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2. Determining long-term exchange rates Consider two countries, the United States and the United Kingdom, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in the United Kingdom. The following graph shows the supply and demand for the U.K. pound in the United States before the change in productivity. The vertical axis is the exchange rate of the pound in terms of the dollar, and the horizontal axis is the quantity of pounds. Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. EXCHANGE RATE (Dollars per pound) Supply Demand QUANTITY (Millions of pounds) As a result of the change in productivity, the U.S. dollar Demand Supply

2. Determining long-term exchange rates Consider two countries, the United States and the United Kingdom, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in the United Kingdom. The following graph shows the supply and demand for the U.K. pound in the United States before the change in productivity. The vertical axis is the exchange rate of the pound in terms of the dollar, and the horizontal axis is the quantity of pounds. Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. EXCHANGE RATE (Dollars per pound) Supply Demand QUANTITY (Millions of pounds) As a result of the change in productivity, the U.S. dollar Demand Supply

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter29: International Finance
Section: Chapter Questions
Problem 8P
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2. Determining long-term exchange rates Consider two countries, the United States and the United Kingdom, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in the United Kingdom. The following graph shows the supply and demand for the U.K. pound in the United States before the change in productivity. The vertical axis is the exchange rate of the pound in terms of the dollar, and the horizontal axis is the quantity of pounds. Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. EXCHANGE RATE (Dollars per pound) Supply Demand QUANTITY (Millions of pounds) As a result of the change in productivity, the U.S. dollar Demand Supply (?)
Transcribed Image Text:2. Determining long-term exchange rates Consider two countries, the United States and the United Kingdom, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in the United Kingdom. The following graph shows the supply and demand for the U.K. pound in the United States before the change in productivity. The vertical axis is the exchange rate of the pound in terms of the dollar, and the horizontal axis is the quantity of pounds. Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. EXCHANGE RATE (Dollars per pound) Supply Demand QUANTITY (Millions of pounds) As a result of the change in productivity, the U.S. dollar Demand Supply (?)
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