te 19. For each of the following, indicate whether this would increase the suppl

Question

te 19. For each of the following, indicate whether this would increase the supply (S) or demand (D) for genos and its effect (+/-) on the value of the geno (the official currency of Genovia). Increased Value S/D of geno a. Genovian purchases of imported goods and services b. Genovian investment in foreign companies c. An increase in Genovian exports d. Rising interest rates in Genovia e. Genovian purchases of foreign assets f. The U.S. lowers trading restrictions that had limited imports from Genovia

Explanation / Answer

Case D/S +/- Reason a. Imports S - Imports leads to currency outflow and hence currency supply increases.This leads to decrease in value of Geno b. Overseas investment S - Investment in foreign companies leads to currency outflow and hence currency supply increases.This leads to decrease in value of Geno exports D + When exports are high, there will demand of Geno in the international market as they have to pay their bills to Genovia. Also, currency will appreciate or increase in value due to currency demand. Rising interest rate D + Higher interest rates attaract foreign investment in Genovia and thus demand of Geno increases along with value of Geno Purchase of foreign asset S - Currency outflow leads to increase in supply and decrease in currency value Low trade restrictions D + Both exports and currency value will increase and thus higher demand of Geno

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