Recent talks in Washington are leaning toward free trade restrictions against China. The argument behind such a move is in response to the Chinese currency, the Yuan, being held below its equilibrium value (price ceiling anyone?) Consider the argument for trade restrictions from our point of view, supply and demand. If there is a restriction in the demand for Chinese goods, less Chinese currency will be demanded (compliments - you can't buy Chinese goods without "Chinese dollars"). What do you forecast will happen to the price of the Yuan, aka the exchange rate, when demand decreases? Could you show this using a supply and demand graph? In what way will trade restrictions affect other currency prices?
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