Draw a graph of the foreign exchange market, with e (dollars per euro) on
the vertical axis and euros on the horizontal. Graph the following curves by clicking here
Draw a downward sloping demand curve, and label it D1.
Draw a downward sloping supply curve that is steeper than the demand
curve, and label it S1. Why might this supply curve have a negative slope?
If either quantity demanded is greater than quantity supplied, or vice
versa, will this system return to equilibrium? Explain.
Draw a new graph of the foreign exchange market, with e (dollars per euro)
on the vertical axis and euros on the horizontal. Graph the following curves by clicking here
Draw a downward sloping demand curve, and label it D1.
Draw a downward sloping supply curve that is flatter than the demand
curve, and label it S1.
If either quantity demanded is greater than quantity supplied, or vice
versa, will this system return to equilibrium? Explain.
Consider Kenya’s market for foreign exchange. Graph the following curves by clicking here
Create a graph placing dollars on the horizontal axis and e (shillings
per dollar) on the vertical axis.
Graph a downward-sloping demand curve, and label it D1.
Graph an upward-sloping supply curve, and label it S1.
Suppose the equilibrium exchange rate is 80. Mark this rate on your
graph.
Suppose two events occur simultaneously:
Kenya’s GDP decreases due to a recession; and
Kenya’s tourism board runs an especially effective advertising campaign
and the number of American tourists visiting Kenya doubles.
How will these affect your graph? Label the new curves D2 and S2.
What will happen to Kenya’s exchange rate (e) as a result of these changes?
