1. in foreign exchange markets an increase in the demand for foreign exchange, say
marks (dm), is also an increase in the supply of dollars. use the market for s.
supply and market for dm-supply diagrams to explain what would happen to the
equilibrium exchange rate (currently $1 = dm3; dm1 $.33 with 100 dollars being
exchanged for 300 marks) if the u. s. demand for marks increased as shown in the
market for dm diagram. draw in whatever new curves you need in the market for $
diagram, and answer these questions:
a. the new equilibrium exchange rate is $1 = dm (dm1 = $
b. at this exchange rate dollars will be exchanged for __ marks.
2. at the new exchange rate, with other things constant:
a. is the price of u. s. exports to germany likely to increase or decrease?
_ why? explain.
b. is the price of u. s. imports from germany likely to increase or decrease?
why? explain.
c. will u. s. workers become cheaper or more expensive for german manufac-
turers to hire?
_why? explain.
d. will german workers become cheaper or more expensive for u. s. manufac-
turers to hire?
why? explain.
market for s-supply
(german exchange rate)
market for dm-supply
(u. s. exchange rate)
price
dm/s
price
s/dm
.60
.50
.400
33-305
.20
100
200
300
quantity of 5
100 200 300 400 500 600
quantity of dm