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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.

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.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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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 exchange 10 らへ New Exchange Rate 8 Action Ceiling Floor D. 40 60 80 100 20 QUANTITY (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 exchange in 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
Transcribed Image Text:The market for foreign exchange 10 らへ New Exchange Rate 8 Action Ceiling Floor D. 40 60 80 100 20 QUANTITY (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 exchange in 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 fund Suppose the Russian government recognizes that its reliance on oil exports makes it vulnerable to the Dutch Disease. On the one hand, if oil prices increase, the Russian ruble will appreciate, the real exchange rate will increase, and the nation's exports will become more expensive for other countries to buy. On the other hand, if oil prices fall, the Russian ruble will depreciate, and the country's revenues will decline. The Russian government creates a currency stabilization fund to maintain a stable exchange rate to avoid a negative outcome. To stabilize the value of a currency within 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 rubles in 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 to lower 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 for people in Russia, which increased demand for foreign-made goods, in particular for the goods made in Europe. As a result, the supply of rubles in the market for foreign exchange increased from Si to S2 .
Transcribed Image Text:3. The currency stabilization fund Suppose the Russian government recognizes that its reliance on oil exports makes it vulnerable to the Dutch Disease. On the one hand, if oil prices increase, the Russian ruble will appreciate, the real exchange rate will increase, and the nation's exports will become more expensive for other countries to buy. On the other hand, if oil prices fall, the Russian ruble will depreciate, and the country's revenues will decline. The Russian government creates a currency stabilization fund to maintain a stable exchange rate to avoid a negative outcome. To stabilize the value of a currency within 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 rubles in 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 to lower 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 for people in Russia, which increased demand for foreign-made goods, in particular for the goods made in Europe. As a result, the supply of rubles in the market for foreign exchange increased from Si to S2 .
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