Suppose that the demand for Chinese cellphones from the U.S. increases, but China's net capital outflow...

 

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Suppose that the demand for Chinese cellphones from the U.S. increases, but China's net capital outflow doesn't change. Answer this question using the open economy model from the Chinese perspective. a) What happens to the demand for RMB in the foreign currency exchange market? (6 marks) b) What happens to the real exchange rate of RMB in the foreign- currency exchange market? Show your answer using a figure. (12 marks) c) What happens to Chinese net exports? Why? (6 marks) d) If Chinese are selling more cellphones, what must be true about Chinese imports and exports of other items? (6 marks) Keeping in mind your answers to (a) through (c), do you think China runs an overall trade surplus with the rest of the world because its cellphones are better made or because of its national saving and domestic investment? Explain. (6 marks) Suppose that the demand for Chinese cellphones from the U.S. increases, but China's net capital outflow doesn't change. Answer this question using the open economy model from the Chinese perspective. a) What happens to the demand for RMB in the foreign currency exchange market? (6 marks) b) What happens to the real exchange rate of RMB in the foreign- currency exchange market? Show your answer using a figure. (12 marks) c) What happens to Chinese net exports? Why? (6 marks) d) If Chinese are selling more cellphones, what must be true about Chinese imports and exports of other items? (6 marks) Keeping in mind your answers to (a) through (c), do you think China runs an overall trade surplus with the rest of the world because its cellphones are better made or because of its national saving and domestic investment? Explain. (6 marks)

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Answer a The demand for RMB in the foreign currency exchange market will increase as people in the US buy more Chinese cellphones b The real exchange ... View the full answer