Figure 15.10 Alt text for Figure 15.10: In figure 15.10, a graph illustrates the quantity of yuan traded against the exchange rate.
Long description for Figure 15.10: 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 15.10.Suppose the Chinese government decides to abandon pegging the yuan to the Canadian dollar at a rate that overvalues the yuan.Using the figure above, the equilibrium exchange rate would be ________, and Chinese exports to Canada would ________ in price.

Question

Figure 15.10  Alt text for Figure 15.10: In figure 15.10, a graph illustrates the quantity of yuan traded against the exchange rate.
Long description for Figure 15.10: 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 15.10.Suppose the Chinese government decides to abandon pegging the yuan to the Canadian dollar at a rate that overvalues the yuan.Using the figure above, the equilibrium exchange rate would be ________, and Chinese exports to Canada would ________ in price.

Quizplus · Accepted Answer

If the Chinese government abandons the pegging of the yuan to the Canadian dollar, the exchange rate will move to the equilibrium point where the supply and demand curves intersect. According to the graph, the equilibrium exchange rate is at point A, which is $0.13/yuan. At this exchange rate, Chinese exports to Canada would decrease in price, as the quantity of yuan traded increases. Therefore, the correct answer is D) $0.13/yuan; decrease.

Figure 1510 Alt Text for Figure 15