Question

appreciate/depreciate

The following questions focus on the exchange rate between the euro and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of euros you must pay for one krone. Suppose an economic downturn in Denmark causes Danish incomes to decrease, while European incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Supply of Kroner Demand for Kroner Supply of Kroner 0r 0. Demand for Kroner QUANTITY OF KRONER The decrease in Danish incomes causes the Danish krone to relative to the euro and causes the euro to relative to the Danish krone.

appreciate/depreciate

increase/decrease

increase/decrease

appreciate/depreciate

Answer 1

The following question focus on the exchanges rate between the euro and the Danish when Danish income falls demand for Danish kroner falls as people now have less money in hand and their demand for goods and services falls. The Decrease in Danish income causes the Danish to appreciate relative to the euro and causes the euro to depreciate relative to the Danish krone. Suppose the real interest rates in the euro zone and Denmark are initially the same. Then the real interest rate in Denmark falls while the real interest rate in the euro zone remains the same. \r\n increase in the price of Denmark decreases the demand of krone in the market as a result, demand curve of krone shifts leftwards this will cause the supply kroner to decreases and the demand for kroner to increases which causes the euro to depreciate relative to the Danish krone. 1. Supply of kroner decreases 2. Demand of kroner to increase due