Suppose the price level in the euro zone rises by 12%, while the price level in Denmark remains the same. That is, the inflation rate in the euro zoneis higher than in Denmark.Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner.(?Supply of KronerDemand for KronerSupply of KronerDemand for KronerQUANTITY OF KRONERSuppose the real interest rates in the euro zone and Denmark are initially the same. Then the real interest rate in Denmark falls, while the realinterest rate in the euro zone remains the same. This will cause the supply of kroner toand the demand for kroner towhich causes the euro torelative to the Danish krone.EUROS PRICE OF KRONER The following questions focus on the exchange rate between the euro and the Danish krone. Assume the exchange rate is flexible. The exchange rateis defined as the number of euros you must pay for one krone.Suppose an economic downturn in Denmark causes Danish incomes to decrease, while European incomes remain unchanged.Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal.Supply of KronerDemand for KronerSupply of KronerDemand for KronerQUANTITY OF KRONERThe decrease in Danish incomes causes the Danish krone torelative to the euro and causes the euro torelative tothe Danish krone.Suppose the price level in the euro zone rises by 12%, while the price level in Denmark remains the same. That is, the inflation rate in the euro zoneis higher than in Denmark.EUROS PRICE OF KRONER

Meaning of Exchange Rate: The term exchange rate refers to the situation under which a particular…

Suppose the price level in the euro zone rises by 12%, while the price level in Denmark remains the same. That is, the inflation rate in the euro zone is higher than in Denmark. Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner. Supply of Kroner Demand for Kroner Supply of Kroner Demang for Kroner QUANTITY OF KRONER Suppose the real interest rates in the euro zone and Denmark are initially the same. Then the real interest rate in Denmark falls, while the real interest rate in the euro zone remains the same. This will cause the supply of kroner to v and the demand for kroner to which causes the euro to v relative to the Danish krone. EUROS PRICE OF KRONER

Suppose the price level in the euro zone rises by 12%, while the price level in Denmark remains the same. That is, the inflation rate in the euro zone is higher than in Denmark. Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner. Supply of Kroner Demand for Kroner Supply of Kroner Demang for Kroner QUANTITY OF KRONER Suppose the real interest rates in the euro zone and Denmark are initially the same. Then the real interest rate in Denmark falls, while the real interest rate in the euro zone remains the same. This will cause the supply of kroner to v and the demand for kroner to which causes the euro to v relative to the Danish krone. EUROS PRICE OF KRONER

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Country Y is experiencing severe and unanticipated inflation. Suppose that Country Y continues to experience high inflation in the long run. Indicate the effect of this inflation on the nominal interest rate in Country Y. If Country Y’s inflation is high relative to that of other countries, explain the effect of this inflation on the international value of Country Y’s currency.
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