The graph below shows the market for yuan: Suppose that the market for yuan and dollars is

Question:

The graph below shows the market for yuan:

Suppose that the market for yuan and dollars is in equilibrium at point A. An increase in demand for Chinese exports causes the demand for yuan to shift to the right.
a. If the Chinese central bank wants to keep the exchange rate fixed at what must it do? Explain and demonstrate on the graph.
b. What consequences might the central bank€™s actions have for the Chinese economy?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...