Lab
Draw the Foreign Exchange Market
Each graph is the market for one currency. Its vertical axis is the price of one unit of that currency in the other currency (dollars per euro on the market for euros), and its horizontal axis is the quantity of that currency. Label both, name the demand and supply of the currency, move the curve the situation pushes, and drag the round point to the new equilibrium, e2 and Q2.
Challenges
- Before you check each graph, say whether the currency appreciates or depreciates.
- For a two-market situation, explain why the curve that moves in the second market is not the one that moved in the first.
- Find two situations where either curve may move. Why does each show the same change in the currency's value?