalent of the Minister of Finance) John Snow, in a letter sent to some senators on September 12, that he would like the value of the yuan to be fixed on the markets and for interventions to 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 American economy. 2. Why might China agree to have a more flexible exchange rate? THE Could the same result be obtained by changing the exchange rate parity?