Chapter 8R, Problem 2FRQ

a)

To determine

The graph of the foreign exchange market that shows the effect on the value of the Yan dollar or YD.

Explanation of Solution

The graph of the foreign exchange market that shows the effect on the value of YD would be shown as:

  

In this graph, the foreign exchange of YD is shown on the vertical axis, and the number of dollars on the horizontal axis which means the difference between the interest rates in countries affects the value of the currency. Moreover, the value of a currency is influenced by demand for it rather than supply. A currency's value rises in direct proportion to the level of demand. On the other hand, as a currency's demand declines, its value declines.

Economics Concept Introduction

Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.

b)

To determine

The years that India would take to double its GDP per capita.

Explanation of Solution

When the total value of goods and services that a nation purchases (imports) exceeds the whole value of goods and services that the nation exports, creating a current account deficit.

Moreover, if the deficit reflects an excess of imports over exports, it may be a sign of problems with competitiveness. In this case, country Y’s current account deficit also signifies an excess of investment over savings, which might be pointing to a highly productive, expanding economy. Therefore, it equally points out the growth of the economy which means the current account deficit is unchanged.

Economics Concept Introduction

Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.