Question

Is anyone here good at macroeconomics?

Show and explain how the increase in inflation will affect the international value of the United States dollar and the foreign dollar. (Make sure you use the concepts of supply and demand and the cost of domestic goods in your explanation.) if so can you just help me graph this?

So I need to create two separate graphs.. one for U.S. dollars and the other for the other currency. I believe the horizontal line is supposed to be quantity... and the vertical line is maybe interest rates? im not even sure. If anyone is good at this kind of stuff can you please help me out?

Answer 1

First off, do you have a good graphing program to make these graphs?

Answer 2

inflation is a sustained increase in the general price level of goods and services in an economy over a period of time

Answer 3

Thus the dollar and the foreign currency will decrease in value cuz you can buy less as the price for goods increases.

Answer 4

No I was just going to draw it.
So how would the graph look?
am I right about the horizontal and vertical?

Answer 5

However, I am not certain what data you would use to represent that

Answer 6

I believe that is correct. Though the graphing program is made for kids, it works perfectly: https://nces.ed.gov/nceskids/createagraph/

Answer 7

The goods in the domestic market become more expensive because of inflation. This will increase the prices of domestic products and corresponding demand for U.S. products will fall. This will cause the dollar to depreciate, and the demand for the foreign goods will increase and the foreign currency will appreciate.

Answer 8

Here is a website to further inform you:
https://www.investopedia.com/ask/answers/022415/how-does-inflation-affect-exchange-rate-between-two-nations.asp

Answer 9

okay so you are saying demand will increase... this means supply will decrease correct?

Answer 10

Yes demand will increase for the foreign currency. Theoretically yes.

Answer 11

not currency products

Answer 12

okay this is a terrible drawing but im just going to draw the graphs myself instead of using a program. But would it look like this?

Answer 13

And yeah thats supposed to be a D for demand

Answer 14

I would get a second opinion, but roughly the graph would look like that.

Answer 15

okay and i just forgot but it has to be two graphs one for US and the other for the other country. Is this US or the other country? im not sure.

Answer 16

For the foreign goods, demand increases, so the currency will increase. I would set up a graph to represent this. Because Inflation is raising the price of the US dollar the demand will decrease because people are more willing to buy foreign goods. So one graph for the US would show a decrease in demand for local goods as interest rates rise. One graph for the foreign currency would show an increase because people are buying more foreign goods so the currency will inflate because more people are buying.

Answer 17

Okay so the graph I came up with would work for foreign currency or no?

and with US would I still include supply? just switch supply and demand?

Answer 18

Yes I would think. Just switch supply and demand. What do you think? I am fairly good at microeconomics but I am by no means an expert.

Answer 19

I think thats correct... im not that great at it but you seem very informed about this unlike me.

Answer 20

ill prob end up sending my graphs to my teacher before i submit but thank you for your help!

Answer 21

Your welcome. Refer to that website I sent you it has a lot of good info.

Answer 22

okay i will! thanks