The figure to the right shows the market for South Africa\'s currency, the rand.
ID: 1097841 • Letter: T
Question
The figure to the right shows the market for South Africa's currency, the rand. Suppose a rise in U.S. inflation causes many U.S. residents to seek to buy gold, which is a major South African export good, as a hedge against inflation. Moreover, assume a floating exchange rate. Using the line drawing tool, show how the market for the rand is impacted by this event. Properly label this line. Carefully follow the instructions above, and only draw the required objects. According to your graph, the rand has with respect to the dollar.
The figure to the right shows the market for South Africa's currency, the rand. Suppose a rise in U.S. inflation causes many U.S. residents to seek to buy gold, which is a major South African export good, as a hedge against inflation. Moreover, assume a floating exchange rate. Using the line drawing tool, show how the market for the rand is impacted by this event. Properly label this line. Carefully follow the instructions above, and only draw the required objects. According to your graph, the rand has with respect to the dollar.Explanation / Answer
If there is increase in demand for African exports, then the demand for African currency rand increases as compared to US currency. The demand for rand shifts rightward. Dollars per rand and quantity of rand both increases. This means people have to give more dollars now to buy one rand.
According to the graph, the rand has appreciated with respect to dollar.
Shift the demand line to the right so that demand becomes 6 billion at the rate of 0.18. Since no information is given about the quantity of demand you may shift the demand curve anywhere to the right side, it may be 7 billion also.
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