Using the data below, we are now going to use our supply/demand framework for US $ to model the movement inthe euro per $ exchange ratebetween December 2007 (the very beginning of the Great Recession) and November 2008 (pretty much the height of the global financial crisis). Note that the data is given in $ per euro and then converted intoeuro per dollar. For example, $ 1.2 per euro is converted by 1/1.2 = .833 meaning that $1 = .83 euro (this is the vertical axis on your graph, i.e., euro per $).

HAND DRAWa supply and demand diagram labeling the vertical axis as euro per $, the horizontal axis with Quantity of dollars, the initial supply and demand curves labeled with 12/07, Label this initial intersection point as point A. Explain what happened to each curve and WHY between 12/07 and 11/08. Label as point B with supply and demand curves labeled accordingly(Hint: the two obvious facts during this period is that the 1) US was in a deep recession and 2) we were at the height of the (global) financial crisis (in 11/08). Assume all else is constant.

Data:

12/1/2007 the dollar per euro exchange rate is $1.45, so the euro per dollar exchange rate is 1/1.45 = .69 euros per dollar.

11/1/2008 the dollar per euro exchange rate is $1.27, so the euro per dollar exchange rate is 1/1.27=.79 euros per dollar.