Use the foreign exchange market (Philippine pesos in the vertical axis, quantity of US dollars in the horizontal axis, demand curve and supply curve of US dollars) to show the effect of the following on the equilibrium exchange rate (one graph each of i and ii and assume other factors constant): i.) increase in foreign interest rates ii.) increased preference for Philippine products by foreigners.
1. Illustrate through a graph the following and explain each graph:
A. Use the foreign exchange market (Philippine pesos in the vertical axis, quantity of US dollars in the
horizontal axis, demand curve and supply curve of US dollars) to show the effect of the following on
the equilibrium exchange rate (one graph each of i and ii and assume other factors constant):
i.) increase in foreign interest rates
ii.) increased preference for Philippine products by foreigners.
B. Illustrate using the AD-AS model how an increase in the exchange rate or
affect real
C. Use the loanable funds market and illustrate graphically how an increase in net capital outflow will
affect domestic interest rates and investment. Briefly explain your illustration.
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