On the previous graph, use the purple line (diamond symbol) to show how the stabilization fund managers have to adjust the value of the Russian ruble to ensure it meets the official requirement. (Hint: You need to draw either a new supply curve or a new demand curve. Make sure the new curve is parallel to the given supply or demand curve. Position your cursor over the given curves to see their slopes.)The managers will effectively million rubles. The market for foreign exchange10らへNew Exchange Rate8ActionCeilingFloorD.40608010020QUANTITY (Millions of rubles)According to the graph, which of the following correctly describes the effect of the increase in the supply of rubles on the market for foreign exchangein Russia?The Russian ruble depreciates, and the exchange rate falls below the floor value.The Russian ruble appreciates, and the exchange rate rises to the ceiling value.The Russian ruble appreciates, and the exchange rate rises above the ceiling value.The Russian ruble depreciates, and the exchange rate falls to the floor value.EXCHANGE RATE 3. The currency stabilization fundSuppose the Russian government recognizes that its reliance on oil exports makes it vulnerable to the Dutch Disease. On the one hand, if oil pricesincrease, the Russian ruble will appreciate, the real exchange rate will increase, and the nation's exports will become more expensive for othercountries to buy. On the other hand, if oil prices fall, the Russian ruble will depreciate, and the country's revenues will decline. The Russiangovernment creates a currency stabilization fund to maintain a stable exchange rate to avoid a negative outcome. To stabilize the value of a currencywithin a certain range, the stabilization fund managers take one of the following actions:• If the ruble depreciates below some threshold value (a floor) per ruble, the fund managers will purchase the excess supply of rublesin the international exchange market to increase the value of the ruble to at least the floor value.• If the ruble appreciates above some threshold value (a ceiling) per ruble, the fund managers will sell the excess supply of rubles tolower its value to at least the ceiling value.Consider the following scenario:Russia establishes a currency stabilization fund to keep the exchange rate between €3 per Russian ruble and €5 per Russian ruble.Initially, the market exchange rate is within the allowed range at €4 per Russian ruble, as shown by the intersection of the demand (D1) and supply (S1) curves for the Russian ruble on the following graph. Suppose that higher oil prices generated higher income forpeople in Russia, which increased demand for foreign-made goods, in particular for the goods made in Europe. As a result, the supply ofrubles in the market for foreign exchange increased from Si to S2 .

Question

On the previous graph, use the purple line (diamond symbol) to show how the stabilization fund managers have to adjust the value of the Russian ruble to ensure it meets the official requirement. (Hint: You need to draw either a new supply curve or a new demand curve. Make sure the new curve is parallel to the given supply or demand curve. Position your cursor over the given curves to see their slopes.)The managers will effectively      million rubles. The market for foreign exchange10らへNew Exchange Rate8ActionCeilingFloorD.40608010020QUANTITY (Millions of rubles)According to the graph, which of the following correctly describes the effect of the increase in the supply of rubles on the market for foreign exchangein Russia?The Russian ruble depreciates, and the exchange rate falls below the floor value.The Russian ruble appreciates, and the exchange rate rises to the ceiling value.The Russian ruble appreciates, and the exchange rate rises above the ceiling value.The Russian ruble depreciates, and the exchange rate falls to the floor value.EXCHANGE RATE 3. The currency stabilization fundSuppose the Russian government recognizes that its reliance on oil exports makes it vulnerable to the Dutch Disease. On the one hand, if oil pricesincrease, the Russian ruble will appreciate, the real exchange rate will increase, and the nation's exports will become more expensive for othercountries to buy. On the other hand, if oil prices fall, the Russian ruble will depreciate, and the country's revenues will decline. The Russiangovernment creates a currency stabilization fund to maintain a stable exchange rate to avoid a negative outcome. To stabilize the value of a currencywithin a certain range, the stabilization fund managers take one of the following actions:• If the ruble depreciates below some threshold value (a floor) per ruble, the fund managers will purchase the excess supply of rublesin the international exchange market to increase the value of the ruble to at least the floor value.• If the ruble appreciates above some threshold value (a ceiling) per ruble, the fund managers will sell the excess supply of rubles tolower its value to at least the ceiling value.Consider the following scenario:Russia establishes a currency stabilization fund to keep the exchange rate between €3 per Russian ruble and €5 per Russian ruble.Initially, the market exchange rate is within the allowed range at €4 per Russian ruble, as shown by the intersection of the demand (D1) and supply (S1) curves for the Russian ruble on the following graph. Suppose that higher oil prices generated higher income forpeople in Russia, which increased demand for foreign-made goods, in particular for the goods made in Europe. As a result, the supply ofrubles in the market for foreign exchange increased from Si to S2 .

Accepted Answer

Action is shown by line S3 and the new exchange rate is determined by point B.