Taxes and Welfare

1
The diagram below shows the supply and demand for
Dollars in Euroland
INTEREST RATE IN US INCREASES
EXCESS DEMAND FOR DOLLARS
Euros Per Dollar
S of Dollars (US Imports)
E2/
E .90/
D for Dollars (US Exports)
Q
Q
QUANTITY OF DOLLARS
2
The diagram below shows the supply and demand for
Dollars in Euroland
INFLATION RATE IN US INCREASES
Euros Per Dollar
S of Dollars (US Imports)
E2/
E1.25/
D for Dollars (US Exports)
Q
Q
QUANTITY OF DOLLARS