Y7

1. Assuming market-determined exchange rates, use supply and demand schedules for pounds to illustrate and analyze the effect on the exchange rate (dollars per foreign currency) between the U.S. dollar and the foreign currency identified in each of the following circumstances:

a. The United States decreases tariffs on imports from Switzerland (francs).

b. Swiss manufacturing costs increase relative to those of the United States.

c. The Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest rates in the United States.

d. The profitability of assets in Switzerland rises relative to the profitability of assets in the United States.

e. The rate of inflation in the United States is higher than the rate of inflation in Switzerland.

f. The US is experiencing faster economic growth than Switzerland.

g. U.S. labor productivity growth is 2 percent per annum and Swiss labor productivity growth is 6 percent per annum.

h. U.S. interest rates fall relative to interest rates in Japan (yen).

i. The US has stronger preferences for imports from China (yuan) than China has for US exports. j. The EU (euro) has reduced domestic interest rates compared to the US.