4. How a foreign exchange intervention by the Treasury affects the monetary base

Suppose that the Treasury Department wants the U.S. dollar to depreciate against the yen.

The Treasury will order the Federal Reserve Bank of New York to dollars and yen through the foreign exchange department of American commercial banks.

The following graph shows the market for foreign exchange, where the supply curve depicts the supply of the U.S., dollar and the demand curve depicts the demand for the U.S. dollar.

Adjust the following graph to illustrate the actions by the Federal Reserve Bank of New York.

Demand for U.S. Dollars

Supply of U.S. Dollars

U.S. DOLLARS YEN

QUANTITY OF U.S. DOLLARS

O Supply of U.S. Dollars Demand for U.S. Dollars 0 Supply of U.S. Dollars U.S. DOLLARS YEN Demand for U.S. Dollars QUANTITY OF U.S. DOLLARS