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Include Graphs The United States' economy is growing at a faster rate than the economy of...

Include Graphs

The United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing.

Draw correctly labeled graphs to show how the increase in inflation will affect the supply of the U.S. dollar and demand for the British pound in the foreign exchange market.
Based on the scenario, what will happen to the value of the U.S. dollar? Explain. (Make sure you use the costs of foreign and domestic goods in your explanation.)
Based on the changing value of the U.S. dollar in part (B), how will U.S. net exports be affected? Expla

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The United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing.

1). Draw correctly labeled graphs to show how the increase in inflation will affect the supply of the U.S. dollar and demand for the British pound in the foreign exchange market.

The United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing. When inflation increase, its increase the price of domestic products in the foreign market of importers have to pay more for import. In this case import from the US will became costlier for the UK consumers and it will decraese demand for the American products in the UK market. Other side for the US consumers, import from the UK will be cheaper and it will increase the demand for British (UK) products of it will increase export of UK. So, here export of the US will decraese and export of the UK will increase. Increasing export of the UK will increase the demand for GBP and GBP will get appreciate against the USD. Other side the supply of the USD will increase.

Graphical respresenation (for the US):

Exchage rate = USD/GBP

You ac see how increasing supply fot the USD shift supply curve right from S1 to S2 that depreciate the USD against the GBP.

Graphical respresenation (for the UK):

Exchage rate = GBP/USD

Based on the scenario, what will happen to the value of the U.S. dollar?

The United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing. When inflation increase, its increase the price of domestic products in the foreign market of importers have to pay more for import. In this case import from the US will became costlier for the UK consumers and it will decraese demand for the American products in the UK market. Other side for the US consumers, import from the UK will be cheaper and it will increase the demand for British (UK) products of it will increase export of UK. So, here export of the US will decraese and export of the UK will increase. Increasing export of the UK will increase the demand for GBP and GBP will get appreciate against the USD. Other side the supply of the USD will increase. Increasing demand for the GBP will appreciate GBP and increasing supply for the USD will deoreciate USD. So, USD will get depreciated.

Based on the changing value of the U.S. dollar in part (B), how will U.S. net exports be affected?

he United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing. When inflation increase, its increase the price of domestic products in the foreign market of importers have to pay more for import. In this case import from the US will became costlier for the UK consumers and it will decraese demand for the American products in the UK market. Other side for the US consumers, import from the UK will be cheaper and it will increase the demand for British (UK) products of it will increase export of UK. So, here export of the US will decraese and export of the UK will increase. Decreasing American export will decraese net export (net export = export - import).

Thanks

Rahul Sunny answered 1 year ago

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