Reference no: EM132405922

Scenario 1

The United States economy is growing at a faster rate than any of its trading partners. As a result, inflation is increasing.

1. 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.)
2. Explain how the changing value of the dollar will affect United States exports and imports. (Make sure you use the concepts of the cost of foreign and domestic goods in your explanation.)

Scenario 2

The Federal Reserve decreases the money supply in the United States causing interest rates to increase.

1. Explain how the change in interest rates will affect United States aggregate demand. (Make sure to include the determinant that causes the change in aggregate demand in your explanation.)
2. Show and explain how the increase in interest rates 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 financial capital in your explanation.)

SHOW GRAPH FOR BOTH SCENARIO