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Question: the graph below shows demand and supply curves for us...

Question details

The graph below shows demand and supply curves for U.S. dollars in the foreign exchange market.  As you can see, the exchange rate (in terms of foreign currency units per dollar) is initially equal to E0.

Foreign Exchange Market Exchange rate (foreign currency units per dollar) supply of dollars in the foreign exchange market Eo 0 demand for dollars in the foreign exchange market quantity of dollars in the foreign exchange market

Suppose that next year there’s a huge increase in the number of foreigners – from Europe, China, and everywhere else – who decide to visit the U.S. as tourists.  

  • How would this huge increase in tourism in the U.S. affect the exchange rate?  To answer this, draw a new demand or supply curve on the graph, mark the new market equilibrium, and mark the new exchange rate on your graph.  Be sure to mark your answers clearly and completely.  Briefly explain your answer.     
  • Would these changes tend to make the dollar stronger (that is, appreciate), or would they make the dollar weaker (depreciate)?  Check one:

othese changes would make the dollar stronger(appreciate)

othese changes would make the dollar weaker (depreciate)

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