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The following report appeared in the New York Times on August 7, 1989: "But now the sentiment is that the economy is heading for a 'soft landing,' with the economy slowing significantly and inflation subsiding, but without a recession. This outlook is good for the dollar for two reasons. A soft landing is not as disruptive as a recession, so the foreign investments that support the dollar are more likely to continue. Also, a soft landing would not force the Federal Reserve to push interest rates sharply lower to stimulate growth. Falling interest rates can put downward pressure on the dollar because they make investment in dollar-denominated securities less attractive to foreigners, prompting the selling of dollars. In addition, the optimism sparked by the expectation of a soft landing can even offset some of the pressure on the dollar from lower interest rates." Using the graph on the right, show how lower interest rates can put downward pressure on the dollar. 1) Using the line drawing tool, show how lower interest rates can put downward pressure on the dollar. Properly label this line. 2) Using the point drawing tool, show the new equilibrium. Label the new equilibrium "B". Carefully follow the instructions above and only draw the required objects. Exchange rate E($/Euro) w Foreign Exchange Market R$ A Expected Euro Return Rates of Return (in dollar terms)

The following report appeared in the New York Times on August 7, 1989: "But now the sentiment is that the economy is heading for a 'soft landing,' with the economy slowing significantly and inflation subsiding, but without a recession. This outlook is good for the dollar for two reasons. A soft landing is not as disruptive as a recession, so the foreign investments that support the dollar are more likely to continue. Also, a soft landing would not force the Federal Reserve to push interest rates sharply lower to stimulate growth. Falling interest rates can put downward pressure on the dollar because they make investment in dollar-denominated securities less attractive to foreigners, prompting the selling of dollars. In addition, the optimism sparked by the expectation of a soft landing can even offset some of the pressure on the dollar from lower interest rates." Using the graph on the right, show how lower interest rates can put downward pressure on the dollar. 1) Using the line drawing tool, show how lower interest rates can put downward pressure on the dollar. Properly label this line. 2) Using the point drawing tool, show the new equilibrium. Label the new equilibrium "B". Carefully follow the instructions above and only draw the required objects. Exchange rate E($/Euro) w Foreign Exchange Market R$ A Expected Euro Return Rates of Return (in dollar terms)

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter29: Exchange Rates And International Capital Flows
Section: Chapter Questions
Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...
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The following report appeared in the New York Times on August 7, 1989: "But now the sentiment is that the economy is heading for a 'soft landing,' with the economy slowing significantly and inflation subsiding, but without a recession. This outlook is good for the dollar for two reasons. A soft landing is not as disruptive as a recession, so the foreign investments that support the dollar are more likely to continue. Also, a soft landing would not force the Federal Reserve to push interest rates sharply lower to stimulate growth. Falling interest rates can put downward pressure on the dollar because they make investment in dollar-denominated securities less attractive to foreigners, prompting the selling of dollars. In addition, the optimism sparked by the expectation of a soft landing can even offset some of the pressure on the dollar from lower interest rates." Using the graph on the right, show how lower interest rates can put downward pressure on the dollar. 1) Using the line drawing tool, show how lower interest rates can put downward pressure on the dollar. Properly label this line. 2) Using the point drawing tool, show the new equilibrium. Label the new equilibrium "B". Carefully follow the instructions above and only draw the required objects. Exchange rate E($/Euro) Foreign Exchange Market 1 R$ Expected Euro Return Rates of Return (in dollar terms) √
Transcribed Image Text:The following report appeared in the New York Times on August 7, 1989: "But now the sentiment is that the economy is heading for a 'soft landing,' with the economy slowing significantly and inflation subsiding, but without a recession. This outlook is good for the dollar for two reasons. A soft landing is not as disruptive as a recession, so the foreign investments that support the dollar are more likely to continue. Also, a soft landing would not force the Federal Reserve to push interest rates sharply lower to stimulate growth. Falling interest rates can put downward pressure on the dollar because they make investment in dollar-denominated securities less attractive to foreigners, prompting the selling of dollars. In addition, the optimism sparked by the expectation of a soft landing can even offset some of the pressure on the dollar from lower interest rates." Using the graph on the right, show how lower interest rates can put downward pressure on the dollar. 1) Using the line drawing tool, show how lower interest rates can put downward pressure on the dollar. Properly label this line. 2) Using the point drawing tool, show the new equilibrium. Label the new equilibrium "B". Carefully follow the instructions above and only draw the required objects. Exchange rate E($/Euro) Foreign Exchange Market 1 R$ Expected Euro Return Rates of Return (in dollar terms) √
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