Figure 15.5 Alt text for Figure 15.5: In figure 15.5, a graph illustrates the quantity of yuan traded against the exchange rate.
Long description for Figure 15.5: The x-axis is labelled, quantity of yuan traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the yuan.Supply curve S, is a straight line which slopes up from the bottom left corner to the top right corner.Demand curve D, is a straight line which slopes down from the top left corner to the bottom right corner.The curves intersect at point A, (600, 0.13).Point A, and unmarked points (800, 0.11), (500, $0.14), (700, $0.14), and (400, 0.11)are all connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.5.Suppose the Chinese government decides to abandon pegging the yuan to the U.S.dollar at a rate which undervalues the yuan.Using the figure above, the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Question

Figure 15.5  Alt text for Figure 15.5: In figure 15.5, a graph illustrates the quantity of yuan traded against the exchange rate.
Long description for Figure 15.5: The x-axis is labelled, quantity of yuan traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the yuan.Supply curve S, is a straight line which slopes up from the bottom left corner to the top right corner.Demand curve D, is a straight line which slopes down from the top left corner to the bottom right corner.The curves intersect at point A, (600, 0.13).Point A, and unmarked points (800, 0.11), (500, $0.14), (700, $0.14), and (400, 0.11)are all connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.5.Suppose the Chinese government decides to abandon pegging the yuan to the U.S.dollar at a rate which undervalues the yuan.Using the figure above, the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Quizplus · Accepted Answer

Abandoning the pegging of yuan to the U.S. dollar at a rate which undervalues the yuan means that the exchange rate for yuan will increase. The equilibrium exchange rate from the graph is $0.13/yuan at point A. Therefore, the answer is D. With the increase in exchange rate, Chinese exports to the United States will become relatively more expensive, resulting in a decrease in price.

Figure 155 Alt Text for Figure 15