Question

please do E AND F ONLY.

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

Answer 1

(e)

Higher tariff on imports from Sweden will decrease US import demand, which will decrease demand for Krona. Demand curve for Krona will shift leftward, decreasing exchange rate and depreciating Krona.

(f)

Global concern about safety of Swedish bonds will decrease foreign investment in Sweden, decreasing demand for Krona. Demand curve for Krona will shift leftward, decreasing exchange rate. At the same time, supply for Krona will increase (since Swedish investors will invest in other countries and will buy foreign exchange by selling Krona), shifting its supply curve rightward, decreasing exchange rate. Net effect is a definite decrease in exchange rate, depreciating Krona.