Analyze the graphs below and answer the question that follows. Left, a bar graph titled Mexican Pesos per U S Dollar in 2008. The x-axis is labeled July, September, and November. The y-axis is labeled M X N 8 to M X N 14. July and September are over M X N 10. November is over M X N 12. Right, a bar graph titled British Pounds per U S Dollar in 2008. The x-axis is labeled July, September, and November. The y-axis is labeled 0.50 pounds to 0.70 pounds. July is near 0.50 pounds. September is 0.55 pounds. November is 0.65 pounds.

Data courtesy of RateX

The graphs above show the exchange rates between the US dollar and two other currencies in 2008. During the months shown, the number of Mexican pesos (MXN) in relation to one dollar rose from 10.2 to 13.1. The number of British pounds (£) in relation to one dollar also rose from .51 to .65.

Based on the graphs, did the value of the US dollar increase or decrease during these months?

The role of the exchange rate in financial crises has been well emphasised in the

literature.3 Past EM crises were typically preceded by large currency mismatches and

overvalued exchange rates, underlining the critical importance of the exchange rate

in the private sector’s decision to borrow in foreign currency. Another aspect of the

exchange rate regime is its interaction with financial development: while a flexible

exchange rate helps the development of hedging and local currency debt markets,

the degree of market development also influences the choice of exchange rate

flexibility.

Explanation: The Deputy Governors broadly agreed that increased exchange rate flexibility

can help to reduce currency mismatches, particularly the extent of foreign currency

borrowing. It was suggested that wrong incentives can be created by too stable an

exchange rate and, in some cases, by FX intervention. Claro and Soto in this volume

provide two main reasons for this observation: first, intervention to restrict

exchange rate flexibility can give a false sense of security for the private sector

regarding financial risks. Second, lower exchange rate volatility leads to higher

speculation about the future value of the currency, encouraging investors to exploit

the interest rate differential more aggressively (the so called “carry trade”). Both

factors create risks for the financial system.

there is often only a small difference between what is legal and what is ethical when working with competitive intelligence..

levels of production can be increased by technology while holding labor and capital constant, because increased technology makes the production process more efficient. subsequently, the lras curve is almost a vertical line, that can shift to the right, with an increase in technology.

the relationship between the lras curve and the ppc is that both can make the economy could grow. the ppc achieves that when it shifts outward because of more resources or technological advances while the lras curve shifts if more resources are developed or if there are technological advances.

the lras curve is a vertical line at an output level that represents the number of goods and services a nation can produce over a sustained period using all of its productive resources as efficiently as possible with all of the current technology available to it.

the production possibilities frontier (ppf) is a graphical device that is used for economic analysis of production decisions because the ppf measures the maximum possible combinations of two goods that an economy is capable of producing with its currently available resources and technology.