Question

1. The following questions concern the supply and demand for Swedish krona. The exchange rate is denoted as Es/kr. For each question state whether the supply of krona, demand for krona or both curves will shift, and in which direction. a. Lingonberries, a Swedish export, are discovered to be a miracle food that slows down the aging process... b. Swedish tax cuts increase Swedish GDP c. The Swedish central bank lowers interest rates d. Volvo (a Swedish company) introduces a new electric car that sells well in the U.S. e. The U.s. raises tariffs on imports of Swedish automobiles. f. International investors become worried about the safety of Swedish bonds because of Japan's high debt to GDP ratio.

Answer 1

Ans1 .)

(A)

As the berries are seen as a miracle food, their import by other countries increases which leads to the increase in the demand for Swedish Krona as the importers would pay to the Swedish producers in the Swedish currency.

The demand curve would shift towards the right.

(B)

As the Swedish GDP has increased, the demand for imports by Swedish people would Increase which would further increase the supply of Swedish Krona as the Swedish people would exchange this currency to the another country's currency in order to purchase goods from another country.

The supply of Swedish Krona would increase and the supply curve would shift rightwards.

(C)
As central Bank lowers the interest rate, this would make the Sweden as an investment destination less attractive to the foreigners and they would pull out their investment from this country.
This would in turn lead to the decrease in the demand for the Swedish Krona and the demand curve shifts towards the left.

(D)
As it is given that the electric vehicle is sold well in the US, for which the US citizens pay to the Swedish company in swedish currency.
This leads to the increase in the demand for Swedish Krona and the demand curve shifts towards the tight